Administrators Overview

   Hedge fund administration isn’t sexy. Administrators perform the basic but necessary behind-the-scenes services a hedge fund must have to operate. They are responsible for fund accounting, net-asset-value calculations and fund transfers, as well as risk analysis and investor relations. Administrators serve both the hedge fund and its investors, acting as an important liaison between the two and a window into fund activities. In an environment that demands increasing transparency and accountability, the role of the administrator is critical.

   “We are the crossroads,” says Cory Thackeray, managing director and head of Goldman, Sachs & Co.’s adminis-trative services group.

   Goldman wins the Alpha Award™ for top overall fund administrator. The firm, which improves upon its second-place finish a year ago, receives praise from clients for customer service, as well as for the timeliness and accuracy of its NAV calculations. Last year’s winner, International Fund Services, drops to No. 4 behind Admiral Administration and Morgan Stanley, both of which are making their debut as Alpha Award finalists.

   Goldman takes top honors by a sizable margin. The firm wins three of the four administration scoring categories — client service, fund accounting and transfer agency — narrowly losing to Admiral in middle-office services. (We did not include the score for fund-of-hedge-fund services in calculating the overall winner because not all firms provide them.)

   Although second-ranked Admiral is smaller than many of its competitors, the firm is one of the biggest independent operators in the Cayman Islands. Admiral has $25 billion in assets under administration; Goldman has $138 billion. Clients say that by keeping its asset base small, Admiral is able to provide more customized, better service.

   Many of the biggest hedge fund administrators don’t fare well in this year’s ranking. Citco Fund Services, the industry leader with more than $375 billion in assets under administration, falls to No. 7 from No. 3. Bisys Alternative Investment Services ($200 billion) and Fortis Prime Fund Solutions ($215 billion) finish No. 8 and No. 10, respectively. HSBC Alternative Fund Services, second only to Citco with $248 billion in assets under administration, doesn’t even rank in the top ten.

   As with their other service providers, hedge funds typically place a high premium on the level of customer care they receive from administrators. Often, the bigger administrators are criticized for being impersonal and not meeting expectations; many clients prefer their boutique rivals.

   The success of Goldman and Morgan Stanley in this year’s ranking demonstrates the growth in popularity of administrators owned by investment banks. Their firms have the deep pockets to provide the type of high-touch customer care that hedge funds want. They also have the name recognition and experience valuing complex securities that hedge fund investors like to see. Stephan Vermut, founder of San Francisco–based boutique prime broker Merlin Securities, believes that more and more banks will acquire or build out administrative platforms as they separate these services from the prime brokerage side of the business.

   “Prime brokers are becoming brokers again,” he says. “They will custody assets; they will transact and finance. Anything else the client wants, they are going to say, ‘Go see your administrator.’”