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The New Independent Fund Administrator
Changes in the hedge fund sector and in the financial services industry in general, are requiring fund administrators to return to a more credible and core values business model.
Mark Hedderman, CEO of Custom House Global Fund Services, addresses in this Viewpoint the recent transition of his firm back to a fully independent ownership model, a unique and counter-intuitive move to the consolidation trend among fund administrators and other service providers to the industry.
- What has been going on in the industry and how Custom House is meeting a critical market demand?
- Why the independent model is a breakout and a differentiator?
- What that model needs to look like.
MH: The world in general is talking about a back-to-basics model, a return to core- values. We had long been of the same view with respect to our administration business and began to apply the same principals in preparation to becoming independent again. The origin of the administration business was always to be an independent entity servicing the needs of the investor, completely free from conflict in any other aspect of the investment process. That was the genesis of fund administration. It was also the genesis of Custom House. Over the last 15 years, as we experienced waves of boom and bust markets, that model became diluted.
People rushed to get into administration and now what we’re seeing are people rushing to get out of it, as the complexities associated with doing it correctly became too much. The “return to core values” can be better described as a return to doing what you’re supposed to do, as opposed to doing what you shouldn’t do. The business has become lost in the proliferation of consolidated service providers under various different private and public ownership models, all seeking what they thought was an accelerated path to the investor and to revenue. We think this idea needs to be flipped on its head. Because the administration market has become so comple and so difficult, it has become evident that fund administation needs to be a standalone business, instead of wr business instead of wrapped inside or bundled with other service offerings. This was the set-up of the original model for fund administration.
We reviewed the original model and believe the best way to service this industry and the individual or the investor is from an independent perspective. The return of Custom House to being independently-owned and focusing only on the administration part of the business, without any other conflict, has allowed us to recalibrate our entire corporate strategy with this in mind.
In our relaunch, we are positioning ourselves as a service-led business and being independent allows us to stay loyal to that core value. We don’t wish to talk about price, we wish to talk about service – how can we deliver value to the investors and the managers and, ultimately, to the fund itself. Our structure and processes allows us to deliver that value, and in a way that is in the best interest of the investor. We believe in a close relationship with our client so that we can become partners with them.
Custom House has a rich, 25-year history and we today we are a young but experienced and energetic management team who steered the business through some difficult times. Despite all this we managed to preserve our identity and now return to the firm’s original independent state. We believe that the market will recognize this model as part of the wider trend across the industry of a return to core values.
We are looking to service the discerning manager who says “what’s ultimately important is the investor” – and typically this type of manager is closer to the investor and understands the investors needs – and wants an administration business model that puts the need of the investor first. When you choose Custom House, you can be assured your investors will always have someone to talk to and their emails will always be answered. We make sure we can translate their documents to their native language and that we are accessible 24 hours per day.
The importance of the role of fund administration has never been so critical and yet so overlooked. Fund administrators play a vital role in investor communications, whether confirming subscription and redemptions, communicating the value of their investment, and timely issuing of audit reports. These functions can some time be taken for granted but they represent the connection of the investor to their investment.
With over 25-years of experience in the fund administration space, we are offering an alternative to the status quo in the industry by educating our clients about events outside of administration, like regulation and how this may impact them. Although this is a new, independent fund administration model that combines a state-of-the-art platform that can move in sync with today’s rapidly changing and complex markets, it is a return to the old core values of fund administration that looked out for the best interest of investors.
by Mark Hedderman, CEO