Administrators eye growing private capital market

Private equity and debt are expected to be the big drivers of business growth for fund administrators this year, beating out hedge funds, real assets, funds of hedge funds and liquid alternatives, according to the latest report by eVestment.

Institutional investors have been turning to alternatives as a way to improve performance and diversify their portfolios, according to the eVestment Alternative Fund Administration 2018 Survey. Assets in private equity, real estate, hedge fund, funds of funds and liquid alternative totaled $8.42 trillion at the end of 2017, up 10 percent from the year before.

Private equity assets under administration – a category that was broadened to include private debt – jumped 18 percent to $2.29 trillion in 2017, according to eVestment.

The administrator with the most private equity AUA was SS&C GlobeOp, with $573.74 billion, followed by State Street ($350.02 billion) and SEI ($269.60 billion).

Still, there could be more room for growth. Data from eVestment’s Public Plan IQ database showed that US pensions were below their suggested allocations in alternatives, particularly in private equity and real estate funds. It estimated future net inflows of $13.96 billion for private equity and $22.58 billion for real estate.

Third party fund administrators will surely benefit from this, wrote eVestment. It quoted a global mid-sized administrator as saying that “the greatest avenue for growth in fund administration in the in the next three years is in the commitment-based and hybrid fund segments.”

North America had the most AUA reported by region, at $2.254 trillion, and is seen as the top growth area for fund administration firms; Europe ($1.287 trillion in AUA) and Asia-Pacific ($197 billion) were next in line.

The 2018 survey also showed that 74 percent of alternative fund administration firms expected industry consolidation, up from 47 percent the year before. Fewer survey respondents expected new entrants into the fund administration business this year (11 percent this year vs. 26 percent in 2018).