Post Summary
Dario Pugliano interviews George Evans on league table results for fund administrators and auditors from January 2020 to January 2021, including market growth, self-administration, and the Convergence clients Evans highlights.
Advisers disclosed over 91,000 private funds, a net increase of over 5,900 funds (up almost 7%), with assets over $20.8 trillion, a net increase of $2.35 trillion (up 12.7%).
Evans says administrators ranked 26 through 660 and self-administered funds grew about 30% in assets, against market growth of 12.7%. In fund count, administrators ranked 11 and below grew about 15%, about double the market’s 7%.
Evans says over 31,000 of about 90,000 funds are self-administered, up about 1,400 funds year over year and over 34% of all private funds, down slightly from 35% in 2020.
The top 25 auditors won almost 70% of new funds and 88% of the $1.3 trillion in new fund assets, and auditors ranked 5 through 25 grew at about double the market’s 7% fund growth.
What can league table growth hide?
George Evans, a co-founder of Convergence, opens by saying there are over 600 fund administrators and over 500 audit firms servicing the private markets, and later puts the figures at over 660 administrators and 520 audit firms, all named in SEC regulatory filings. He says Convergence focuses on over 40,000 SEC and state registered investment advisers, monitors close to 400,000 funds globally, and has produced league table and market share data for over the last seven years. Dario Pugliano introduces himself as the interviewer.
Evans says growth can mask the real trends at auditors and administrators: growth is driven by many factors, each revealing strengths and challenges that a reader cannot see without additional detail. He gives the example of an administrator with 10% asset growth that reflects a 30% increase from asset inflation and a 20% decline from client attrition, which he calls not really a good story. He says Convergence decomposes administrator and auditor books using nine proprietary growth factors and will say when growth may be masking a negative trend.
Evans also describes a competitive analysis that Convergence offers clients, which decomposes a service provider's book and benchmarks its growth against the market and selected competitors. He says it looks at business won, including organic growth, new logos, outsourced business, and new emerging funds, as well as business lost and funds closed, stratified by size and by asset type: hedge fund, private equity, real estate, venture capital, or structured asset fund.
How did the private funds market grow from January 2020 to January 2021?
Evans says two market events occurred in the reporting period: Alter Domus acquired Strata Fund Solutions, and Sudrania Fund Services acquired Triple Leo Consulting. He says advisers disclosed over 91,000 private funds, a net increase of over 5,900 funds, up almost 7%, with assets of over $20.8 trillion, a net increase of $2.35 trillion, up 12.7%.
How did administrators perform in new funds, assets, and growth?
Evans says the top 25 administrators won 43% of the 9,040 total new funds disclosed, all other administrators won 20%, and advisers who self-administered kept 37%. The top 25 won 55% of the $1.3 trillion in new fund assets, all other administrators about 11%, and self-administered funds about 34%. Overall private asset growth was 12.7%.
By assets, Evans says administrators ranked 1 through 5 grew 9.74%, those ranked 6 through 10 a little over 18%, and those ranked 11 through 25 20.8%, while administrators ranked 26 through 660 and self-administered funds grew about 30%, about two and a half times the market. By fund count, against market growth of 7%, the top five grew close to 4%, administrators ranked 6 through 10 grew 6.3%, and administrators ranked 11 through 25 grew very close to 15%, about double the market. He says administrators ranked 26 through 660 and self-administered funds also grew about 15%.
Evans says this means advisers are moving down market, that business is being awarded in a more fragmented way across the industry, and that it is a trend to watch.
How large is the self-administration market?
Evans says that of about 90,000 funds, over 31,000 are self-administered, up about 1,400 funds year over year. He says they represent over 34% of all private funds, down a little from 35% in 2020, and that this is very consistent with what Convergence has seen, now for 22 consecutive quarters. He says it means outsourcing continues and advisers continue to look to third-party administrators.
Evans says self-administered funds hold about $5 trillion of the roughly $20 trillion in assets, a value up about 9.5%, which he calls a big and continuing opportunity for administrators. He says outsourcing started with mutual funds and '40 Act business, moved rapidly into the hedge fund market, and is now moving through the closed-end market.
How did auditors perform, and why do some funds report no auditor?
Evans says the top 25 auditors won almost 70% of the 9,000 new funds disclosed, all other auditors about 6%, and 24% of those funds did not report a fund auditor. The top 25 auditors won 88% of the $1.3 trillion in new fund assets, all other auditors about 1%, and 11% of those funds did not disclose an auditor.
Against asset growth of 12.7%, Evans says the Big Four grew about 11.7%, auditors ranked 5 through 10 about 19.4%, and auditors ranked 11 through 25 about 19%. He says fund growth followed the same trend, that auditors ranked 5 through 25 about doubled the market's 7%, and that advisers are moving down to the next tier of auditors, a subject he says Convergence will examine in future episodes.
Evans says about 13,000 funds do not report an auditor, down 5%, which he calls a substantial number. He says these are funds that are not subject to an audit, or that are subject to an audit and are selecting an auditor, and that the latter group creates a business opportunity for audit firms.
Which Convergence clients did Evans highlight?
Evans names five administrators and four auditors as Convergence clients with notable results in the period. His figures are as stated in the episode, in January 2021.
Convergence-client administrators highlighted by George Evans, January 2020 to January 2021
Convergence-client auditors highlighted by George Evans, January 2020 to January 2021
What did Evans say to watch next?
Evans closes by asking whether the administrator and auditor industries, at 660 administrators and 520 auditors, will consolidate, and says people in the market debate it with great vigor. He says it remains to be seen whether advisers continue to move to tier two and tier three providers, and that if the trend continues the data is essential to strategy and growth. He says Convergence continues to see European players looking for U.S. properties, private equity investment in administrators, and a number of prominent audit firms losing substantial business in 2020.
How do the league table figures compare by group?
The figures below are as Evans states them, rounded or approximate. Asset growth and fund growth are shown where he gives them.
Share of new funds and new fund assets won, January 2020 to January 2021, as stated by George Evans
Growth by tier, January 2020 to January 2021, as stated by George Evans
These are 2021 figures; Convergence's current league tables are published in its monthly league tables post.
Topics Covered
Key Points
What did Evans say league table growth can hide?
- Many drivers. He says growth is driven by many factors, each revealing strengths and challenges a reader cannot see without additional detail.
- The example. An administrator’s 10% asset growth can reflect a 30% increase from asset inflation and a 20% decline from client attrition.
- Nine growth factors. He says Convergence decomposes administrator and auditor books using nine proprietary growth factors.
- Competitive analysis. It benchmarks a provider’s growth against the market and selected competitors.
- What it measures. Business won, business lost, and funds closed, stratified by size and asset type.
How did the private funds market grow, according to Evans?
- Funds. Advisers disclosed over 91,000 private funds, a net increase of over 5,900 funds, up almost 7%.
- Assets. Assets were over $20.8 trillion, a net increase of $2.35 trillion, up 12.7%.
- Market events. Alter Domus acquired Strata Fund Solutions, and Sudrania Fund Services acquired Triple Leo Consulting.
- Provider counts. He cites over 660 administrators and 520 audit firms, all named in SEC regulatory filings.
- Convergence’s coverage. He says it monitors close to 400,000 funds globally.
How did administrators perform?
- New funds. The top 25 won 43% of 9,040 new funds, other administrators 20%, and self-administered funds 37%.
- New fund assets. The top 25 won 55% of the $1.3 trillion, other administrators about 11%, and self-administered funds about 34%.
- Asset growth. Ranks 1-5 grew 9.74%, 6-10 a little over 18%, 11-25 20.8%, and ranks 26-660 and self-administered funds about 30%.
- Fund growth. Against 7% market growth, ranks 1-5 grew close to 4%, 6-10 6.3%, and 11-25 and below about 15%.
- Evans’s reading. Advisers are moving down market and business is being awarded in a more fragmented way.
What did Evans say about self-administered funds?
- Size. Over 31,000 of about 90,000 funds, up about 1,400 year over year.
- Share. Over 34% of all private funds, down a little from 35% in 2020.
- Trend. He says this is consistent with what Convergence has seen for 22 consecutive quarters.
- Assets. About $5 trillion of roughly $20 trillion, a value up about 9.5%.
- Direction of outsourcing. From mutual funds and ‘40 Act business to hedge funds and now the closed-end market.
What did Evans say about auditors?
- New funds. The top 25 won almost 70%, all other auditors about 6%, and 24% did not report an auditor.
- New fund assets. The top 25 won 88%, all other auditors about 1%, and 11% did not disclose an auditor.
- Asset growth. The Big Four grew about 11.7%, ranks 5-10 about 19.4%, and ranks 11-25 about 19%.
- Fund growth. Auditors ranked 5 through 25 about doubled the market’s 7%.
- Funds with no auditor. About 13,000, down 5%, either not subject to an audit or selecting an auditor.
Which clients did Evans highlight, and what did he say to watch?
- Administrators. Gen II Fund Services, SEI Fund Administration, Alter Domus, Morgan Stanley Fund Services, and Apex Fund Services.
- Auditors. PwC, Deloitte, EisnerAmper, and BDO.
- Consolidation. He asks whether 660 administrators and 520 auditors will consolidate.
- Down-market trend. He says it remains to be seen whether advisers continue to move to tier two and tier three providers.
- Other trends. European players looking for U.S. properties, private equity investment in administrators, and prominent audit firms losing substantial business in 2020.