Hedge fund managers frequently change their service providers working on their funds, including their fund administrators, prime brokers, custodian and law firms, according to a survey by Preqin.
Preqin’s global survey of over 100 hedge fund managers, found that one third of hedge funds changed their service providers in 2013.
Fund administrators and prime brokers are the frequently switched providers, according to the recent study of hedge funds by Preqin, a data and analysis provider to the alternative asset industry.
Fifty-six percent of hedge funds said they changed their fund administrator in the past 12 months, while more than half changed their prime broker. One quarter changed their auditor, while one fifth changed their custodian.
More than half of hedge funds cited dissatisfaction with quality of service provided, as the main reason for switching in the last 12 months, while cost was cited by nearly 40 percent. One fifth said that scale due to growth in assets under management was the reason for changing service providers.
Three quarters of Asia Pacific and Rest of World hedge fund managers changed their fund administrators over the past five years as compared to 56 percent for Europe and 52 percent in North America.
On a regional basis, North American and European managers have been more active in switching service providers in 2013, with 35 percent changing in 2013.
Overall 45 percent of hedge fund managers participating in the recent survey indicated they had switched service providers at least once since their inception. p> “Dissatisfaction with the quality of service they receive is a common concern across all fund managers, and is a particular problem in emerging regions for hedge fund management, as the service provider sect may be less developed or has little local presence,” Preqin continued.
However, there is certainly an opportunity for groups that can provide consistent, good service on a local level to appeal to this growing group of managers in Asia-Pacific and other regions outside North America and Europe.
As for contributing factors, European fund managers have faced challenges with fund raising while new regulations in the regions have made it more costly to run hedge funds, noted Preqin. Thus, these fund managers are looking for service providers that provide value for money. North American hedge fund managers tend to change providers that are equipped to deal with their scale. In this market, Preqin saw an opportunity for service providers that can address services to funds of different sizes or specialize in funds of particular sizes.
SS&C’s GlobeOp captured 13 percent of the new hedge fund launches in 2013, reflecting its consolidation and acquisitions in 2012, followed by Morgan Stanley Fund Services and Citco Fund Services. State Street and Northern Trust Fund Administration were also among the top five fund administrators selected by new fund launches. Morgan Stanley tied with Goldman Sachs for the top prime broker used by hedge fund launches in 2013.
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