By Hedge Fund Insight staff
With the release of the the fourth quarter results for Citigroup yesterday came an announcement that Citi will quit the hedge fund administration business:
“Citi announced it also has plans to exit some non-core securities services and transaction businesses in the Institutional Clients Group (ICG), including from hedge fund administration, prepaid cards, certain transfer agency operations, and wealth management administration. The ROA for ICG would have improved by 1bp to 0.92% in 2014, on a pro forma basis, and the efficiency ratio would improve by 100bps as well to 58.4%. These operations will also be reported in Citi Holdings next quarter. ”
The hedge fund administration unit oversees of $54bn of hedge fund assets out of total assets under administration of $380bn. The unit had been growing – in 2013 funds under administration grew 20% and hedge fund assets under administration grew 4.7%.
The Citi hedge fund administration business was recognised by Global Investor as Hedge Fund Administrator of the Year for 2013, was highly commended for its services in the 2014 HFM Week European Hedge Fund Services Awards, and only this week was one of seven nominees for “Best Fund Adminstrator” announced for the Markets Choice Awards 2015.
Rather like the investment management of hedge funds, the administration of hedge fund assets has been a sector in consolidation in the number of players. The top three players have market shares of 12, 10 and 9%. The top 20 hedge fund administrators look after 97% of the assets of SEC-registered hedge fund firms. Citi Fund Services ranks fifth according to Preqin with a market share of around 4%.
When the subject of consolidation amongst the very largest hedge fund administrators has come up industry insiders have expressed caution . It has been suggested that the big players are extremely complicated to bring together, making it difficult for one to digest another. If that suggestion is correct it may be difficult to make an economic case for M&A amongst the top ten hedge fund administrators — meaning the cost savings to do it. Further, it is thought that the required meshing of personalities may be difficult to bring about. That written, Citi is getting out of fund administration – top group management have decreed it – and it will happen whether it is difficult technically or tendentious on a personal basis.