Hedge fund managers cite cost and quality for moves
25 February 2014 London
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Hedge fund managers are changing their service providers, particularly prime brokers and administrators, because of low-quality service and cost, a survey has found.
Research and consultancy firm Preqin surveyed more than 100 fund managers at the end of 2013 to find out more about whether they had changed service providers and what had prompted the change.
A third of all fund managers have changed a service provider in the past year, with European and North American fund managers being the most active in switching service providers in 2013.
In the past five years but excluding the last 12 months, 41 percent of fund managers have reported that they have changed a service provider.
Asian Pacific and North American fund managers were the biggest changers, with 55 percent and 46 percent changing their service providers over the longer time period.
Fund managers changed their administrators and prime brokers most frequently. In the last 12 months and previous five years, more than half of all fund managers moved to another provider.
European fund managers have changed their prime brokers the most, because “with the large choice of prime brokerage houses in Europe, funds in the region have more options to switch to a provider that can better fulfill their needs”, commented Preqin.
Fund managers in Asia and the rest of the world have “more limited options available to them”.
“On the other hand ... [they] are the most likely to change fund administrator; three-quarters of all the fund managers in the region have switched their administrator.”
“Overall, fund managers are least likely to change service providers that provide custody or auditing services, particularly in the shorter term.”
Dissatisfaction with the quality of service offered is the leading reason for switching service provider
“Although fewer fund managers gave this as the reason they changed service providers in the short term, indicating managers have seen some improvement, there is still clearly a long way to go for many service providers in keeping hedge fund managers satisfied with the quality of service they receive.”
Asia-Pacific and rest of world fund managers in particular reported dissatisfaction with the service they received. Eighty-six percent of those surveyed gave it as their reason for switching providers.
“As these emerging regions for hedge funds continue to grow in prominence, service providers will need to re-evaluate their services in each region and ensure they are able to offer the same quality and reach of fund services as they do in the established European and North American markets.”
Cost was the next leading cause for fund managers to switch their service provider, with Preqin finding that “fund managers are being squeezed between investors looking for lower fees and rising costs as a result of investor demands, increased technology demands and the new cost of compliance”.
Interestingly, in North America, concerns around cost are less frequently cited as a reason for them to switch service providers.
“For these North America-based fund managers, the changing size of the fund/issues around scale are the greatest concern, with this being the only region where fund managers expressed this as a reason for switching service provider. North America-based funds have had the greatest success in fundraising over recent years, and as their funds grow, many funds have switched to service providers that are better able to cope with their larger capacity.”
Research and consultancy firm Preqin surveyed more than 100 fund managers at the end of 2013 to find out more about whether they had changed service providers and what had prompted the change.
A third of all fund managers have changed a service provider in the past year, with European and North American fund managers being the most active in switching service providers in 2013.
In the past five years but excluding the last 12 months, 41 percent of fund managers have reported that they have changed a service provider.
Asian Pacific and North American fund managers were the biggest changers, with 55 percent and 46 percent changing their service providers over the longer time period.
Fund managers changed their administrators and prime brokers most frequently. In the last 12 months and previous five years, more than half of all fund managers moved to another provider.
European fund managers have changed their prime brokers the most, because “with the large choice of prime brokerage houses in Europe, funds in the region have more options to switch to a provider that can better fulfill their needs”, commented Preqin.
Fund managers in Asia and the rest of the world have “more limited options available to them”.
“On the other hand ... [they] are the most likely to change fund administrator; three-quarters of all the fund managers in the region have switched their administrator.”
“Overall, fund managers are least likely to change service providers that provide custody or auditing services, particularly in the shorter term.”
Dissatisfaction with the quality of service offered is the leading reason for switching service provider
“Although fewer fund managers gave this as the reason they changed service providers in the short term, indicating managers have seen some improvement, there is still clearly a long way to go for many service providers in keeping hedge fund managers satisfied with the quality of service they receive.”
Asia-Pacific and rest of world fund managers in particular reported dissatisfaction with the service they received. Eighty-six percent of those surveyed gave it as their reason for switching providers.
“As these emerging regions for hedge funds continue to grow in prominence, service providers will need to re-evaluate their services in each region and ensure they are able to offer the same quality and reach of fund services as they do in the established European and North American markets.”
Cost was the next leading cause for fund managers to switch their service provider, with Preqin finding that “fund managers are being squeezed between investors looking for lower fees and rising costs as a result of investor demands, increased technology demands and the new cost of compliance”.
Interestingly, in North America, concerns around cost are less frequently cited as a reason for them to switch service providers.
“For these North America-based fund managers, the changing size of the fund/issues around scale are the greatest concern, with this being the only region where fund managers expressed this as a reason for switching service provider. North America-based funds have had the greatest success in fundraising over recent years, and as their funds grow, many funds have switched to service providers that are better able to cope with their larger capacity.”
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