Hedge Fund Administrators: An examination of their critical functions in hedge fund management and administration.
As Hedge fund’s popularity continues to grow, hedge fund companies continue to rely on the role of hedge fund administrators whose work is very critical to the success of their operations. The hedge fund industry has been experiencing exponential growth in the number of new vehicles as well as the overall managed assets. Few years ago the numbers of existing hedge funds were quite small, but an accelerated growth for hedge funds began during the technology crash and the resulting bear market engulfing the global stock market exchanges.
About two decades ago there were fewer that 2,000 global hedge fund companies, managing about US$200 billion in investor assets. In 2004, there are over 7,500 hedge fund companies, managing over US$800 billion of investor assets. Today in 2007, hedge fund total managed assets are in the range of $1.5 trillion
In the next five years, conservative estimates for global hedge fund managed assets project the number could top US$2 trillion. Such significant growth in hedge fund’s managed assets would require equally significant increases in the numbers of hedge fund administrators to handle the huge administrative functions resulting from such growth.
Very often the role of hedge fund administrators are overshadowed by hedge fund managers, who’s trading experiences and yearly returns often seem to dominate the headlines. But behind the successes of hedge fund managers are hedge fund administrators whose professional functions have become indispensable for successful hedge fund companies. Choosing a well-qualified and competent hedge fund administrator is critical task for hedge fund firms.
The hedge fund administrator provides critical accounting protocol for hedge fund companies, such work are often described as “Back Office” protocol which generally includes secretarial functions, preparation of financial statements, investment accounting details, domicile related issues, shareholder matters, portfolio valuations, investment research and other matters. The work of Administrators is similar to the duties of company executives such as Chief Executive Officer, or that of the Chief Financial Officer. Hedge Fund Administrators are basically the bridge between hedge fund management companies and the general investors in the fund.
Today there is large interest in Hedge fund of funds, these are hedge funds investing in other hedge funds, a good hedge fund administrator would help its company to demystify complex bureaucratic red tape by simplifying tasks and issues which demand excessive time to handle. This function is critical to freeing up the hedge fund managers time to be fully dedicated to fund trading activities and necessary research needed for successful trading. The work of an administrator would undoubtedly save hedge fund companies valuable time needed to perform other beneficial tasks.
As the number of actors participating in the hedge fund arena continues to grow, so would the need of hedge fund administrators. Today increasing numbers of Pension plans, Endowment funds, and other institutional investors, are dedicating increasing percentages of their overall management portfolios to hedge fund managers. Such new management assets need skilled hedge fund administrators to handle some of the discussed administrative functions.
During the pre-launch phases, fund administrators can and do provide set-up details, and in some complex situations involving multi-currency and multi-strategy issues, hedge fund administrator’s special skills come handy. There are other pre- launch setup protocols involving complex master-feeder situations, requiring special skills to fully implement. Hedge fund administrators can provide such needed skills in such situations.
An administrator can also provide accounting tasks such as calculations of the Net Asset Values [NAV], helping to set the company’s books in order. Such calculations take significant time to reconcile, and if fund managers are doing such work, they have very little time to concentrate on the critical work of trading and researching.
Some hedge fund managers shift exposures regularly, hedge fund administrators complete the recordings and transactions in timely manner. Hedge fund administrators can also compliment the work of the fund manager and the fund itself in the realm of Custodial matters. But not all fund administrators can handle such details, suffices to say that those that do such work would be among the most sought after group of fund administrators.
Should your fund require a traditional single hedge fund administrator or full service investment brokers is a decision that hedge fund companies should weigh very carefully, several factors such as the level of assets managed, and complexities of investments and strategies applied should impact such decision. Often a vital aspect of making such choice would involve face-to face meetings, where fund operators can seek answers to their questions.
Paul Oranika
Editor-in-Chief
Hedgefundexchange.net
