The growing scale and complexity of the third party offshore fund administration sector and the emergence of new centres and talent is increasingly evident in our annual survey of service providers, writes Kris Devasabai

Download the full survey

The ICFA offshore third party fund administration survey 2008 underscores the steady growth of the offshore funds business - despite recent market turmoil and the marked hostility of onshore authorities, many of whom have stepped up drives to protect tax revenues in recent months.

The 38 companies featured in the survey this year administer around $6trn in offshore assets on behalf of their clients.

The exclusive club of administrators handling in excess of $500bn in offshore assets under administration this year includes Citco and UBS alongside the ‘big four' global custodians, Citi, State Street, JPMorgan and BNY Mellon.

The survey also reveals that an increasing number of third party administrators have built up offshore assets under administration of over $100bn. The list includes HSBC, CACEIS, Société Générale, Bank of Ireland, Northern Trust, PFPC International, Mourant, SEI Investments and Brown Brothers Harriman.

These institutions, along with GlobeOp Financial Services, which claims $97bn in assets under administration, can rightfully claim to be the ‘top tier' players in the offshore fund administration business.

Although not every company surveyed this year was able to disclose a detailed breakdown of their assets under administration by fund type, the information provided did confirm the steady growth of the alternative funds business in the offshore markets.

Chris Wilcockson, head of HSBC Alternative Fund Services in Europe, says the alternative funds sector has performed well over the past 12 months.

"Funds of hedge funds in particular have performed very well and the established managers have continued to add assets at an impressive rate.

"The single manager hedge fund business has seen a slowdown in terms of new fund launches, which have been hit by market uncertainty," he adds.

"But that has been balanced by the growth of private equity and real estate funds, which continue to build momentum, and the growing interest in hybrid products like 130/30 funds."

Growing scale

The survey reflects the sheer scale of the hedge fund administration business and hints at the potential market for third party private equity fund administration services.

The total value of single manager hedge fund assets under administration disclosed by the companies featured in the survey this year hit $1.8trn - despite leading players like Citi and JPMorgan being unable to reveal the value of hedge fund assets under administration on their books.

Citco remains the largest single manager hedge fund administrator in the world, with $452bn in assets under administration, followed by State Street, which administers $413bn in total hedge fund assets.

HSBC has around $200bn in single manager hedge fund assets under administration, with CACEIS and BNY Mellon each servicing around $150bn on behalf of hedge fund clients.

UBS services $210bn in total hedge fund assets.

In the private equity space, where details of assets under administration were less readily available, Mourant and State Street, with $87bn and $86.5bn in assets under administration respectively, emerged as the leaders.

Guernsey headquartered Augentius Fund Administration, with $50bn in assets under administration, predominantly on behalf of private equity funds, and Northern Trust, with $30bn in private equity assets under administration, have also built up considerable scale in this sector.

Heritage International and HSBC round off the list of institutions with over $10bn in private equity assets under administration featured in the survey.

The total value of private equity assets under administration disclosed by institutions featured in the survey this year topped $280bn.

New centres emerge

The ICFA offshore third party fund administration survey 2008 also provides a glimpse into the shifting balance of power between the jurisdictions that play host to offshore funds and their administrators.

Almost every administrator with over $100bn in assets has an established presence in Ireland, Luxembourg and Cayman, while Bermuda, Singapore and the Channel Islands also featured heavily among the list of operating locations favoured by companies profiled in the survey.

But there are signs that the geographical picture is changing.

In Ireland, the fund administration industry has already broken out of the International Financial Services Centre in Dublin and expanded to regional sites in Cork, Waterford and Limerick, where administrators like PFPC and Citco now have offices.

Last year the Bank of Ireland, which employs close to 400 people in its securities services business in Dublin, announced plans to open a specialist hedge fund administration centre in Belfast, Northern Ireland.

Over the next three years the bank plans to create 149 hedge fund administration jobs in the new Belfast office, the first of its kind in Northern Ireland, as part of its plans to rapidly expand its offshore fund servicing business.

For the first time, this year saw Poland listed among the offshore fund administration bases being used by companies participating in the survey.

PFPC International, one of the first administrators to open Irish offices outside Dublin, took its search for a cost efficient operating environment one step further when it opened its new office in Wroclaw, Poland in February of this year.

Commenting on the move into Eastern Europe, PFPC CEO Steve Wynne cites the need to "support our growing book of existing business, while advancing our capabilities to efficiently absorb new business."

"In Wroclaw, PFPC will also be able to access a new pool of qualified financial services professionals, from experienced specialists to new graduates, that will further complement our delivery of premier services to clients," he continues.

PFPC will soon be joined in Poland by UBS Fund Services, where the scarcity of qualified staff in the more mature offshore jurisdictions is also beginning to tell.

"Due to the boom in asset management and the fund industry in general, we are finding it increasingly challenging to recruit sufficient numbers of qualified employees in our existing locations to meet our growth expectations," explains André Valente, global head of business development & client relationships, Fund Services, UBS Global Asset Management.

Executives at UBS Fund Services, which currently has offices in Ireland, Luxembourg and Cayman, recently took the decision to make full use of the Group's offshoring centre in Krakow, Poland.

Valente says the move is designed to support the projected long term growth of the business.

"This location offers access to a highly skilled talent pool with the required foreign language capabilities.

"Geographically, Poland fits in well with our European administration service centres and offers time zone advantages for our Americas centres," he adds.

Canada boost

Administrators based in the mature North American offshore jurisdictions have also been feeling the pressure, though here the drift has been towards Canada, with Halifax, Nova Scotia, emerging as an unlikely hedge fund administration centre.

In the past two years alone Citco, Olympia Capital, now part of CACEIS, and Butterfield Fund Services - three companies known for their historic ties to Bermuda - have opened offices in Nova Scotia, lured by the promise of cheaper labour and the financial incentives offered by Nova Scotia Business Inc, a local agency set up to attract business to the region.

"More and more administrators are outsourcing functions to Canada as a means of establishing a multi-jurisdictional presence to meet client expectations, as the industry and its players become more international and seek to grow," says Phillip Gee, head of implementation at Bermuda headquartered Dundee Leeds Management Services.

Dundee Leeds established its Montreal operations centre "well ahead of the curve in 2004" adds Gee.

The established jurisdictions have responded by introducing new rules that grant fund promoters greater flexibility - a move designed to shore up their strength as fund domiciles.

Gee says the recently passed Investment Funds Act attests to Bermuda's continued "environment of transparency and commercially sensible regulation" and positions Bermuda "to meet the current and future needs of institutional investors."

The authorities in Luxembourg have also revised local regulations to create new fund vehicles that benefit from greater flexibility and a simplified approval process.

Wilcockson describes the new fund rules in Luxembourg as a "very positive development" that cements the reputation of the Grand Duchy, alongside Ireland, as the leading funds centres in Europe.

He also believes the UK offshore jurisdictions, which have led the way in introducing flexible regulation, will continue to play an important role in the European funds landscape.

"The big funds will undoubtedly look at Dublin and Luxembourg, but I think jurisdictions like Guernsey and the Isle of Man will continue to attract a strong following because they can offer a more specialist, tailored service to the funds industry," he says.

But with a raft of up and coming jurisdictions like Dubai, Bahrain and Malta pushing hard for new business, increased competition will be a defining feature of the offshore world in the years ahead.