Competition hots up for hedge fund administrator

On 1^st February the independent directors of GlobeOp Financial Services, the hedge find administrator, stated that they intended unanimously to recommend acceptance of a buyout offer from TPG Capital, which valued the business at £508 million, giving an earnings value of 11 times the adjusted operating profit for the 12 months ending 30^th June 2011. They reported that the Management Team and GlobeOp Directors who hold Ordinary Shares have irrevocably undertaken sell all of their shares to TPG if the offer becomes wholly unconditional.

But in a statement on the 5^th February financial software provider SS&C complicated the picture by announcing that it had been conducting due diligence on GlobeOp since January 14 with the approval of GlobeOp's independent directors and was still considering its position.  It urged shareholders to wait for its next move before deciding whether or not to accept the offer from TPG.  GlobeOp subsequently confirmed that they have indeed been cooperating with SS&C in a due diligence exercise, which perhaps makes the timing of the TPG announcement somewhat surprising.

It remains to be seen whether SS&C will indeed come forward with a higher offer than TPG, but even if it does not then the GolbeOp story seems to be one of impressive success since its inception in Luxembourg in 2000 by a group of alumni from the collapsed Long Term Capital Management.  The independent financial administrator specializes in middle and back-office services and integrated risk reporting to hedge funds, managed accounts, and fund of funds, through 11 offices in onshore and offshore jurisdictions.  It now has US$173 billion in assets under administration, a remarkable recovery from a drop to less than $80 million in 2009.

The financial turmoil that erupted in 2008 undoubtedly created many term challenges for GlobeOp, but the longer term impacts of the crisis were in fact were very positive for it, as investors demanded greater asset valuation transparency from fund managers, independent confirmation that assets actually existed, and improved risk analysis – all services which GlobeOp specialised in providing.  As a consequence of this and other increasing administrative and regulatory burdens, fund managers who had previously managed their own funds internally began in greater numbers to hire independent administrators, and GlobeOp’s AUM began to rise steadily.  

This is a very similar dynamic to that which has been seen in other areas of the fund industry, such as private equity, where funds have increasingly abandoned in-house administration in favour of an out-sourced model.  Clearly TPG and SS&C have recognised the potential of businesses which are likely to thrive from the increasing complexity of regulation and administration which has been an inevitable consequence of the market problems and scandals which have beset the financial industry in the past 4 years.