Emerging hedge funds risk getting lost in the melee as large investment banks streamline their service offerings. Banks are tightening their fees and raising restrictions on clients which is leading to smaller and start-up hedge funds being left in the lurch.
In response to this quandary, the market is seeing a shift towards firms leveraging the services of specialist third party administrators who enable emerging hedge funds to cost-effectively scale their back-office functions while maintaining operational agility.
“We are seeing the emergence of an increasingly underserved sector of the market; start-up entities or those with assets of less than EUR150 million to EUR200 million. These firms often don’t meet the required criteria for incumbent institutions, meaning they face significant limitations in terms of the service providers they can use,” explains Andrew Fundell, Chief Commercial Officer at GC Partners.
Driven by client demand, the firm began to offer outsourced administration services in 2013 for firms looking to streamline their operations functions.
“By working with a specialist third party administrator (TPA), firms gain access to efficiencies of scale which are often out of reach for smaller fund houses. We differentiate ourselves by leveraging architecture that scales efficiently and focusing on agility in process design and implementation, unlike industry incumbents whose legacy infrastructure often results in prolonged onboarding, complex integrations and significant costs”.
“We appreciate the challenges that new funds face and by leveraging our modular suite of services we can deliver tailormade solutions, often drastically reducing time to market. Specialist TPA’s have evolved to alleviate the administrative burden placed on hedge fund managers allowing them to focus on core activities”, Fundell outlines.
An important element in the provision of such services is access to existing integrations with service providers which firms traditionally have to engage directly. Specialist TPA’s such as GC Partners work closely with a broad range of market participants giving firms a single point of contact. An example of this is in the demonstration of best execution, a TPA allows access to multiple liquidity providers via a single platform solution negating the need for multiple individual providers.
Fundell believes start-up hedge funds will continue to be one of the firm’s main growth drivers: “Over 50% of the clients within GCS are start-up funds and we plan to continue expanding our service offering by driving innovation in this space.”
“The way the market is developing it is clear that the incumbent institutions are not going to be opening their arms to smaller funds. Therefore, specialist firms like us across all areas of investment services are becoming increasingly important.”