Alternative Asset Managers Q2 2015 Updated Business Profile by Convergence
Q2 2015 Headline
For the twelve months ended June 30, 2015, the business complexity of alternative asset managers tracked by Convergence continued to increase. This change was accompanied by noteworthy changes to non-investment headcount and to Fund Administrators providing services to alternative Managers. The pace of consolidation in the Fund Administration market quickened with the largest deal being SS&C’s recently announced acquisition of Citibank’s Hedge and Private Equity Fund Administration business. Refer to the Service Providers section of this report for further color.
Our Q2 2015 Research
Convergence Q2 2015 year-over year research and insights into the Alternative Asset Management Industry is drawn from our data on alternative managers sourced from 15,000 Form ADV and Brochure filings made by Non-Exempt and Exempt Registered Investment Managers who reported private fund and other ADV data on June 30, 2014 and 2015. There were 5,600 individual advisor filings made in Q215. This analytical approach allows us to isolate and follow the growth of Managers that have been in business for a full year and presents an empirical view on how these Managers are growing and changing. We add additional Managers each quarter as they meet the one year in business criteria.
Convergence View on Complexity
“Complexity = Risk = Additional Work = Cost”
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Convergence believes that complexity drives cost and risk. We track 31 complexity factors that are used to gain various insights into how Managers are changing their business model as they grow and to meet new regulatory and investor requirements. With our full-set of complexity and benchmarking tools, Managers and their service providers can compare their complexity, headcount and productivity benchmarks to peers and implement projects deigned to meet best practices.
Growth in our Universe of Alternative Managers
“Conformity is the jailer of freedom and the enemy of growth.”
– John F. Kennedy
Managers in our universe reported an increase of 19% and 21%, respectively, in their Regulatory and Private Fund Assets under Management. The number of Unique Manager Groups advising alternative funds grew 23% to 4,706 and the number of private funds reported by Managers reporting alternative funds on June 30, 2014 grew 6.8% to 20,287.
Alternative Asset Managers also augmented their breadth of investment strategies and fund structures they advise, with 2% experiencing a re-classification by Convergence of their Primary Investment Strategy4 and 7% experiencing a re-classification of their Primary Fund Type.
Leadership and Staffing
“Never doubt that a small group of thoughtful, concerned citizens can change the world. Indeed it is the only thing that ever has.”
– Margaret Mead
Total headcount reported by Managers operating for at least one year surpassed 75,624, or a 5.7% increase over June 30, 2014 with the biggest increase being in non-investment professional headcount. This growth in staff is reflective of the growth in funds advised, the broadening of fund structures to capture new distribution channels and the management of increased business complexity. The number of Investment Professionals grew 5% to almost 37,500, representing 50% of alternative industry staff. This growth rate was outpaced by that of Non-Investment Professionals which grew at a rate of 7.8% to 38,000, despite the fact that a large percentage of the middle and back-office operations are outsourced to third party service providers. Convergence believes complexity drives staff levels and that differences we see between complexity and headcount levels are based on the Advisor’s choice of service provider and their culture.
We also note that the number of non-investment staff exceeded investment staff confirming Convergence’s view that complexity drives headcount. This should create opportunities for Administrators and other service providers.
Business Complexity and Risk
“Complexity is your enemy. Any fool can make something complicated. It is hard to keep things simple.”
– Sir Richard Branson
Convergence’s alternative asset manager complexity index is a composite value of complexity values that we believes best represent complexity and risk. The Index increased to 49.61, or 7%, from June 30, 2014. The increase in complexity was driven by strong growth in changes in affiliates, total accounts, limited partners, office locations, wrap fee programs, total funds, private funds and offset slightly by a decline in our service provider index value. Our service provider index value is a composite value of service providers per manager.
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