Website Will Pair Managers, Administrators
Carbon360, a research firm that tracks the fund-administration industry, is launching an online matchmaking service where administration firms can bid for contracts with hedge funds.
The yet-to-be-named service, set to go live later this month, is designed to impose a degree of transparency and uniformity on negotiations between fund administrators and hedge fund operators. Under current practices, each administration firm requires fund managers to fill out lengthy paperwork detailing their assets and strategies. The problem is that the forms vary from administrator to administrator, making it difficult for fund managers to compare offers from competing service providers.
Based on its knowledge of the administration business, Carbon360 has developed a uniform set of forms that hedge fund managers can fill out online. Not only will this save fund managers time, but when administrators bid for their business, the pricing will be based on comparable services. This should make it easier for fund managers to evaluate the bids, according to Daniel Golyanov, a senior research analyst at Carbon360 who is overseeing the initiative.
Some hedge fund managers complain that the current system makes it difficult, if not impossible, to compare offers from different administrators. Pricing can vary from a few hundred dollars a month to tens of thousands of dollars. For their part, administration firms say their prices vary widely because they are highly dependent on the nature of the fund, including the types of assets and complexity of the manager's strategy.
Fund administrators will pay a fee to Carbon360 if they win business from a hedge fund. The service will be free to hedge fund managers.
Hedge funds can remain anonymous when submitting information to the Carbon360 service. That's so they can search for a new fund administrator without tipping their hand to their existing service providers. A recent survey by accounting firm Rothstein Kass suggests the relationship between fund managers and administrators can be tenuous. When fund-of-funds managers were asked which of their service providers they were most likely to replace this year, 47% named their administrator.
T. Andrew Smith, executive vice president of administration firm Butterfield Fulcrum, said the new service could help administrators discover potential clients. On the other hand, the fact that administrators are being asked to make blind bids without knowing the identity of the managers could be a deterrent for some firms.
"If it's a startup [manager] who managed $4 billion for a large firm and is starting on their own with $100 million but rapidly expects to be up to $1 billion, then I get excited about that and I sharpen my pencil," Smith said. "If you're doing it blindly, it is hard to give your best proposal. Who are they, and are they a company I want to do business with?"
Carbon360 is best known for its annual survey of the fund-administration industry, which results in a voluminus "fact book." The New York firm is now in the process of creating an online version of the report. As part of the transition, Carbon360 may charge a monthly fee for access to the data, rather than the $1,500 it now charges for a hard-copy version. Putting the report online would make it easier for market players to extract data and evaluate firms.