We are nearing a tipping point for alternatives
At the end of 2017, Citco jumped to US$950bn in assets under administration (AuA), up from US$837bn at the end of 2016. While we judge ourselves by the quality of our client service rather than our size, achieving this milestone is nonetheless very exciting. Our growth in AuA is entirely organic, and the result of alternative asset managers trusting us with more of their administrative functions.
What is driving this expansion? The answer is both falling fees that are forcing managers to streamline their operations and substantial growth in sectors such as real assets and loans. Many alternatives managers are choosing between hiring new teams in house or outsourcing to an organisation such as Citco.
From my perspective, alternative fund administration is approaching a tipping point. For years, commentators have predicted that alternative asset managers would hive off administrative functions and focus on generating superior investment returns. Rising cost pressures mean that this is finally happening.
Growth in real assets
Proportionally, our greatest growth over the past several years has been in real assets – primarily, from private equity and real estate funds. While investor allocations to these asset classes are increasing, only about 25-35% of these asset managers use a third-party administrator. Similarly, many loan funds, which have historically managed their administration function in house, are now looking at outsourcing.
Turning to hedge funds, the largest part of our business, cost pressures are leading them to outsource more functions: front office risk reporting, middle office treasury and collateral management, back office financial statements, plus tax and regulatory reporting, are all candidates.
Managers' increasing diversification across asset classes, moves into hybrid strategies and the launch of a wide range of investment vehicles (including Cayman-domiciled funds and regulated onshore funds) all translate into a larger and more complex administration function.
Anticipating these needs, we have made substantial investments in our service platform and hired experienced people to build up our real assets capability. Today's Citco affords alternatives managers a growing range of services and products through which they can access our scale and expertise. We also continue to improve our offering for asset allocators, such as family offices, endowments and pension funds.
As we look forward to achieving our next milestone AuA target of US$1trn, we take great pride that each milestone is a huge vote of confidence from our clients.