There has recently been a marked shift in the alternative asset management industry in relation to how investors and managers view their service providers. The post Madoff investment environment has demanded changes and many fear the due diligence process has turned into a “tick box” exercise lacking in value and rigor. Regulators now have a renewed interest in service provision and increased focus on due diligence. The SEC has confirmed that it is now focusing on investment advisers’ due diligence practices in both the investment decision-making process and the selection and monitoring of service providers.
Investors are echoing this intensified interest and are beginning to demand transparency into not only the investment strategy of funds but the sustainability and strength of relationships between managers and their service providers. With more and more big banks shifting their prime services to larger clients and closing their fund administration arms, the risk of insolvency is not the only factor requiring consideration. In light of this, choosing a large brand is no longer accepted as a reassurance of stability in terms of prime broker and fund administrator – managers are now expected to take more care in selecting these partners based on a number of risk factors.
The importance of this process has now elevated itself to the point where managers risk losing investment capital due to mistakes made, or lack of attention paid to their specific requirements by their service providers. A strong relationship with these key service providers is now more important than ever as it can directly effect the potential for investment into the fund.
“We are regularly seeing increasing influence from investors in the process of selecting a fund administrator. Not only are allocators now interested in whom a fund is using for their administrative requirements, the due diligence of investors now extends to include an audit of the fund administrator as part of this selection process. It is perhaps not surprising that this interest has intensified in the wake of various cyber security breaches and the concern with third party management of data. As administrators carry out crucial functions on behalf of a manager, such as Net Asset Valuation, investors are becoming more diligent about who the fund is working with and and administrators have been angled under the spot light. Robust procedures in service provision are highly important to reassure investors that the framework supporting a fund is suitable and sustainable. For Apex, this is good news. Being an independent global administrator we are not bound by pressure to standardize and automate processes or shed clients under a certain AuM bracket. We are able to protect and maintain the essential element of flexibility when dealing with individual clients in order to ensure we deliver suitable service for each fund’s existing requirements, while also planning to support fund growth in the future. Through working closely with institutional investors and placing great importance on a personal and flexible service, Apex has experienced a positive response through continued confidence from clients in light of this intensified investor exploration of their service providers.”
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