Post Summary
Dario Pogliano interviews George Evans on league table results for fund administrators and auditors from February 2020 to February 2021, including market growth, self-administration, growth by tier, and the Convergence clients Evans highlights.
Advisers disclosed over 90,000 private funds, an increase of over 5,000 funds (up about 6%), with assets of $20.7 trillion, an increase of $2.15 trillion (up close to 12%).
Evans says administrators ranked one through five grew assets about 7.5%, below the market’s almost 12%, while ranks six through ten grew almost 18%, ranks 11 through 25 grew 20%, and ranks 26 through 600 grew 20%. He says advisers are clearly moving down market.
Evans says 31,000 of the 90,000 funds, a little over a third, are self-administered, up about 1,000 funds from a year earlier. They are 34% of all private funds, down from 35% in 2020, with almost $5 trillion in assets, up close to 9.5%.
Asset growth was about 11%. The Big Four kept pace at about 10.5%, auditors ranked five through ten grew about 20%, and auditors ranked 11 through 25 grew 16%, which Evans calls 50% greater than the market. The top 25 auditors won 71% of new funds and about 88% of new fund assets.
How did the private funds market grow from February 2020 to February 2021?
George Evans, a co-founder of Convergence, opens by saying there are over 600 fund administrators and 500 audit firms servicing the private markets. 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 over the last seven years. Dario Pogliano interviews him on year-over-year growth.
Evans says advisers disclosed over 90,000 private funds, an increase of over 5,000 funds, up about 6%, and assets of $20.7 trillion, an increase of $2.15 trillion, up close to 12%. He says the top 25 administrators won 44% of about 8,900 funds disclosed, all other administrators won 20%, and advisers who self-administered kept about 36%. The top 25 won 55% of the $1.3 trillion in new fund assets, all other administrators 11%, and self-administered funds about 34%. He says Convergence continues to see very strong year-over-year growth in private equity and venture capital funds and assets.
How large is the self-administration market?
Evans says that of the 90,000 funds, 31,000, a little over a third, are self-administered, up about 1,000 funds from the same time last year. He says they represent 34% of all private funds, down from 35% in 2020, a trend he says Convergence continues to see inching downward, and that self-administration has moved through hedge funds and is now moving through closed-end funds. He says the value of self-administered assets totals almost $5 trillion, up close to 9.5%, or 24% of all private fund assets.
Evans says new fund launches are down year over year, but that fertile growth opportunities exist for administrators: those with the right technology can pick up valuable growth in private equity and venture capital as advisers continue outsourcing existing and new funds to third-party administrators. He cites cost pressures at advisers, lack of scale, and the need to leverage technology spend as reasons advisers will keep moving this business to fund administrators.
Which administrators grew fastest?
Evans says asset growth year over year was almost 12%, and that administrators ranked one through five, which he calls the behemoths, grew about 7.5% and were not keeping pace. He says administrators ranked six through ten grew almost 18%, those ranked 11 through 25 grew 20%, administrators ranked 26 through 600 grew 20%, and the self-administered market grew about 9.5%. He says the top 10 administrators should study this dynamic.
Evans says a few administrators had notable decreases in funds and assets in the market share league tables, and that the headline is that advisers are clearly moving down market with administrators.
How did auditors perform?
Evans says advisers disclosed close to 90,000 private funds in total, an increase of almost 4,300 funds, up 5%, with assets of about $20.3 trillion, a net increase of over $2 trillion, growth of almost 11%. He says the top 25 auditors won 71% of the nearly 9,000 new funds disclosed, all other auditors about 6%, and about 23% of those funds did not report a fund auditor. The top 25 auditors won about 88% of the new fund assets, almost $1.3 trillion, all other auditors about 2%, and about 10% of the funds that did not disclose an auditor accounted for the rest.
Evans says funds not reporting an auditor are a very large number and an opportunity: the fund may be in the process of selecting an auditor or may not be subject to an audit, and the former creates a business opportunity for audit firms.
Against asset growth of about 11%, Evans says that unlike administrators, the Big Four kept pace and grew about 10.5%. He says auditors ranked five through ten grew about 20%, which he calls double the market, and auditors ranked 11 through 25 grew 16%, which he calls 50% greater than the market. He says advisers are also moving down market in selecting auditors.
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 February 2021.
Convergence-client administrators highlighted by George Evans, February 2020 to February 2021
Convergence-client auditors highlighted by George Evans, February 2020 to February 2021
What did Evans say to watch next?
Evans says it does not seem to him that the administrator and auditor industries are consolidating, and that Convergence does not see it happening near term, though he sees interesting M&A activity all the time. He says it certainly seems advisers will continue to go down market, and that administrators and audit firms really need to operate across all asset types. He says closed-end growth will continue to clearly outpace open-end growth.
Evans also says he sees very large, complex, European-based administrators coming to the U.S. who, over the next few years, will give some large U.S. administrators a real run for their money, and that he expects a little shakeout in the top 10 audit firms, with some firms showing momentum and others a lack of it.
How do the league table figures compare by group?
The figures below are as Evans states them, rounded or approximate.
Share of new funds and new fund assets won, February 2020 to February 2021, as stated by George Evans
Asset growth by tier, February 2020 to February 2021, as stated by George Evans
These are 2021 figures; Convergence's current league tables are published in its monthly league tables post.