Platform and Industry updates

Summer is now over – unofficially, at least – and the private fund industry in the US is now back in full swing for what is the home stretch of the year.

So, with the mid-year slowdown behind us, for our blog post this month, we thought we’d check in on the current state of which service providers have been hired by new funds identified from Form ADV’s filed in 2024 so far. We’re also including the overall league table – so, older funds that were previously on the adviser’s Form ADV document - to see if there is anything interesting in terms of firms taking or losing share when it comes to new funds.

We’re looking at administrators, auditors, custodians and prime brokers for this one; we’re also using Gross Asset Value (GAV) of the funds as the league table position determinant. Data is used for the period up to and including 9/2/24.

Administrators

The top five fund administrators for new funds identified on Form ADVs submitted this year are well-known. But what is notable is the gap between State Street, which occupies first place with a GAV of $99.2bn, from US Bank, which holds second place with $36.9bn – almost three times the size.

The biggest mover among the firms nearer the top of the league table is US Bank. Overall, the firm ranked tenth, but is second in the table for new funds.

6,451 new funds representing a GAV of $518.6bn and 72,341 funds in total representing a GAV of $23,765.2bn were filed on Form ADVs submitted since January 1 this year that referenced their administrator.

Figure 1: Top Five Fund Administrators of New Funds Identified from 2024 Form ADV Filings (GAV)

Figure 2: Top Five Fund Administrators of All Funds Identified from 2024 Form ADV Filings (GAV)

Auditors

No-one should be surprised by the league tables at the auditor level. Even for new funds identified on the Form ADV, the big four dominate. The only surprise here, perhaps, is the extent to which they do: in both cases, 80% of all funds are audited by one of the big four. That said, for new funds, the total penetration of the big four was 84%, down from 89% of all funds. Could this be the beginning of a trend?

4,434 new funds representing a GAV of $519.3bn and 70,972 funds in total representing a GAV of $28,434.6bn were filed on Form ADVs submitted since January 1 this year that referenced their auditor.

Figure 1: Top Five Fund Auditors of New Funds Identified from 2024 Form ADV Filings (GAV)

Figure 2: Top Five Fund Administrators of All Funds Identified from 2024 Form ADV Filings (GAV)

Custodians

There is a similar story playing out in the custody world. Market share is not as clear here given that many advisers list multiple custodians for their funds on their Form ADV, but there are two notable differences at the new fund level, with State Street coming in third, up from eighth in the overall table, and Barclays coming in fourth place, moving up from seventh overall. Additionally, the market share of the top five providers at the new fund level is significantly lower than that of the overall picture.

5,721 new funds representing a GAV of $587.9bn and 84,589 funds in total representing a GAV of $26,528.5bn were filed on Form ADVs submitted since January 1 this year that referenced their custodian.

Figure 1: Top Five Fund Custodians of New Funds Identified from 2024 Form ADV Filings (GAV)

Figure 2: Top Five Fund Custodians of All Funds Identified from 2024 Form ADV Filings (GAV)

Prime Brokers

While specific to the hedge fund category, the prime brokers league table still sees the ‘brand names’ atop both lists. Like the custodian category, hedge funds can, and do, utilise multiple primes, so the market share does not exclude other firms. Still, as in some of the other categories, the market share of those firms atop the overall league table is generally much higher than those atop the new funds table.

1,097 new funds representing a GAV of $162.0bn and 9,904 funds in total representing a GAV of $9926.0bn were filed on Form ADVs submitted since January 1 this year that referenced their prime broker.

Figure 1: Top Five Prime Brokers of New Funds Identified from 2024 Form ADV Filings (GAV)

Figure 2: Top Five Fund Prime Brokers of All Funds Identified from 2024 Form ADV Filings (GAV)

That the big names continue to dominate the league tables in the four categories above should be a surprise to no-one; private fund managers tout their use of ‘brand name’ service providers as a middle and back-office differentiator, hoping that the potential investor feels more comfortable and confident investing in private funds that have an ecosystem supported by these so called ‘blue chip’ providers.

It is clear to see that the admin category is the one where the firms atop the leaderboard have the smallest market share. Regular readers of our blog might recall last month’s piece, where we offered our thoughts on the current state of that category specifically. However, what is notable about the data above is that in every category, the total share of the top providers is lower for new funds than it is overall.

Time will tell as to whether other firms end up taking more share or whether this most recent year is an aberration. And it must be emphasized that the data is only for new funds listed on Form ADVs filed so far this year; with four months still to go, much can change.

Still, we’ll be keeping a keen eye on this as we enter the home stretch of 2024 to see if this is indeed the beginnings of a trend in the private funds space.

*The data used in this article comes directly from the SEC’s Form ADV filings. 9AT does not edit or override data, even when it may appear that a mistake has been made by the filer, due to our data ethics and methodology policy.

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A news story from Reuters recently suggested that buyout firm Astorg “is exploring options, including a sale, for its fund services business IQ-EQ” with a view to a sale in 2025.
 

Whether they sell it next year or hold it for longer remains to be seen. But what does not remain to be seen is the sheer scale of the involvement of private equity in the fund administration industry. 

In June this year, trade magazine The Drawdown published its latest Fund Admin Report, which contains a table of fund administration providers, along with their ownership details; of the 30 firms listed, approximately a third are owned either outright by a buyout shop, or have a private equity minority investor.

Private equity firms love themselves a ‘platform’ investment, and fund administrators provide a natural home here due to the complimentary nature of their business with other service providers to pooled investment funds. These deals can scale quickly.

However, the good old-fashioned competitor acquisition would seem to have just as many legs.

Data collected and analyzed by 9AT suggests that, so far in 2024, 281 different firms were listed as the administrator of new private funds based on ADV filings submitted in 2024.* And while some of these private funds administrate their own funds as opposed to hiring an external provider, the long tail in the space remains a boon to buyout firms looking to either enter the space or grow their existing platform portcos.

The outlook for the market is an interesting one. Most industry players agree that generally, the fund administration industry will increase in size, but that is a misleading statement, because its size depends entirely on the AUM of the funds that they administer. Still, with global private capital AUM set to hit $18trn by 2027, there would seem to be plenty of opportunity to for admin firms to increase their AUA.

What is not certain is whether the increase in AUA will be absorbed mainly by the larger firms, or whether smaller players have a chance at closing the gap. One on hand, smaller firms might find it increasingly difficult to compete versus the larger ones as the metamorphosis of a private equity-backed fund admin provider into a diversified middle and back-office fund services business creates a greater gulf between the haves and have nots.

But on the other, smaller firms are nimbler generally, and it is not outside the realms of possibility that a well-funded start-up admin firm could take meaningful share quickly, particularly if they focus on a certain corner of the market – the underlying assets that private fund managers invest into are becoming broader, which should lead to opportunities for specialists to secure a foothold. Add to that the potential for a buyout firm to look to do a lift out of a larger firm’s fund admin team to a separate firm – the advantages which will be existing expertise, existing clients and brand name recognition – and you could see more ‘new’ firms enter the market.

Clearly, there are a few potential developments for the space, and it is unknown which way the market will go. But what is known is that private equity will remain, one way or another.

*The data used in this article comes directly from the SEC’s Form ADV filings. 9AT does not edit or override data, even when it may appear that a mistake has been made by the filer, due to data ethics and methodological considerations.

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Back in April, we took at look at some of the Form ADV data to see how many times a private fund changed auditor. In case you missed it, here is the link to that one.

So, now that the first half of the year is in the books, we decided to take a look at the filings data again but this time from a different perspective – just how many private funds have filed a Form D in H1 this year and what, if anything, can we deduce about the results?

Well, the first thing to note is that, by any measure, the private funds industry seems to remain in good health.  

According to 9AT data, 5,632 Form D filings were submitted to the SEC between January 1st and June 30th this year, good for a total Gross Asset Value (GAV) of $146bn.* Of those, 462 were hedge funds ($5.8bn), 1,563 were private equity funds ($76.1bn), 2,583 were venture capital funds ($27.1bn), and 1,024 were ‘other’ private funds ($37bn).

Table 1: Form D Filings, Jan-Jun 2024, Gross Asset Value, by Type 

*On occasion, filers may put the same GAV on multiple filings for the same product, which can lead to double counting in certain situations

Source: 9AT

At the domicile level, naturally, the United States occupies top spot, but in terms of offshore locations, Cayman is, once again, the most common offshore jurisdiction in the Americas for Form D filings in the US, accounting for 245 of the Form D filings in the first half of the year, followed by Luxembourg (114 filings). Ireland, a popular domicile in Europe for European managers launching a UCITS vehicle, saw only 10 filings in H1.

Table 2: Form D Filings, Jan-June 2024, Number of Filings by Domicile 

Source: 9AT

But what most folks really want to know is who is raising money. And it’s mostly the private equity types.

Of the top 10, 5 are private equity funds, 3 ‘other’ funds, one venture capital fund and one hedge fund*. 41 funds in total are raising $1bn or more.

Table 3: Form D Filings, Jan-June 2024, Largest Filings, Type and Gross Asset Value** 

Source: 9AT

*Filers select the option of their choosing; 9AT does not change the definition in its database, regardless of whether industry participants might consider the fund to be a hedge fund, real estate fund, etc.

**The GAV listed in Table 3 for some funds is an aggregate amount of one or more funds, for example, the onshore and offshore versions of the same fund. We have combined those here, where applicable.

The data is notable, especially given the significant coverage in the trade media around the current fundraising climate. Industry data tracking firms across the board are showing that a significant pull back in allocating to private funds such as hedge funds and private equity is occurring, and industry conferences are replete with panels asking when the fundraising environment might begin to pick up.

We’re not saying that there isn’t a fundraising challenge right now. The prevailing interest rate and the geopolitical environment makes allocating to more liquid fixed income strategies more appealing both in terms of an acceptable yield and a perceived safe haven, and certainly, some private asset classes are struggling to maintain an acceptable spread over the risk-free rate.

But an industry that’s raising $146bn in six months arguably doesn’t show an industry that’s struggling either. Plenty of brand name managers are out there raising capital, and there are plenty of opportunities across a range of asset classes where that capital can be deployed.

What will be interesting is whether the second half of 2024 picks up. The recent court ruling in the United States at the beginning of June, where a group of trade associations banded together to sue the SEC alleging an overreach of authority with regards to the regulator’s Private Fund Adviser rule, has been welcomed in many quarters as a win for the space. All things being equal, it might be expected that a clearer regulatory environment (and a less onerous one) should be a catalyst for managers who have been sitting on the sidelines to now file their Form D and officially get out into the market to raise money.

We’ll have to wait until January 2025 to find out how the market fares in the second half of this year. 

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