Massive fall in AUA heralds changes for fund administrators

Fund administrators are reeling from a $1,347 billion fall in total alternative assets under management.

Combined alternative assets of hedge funds and fund of funds under management (AUM), plummeted to $2,496 billion at the end the first quarter of 2009, a 12-month decline of 37.25% from $3,821 billion in the first quarter of 2008.

The figures revealed in a report* by Carbon360° Research show that over the nine month period from the beginning of the third quarter 2008 to the end of the first quarter of 2009, the alternatives industry saw its greatest decline since 1997, losing $703.82 billion in assets through a combination of poor performance and investor redemptions.

Carbon360° forecasts the decline in 2009 will continue with a fiscal year total loss of 18.50% for the industry, with alternative assets levels around $2,242 billion by the end of 2009.

In 2008 AUM fell 28% with a further 9.25% fall through to the end of the first quarter of 2009. The company is forecasting the smallest growth year ever, projecting single digit growth of between 8% and 9%.

The Carbon360° fund administrator survey found that among the top 25 third party fund administrators, single manager hedge fund assets under administration (AUA) fell $730.647 billion to $2.079 trillion, a decline of 26% in the first quarter of 2009. Fund of fund AUA levels globally dropped by 32.0%, falling to $824.46 billion compared with $1,2178 billion for the same period in 2008.

The difference of $407.46 billion between AUM and reported AUA can be attributed to an overlapping of fund of fund into hedge funds assets of approximately 50%, with the remaining 50% of fund of fund assets attributed to private equity, according to Carbon360°.

Citco Fund Services saw a 33% decline in AUA for single funds for the first quarter 2009 compared with the same period in 2008. State Street saw AUA drop 20%, Bank of New York Mellon and Goldman Sachs Administration Services both 22% down and Citi a whopping fall of 51%, according to Carbon360° data, HSBC Security Services was down 48% and PNC Global Investment Servicing had AUA fall 44%.

Winners during the same period were SEI with a positive 17% rise, Northern Trust up 11% and NAV Consulting rose 7%.

For fund of funds AUA some of the biggest losers during the period were Fortis Prime Fund Solutions (-44%), Citco Fund Services (-48%), UBS Global Asset Management Alternative Fund Services (-37%), HSBC Securities Services (-43%), Daiwa Securities Global Asset Services (-75%), Cacei (-57%), RBC Dexia (-54%) and SS&C Fund Services (-60%).

Clear winners in the fund of funds sector were Northern Trust with an impressive 81% rise, Butterfield Fulcrum with a 56% increase and SEI with a 21% rise.

Increased mergers, closure of smaller administrators and increased market dominance by the perceived 'safer' administrators are some of the possible outcomes of the severe drop in AUA, said Carbon360° . Continued cost cutting by fund administrators at all levels is also expected to continue.

Carbon360° produces research and intelligence on the business critical systems and operations of companies.

* Carbon360° Fund Administration Fact Book

Top 25 administrator by hedge fund AUA ($ billion)

Top 25 administrator by fund of fund AUA ($ billion)