Q&A: Butterfield Fulcrum CEO Predicts Consolidation In Fund Administration Biz

Sep 27 2010 | 9:06am ET

In July, Michael Clark took the reins at hedge fund administration firm Butterfield Fulcrum. Prior to becoming chief executive officer of Butterfield, Clark served as president of the institutional products group at Fidelity Investments, and before that he was CEO of both JPMorgan’s Worldwide Securities Services and its Trust and Clearing Services.

In a recent Q&A with Clark, he tells us how the hedge fund administration business is changing, and how Butterfield Fulcrum aims to be at the forefront of that change. The firm is currently eying potential acquisition targets in North America, and also has its sights on expanding its footprint to Asia.

FINalternatives: The hedge fund industry is in a state of flux pending some very significant regulation both in Europe and North America. How do you see this affecting the administration industry’s role? 

Clark: The proposed regulations are certainly pressing the issue of transparency and driving a higher level of reporting, which in turn is taxing the technological capabilities of administration firms. Couple this with the fact that assets in alternative investments are coming in from institutional investors with strict oversight requirements and it creates higher demand for frequent valuation and more reporting. As hedge funds look to raise capital it is likely that they will begin to leverage their relationship with their administrator as a key differentiator.

Clearly, hedge funds need a technology platform with more dexterity. And the best independent hedge fund administrators provide that since it is their core business. During the downturn, a lot of financial services firms cut back on their technology spend to fortify their core business of asset management. So, in some cases you have this perfect storm of regulations that are going to demand advanced technological capabilities for compliance and firms who have had to divert money away from technology overhauls for a couple years.

How will your experience as a senior executive at top asset management firms be parlayed into success with Butterfield Fulcrum?

For the reasons mentioned I mentioned before, the shortcomings of ill-equipped administration firms will become very apparent very soon. So those who cannot compete will have to merge, be acquired or go out of business. I have merged four major banks and acquired 28 companies in my career. Butterfield Fulcrum is well-capitalized by investors, is cash flow positive, has its fixed costs in line and features a fully built out single global operating model that streamlines its technological capabilities. We are in a great position and have already been approached by about a dozen firms looking to make a deal with us. 

In addition, I know a lot of people in the industry and plan to grow the firm organically by 10-15% by bolstering the sales effort with top talent.

What are the trends in hedge fund administration?

Administrators have an opportunity for deeper penetration into existing client operations, especially the middle office.  Any hedge fund on the fence about outsourcing their middle office capabilities will likely be convinced when they realize the tremendous amount of resources that will be necessary to provide the service investors want. On top of that, you could spend millions making your in-house capabilities state-of-the-art only to find that investors would prefer the added objectivity of an outside firm’s involvement.

Butterfield Fulcrum made the decision to transfer its CEO responsibilities from London to New York.  Is this an advantage to growing the business?

Arguably, the greatest concentration of hedge funds in the world is within a 30 mile radius of New York City.  Increasing, our Manhattan footprint will allow us to have a strong presence in a strategic geography. Of course that doesn’t mean that our efforts will only be focused on New York City or North America for that matter. In the next three years, we will focus on a broad global network.  For instance, we’d love to find a partner that already has an office in Asia.


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