Monday, 27 February 2017
Last updated 2 days ago
Dec 7 2006 | 3:44pm ET
Outsourcing middle and back office support is an obvious, but little-used way for large hedge fund managers to cut costs, and one firm is positioning itself to take advantage of what it sees as an untapped sector ripe for growth.
“Fund [administration] costs are going up but revenues haven’t been able to keep pace,” says Stuart Feffer, Co-Chief Executive Officer of the recently-formed LaCrosse Global Fund Services, an independently run hedge fund service provider and administrator.
While the firm officially launched in October with more than $6 billion of assets under administration, the New York-headquartered LaCrosse isn’t new to the game. It was spun out of existing middle and back office services that have been supporting three-year-old firm Black River Asset Management, which is now the firm’s first client. Starting Jan. 1, LaCrosse will begin offering its services to third parties.
Other firms are taking note of the business potential in running middle and back office service providers that cater specifically to hedge funds. Earlier this year, JPMorgan purchased the middle and back office operations of hedge fund giant Paloma Partners Management Company.
But while Feffer and his colleague, Co-CEO Christopher Kundro, say that JPMorgan’s acquisition supports their belief that the fund administration business is ripe for growth, they argue that despite a few large competitors out there, most fund administration firms don’t have the size or expertise to deal with the complex trading strategies that are becoming more common in the industry, such as foreign exchange, commodities, emerging markets and related derivatives.
“In 1990, 70% of hedge funds were macro-funds,” Kundro said. “Now, 70% are long/short equity, but there is a shift away from that toward emerging markets, toward credit, toward commodities.”
Two of the well-established fund administrators that are direct competitors to LaCrosse are Citco Fund Services and GlobeOp Financial Services. But despite their name recognition in the industry, Kundro doesn’t see taking existing business from them as a critical component to the firm’s business model; rather, he says that the challenge is convincing alternative asset managers that it makes sense to outsource their fund administration to an experienced third party.
That said, Feffer, who is a 20-year veteran in the alternative investment industry, lets his competitive side show through, saying, “we go well beyond what they do, such as provide cash and collateral management services.”
LaCrosse—which is headquartered in New York and has offices in Bogotá, Buenos Aires, Caracas, Istanbul, London, Minneapolis, Moscow, São Paulo and Singapore—also provides facilitation of custodian and prime broker settlement, OTC derivatives processing, and administration of onshore and offshore feeders and independent valuation of hedge fund portfolios.