The illiquid asset administration space, like the asset management industry as a whole, is experiencing significant changes in both internal and external factors post-COVID. Internally, a large number of administrators are back in the office full-time and enjoying the all but forgotten benefits of a shared physical space, while externally, trends in fundraising and market performance suggest that although the rest of 2022 may still be difficult for the industry, performance is certainly being maintained.
Here we reflect on our conversation with Matt Lowe for Langham Hall, a long-time Convergence client, and what his fund administration firm’s experience of 2022 thus far tells us about the illiquid asset administration space currently. We also highlight the findings of the Convergence League Table for April 2022 and explore the growth of asset administrators, auditors, custodians and prime brokers between April 2021 and April 2022.
This blog’s insights are based on Episode 15 of our In Conversation with Convergence podcast, hosted by Convergence Co-Founder and President, George Evans. In this episode, George is joined by guest speaker Matt Lowe from Langham Hall, who reflects on how the fund administration firm, which specializes in illiquid asset administration, is faring post-COVID. Listen via the Convergence website or scroll down to continue reading the blog.
Langham Hall reflections on Q2, and what this tells us about illiquid asset administration in 2022
As a fund administrator with $140 billion dollars of assets under administration across over 450 funds, Langham Hall, a long-standing Convergence client, is a telling example of how fund administrators are re-adjusting to life post-COVID and maintaining performance despite difficult market trends.
With a sole focus on illiquid assets, including Private Equity, Real Estate, Debt, Infrastructure and Venture Capital funds, Langham Hall’s strides in this space in 2022 indicate specific industry-wide happenings worth knowing about as the asset management industry sees out the remainder of 2022.
Steady growth among existing and new clients
Despite the uncertainty of the last two years, Langham Hall has seen steady business growth across both existing and new client verticals in 2022. Interestingly, within Langham Hall and the industry at large, fund administrator clients are launching new funds faster than before, across jurisdictions, including the US, Europe, and Asia. This has fortunately led to steady growth for the firm and shows a much-needed swing back to normalcy after the pandemic.
Winning the war for talent
This growth has, of course, resulted in the need for increased hiring for Langham Hall, which has managed to balance the pace of growth and client onboarding with the pace of hiring, despite the labor market’s continued struggle to find and place top talent in the industry.
Langham Hall’s approach to hiring is a fine example of how to economize on high-quality talent, leading to impressive retention numbers. The firm maintains a focus on training recruits properly and setting them up for success, which invariably leads to a positive impact on both internal team dynamics, efficiency and morale, as well as client satisfaction.
Langham Hall has fared better in the war for talent than many firms in the market, which continue to struggle with decreased headcount numbers after the wave of resignations that hit the industry during COVID. However, this strong focus on priming employees for success is paying off, and as the industry continues to adjust, bringing talent retention to the forefront of the agenda can help bring staff numbers up again.
Remembering the value of working from the office
No industry was immune to the widespread lockdowns experienced globally during COVID, and although remote and hybrid work set-ups have gained in popularity, firms like Langham Hall are recounting the benefits of teams working together in a shared office space.
Even during COVID, Langham Hall’s management strived to ensure all offices, across locations, stayed the same course and remained like-minded, even when different jurisdictions were affected in different ways. Although this helped to ensure business continuity, the firm did discover, like many others, that learning slows down when teams are physically detached, and fully remote is not beneficial to both clients and teams alike.
As such (and indicative of an industry-wide trend), Langham Hall has maintained a preference for in-office working, and their goal is to continue to work from the office full-time. However, it’s important to note that the firm has made a point of emphasizing to its team that in-office work is about more than in-person face time – it carries with it real benefits for both individual growth and success within the firm, and for team-wide efficiency overall, including better collaboration and training, and faster learning.
Maintaining a continued emphasis on flexibility
What has definitely supported the firm’s return to the office with minimal pushback from the team, is Langham Hall’s existing culture of flexibility. There is a difference between working remotely and true flexibility, and even prior to COVID, the firm prioritized flexibility and continues to take it very seriously. This has helped with the move back to the office, as teams know that the flexibility to meet personal obligations is there when they need it, regardless of working full-time from the office again.
Similarly, at Convergence, we have found that having every teammate at the office simultaneously leads to maximum exposure and connection, and has positively impacted our team dynamic. While we currently follow a hybrid model and also offer full flexibility, we encourage all our people to be in the office on the same days, not merely to tick a “work from office day” box, but to really benefit from the time of shared in-person collaboration, even though the world at large finds itself at the beginning of a very different way of working.
Key market trends currently affecting illiquid asset administration
2022 has been a challenging year so far for the markets, and assets have remained down despite widespread efforts to get market performance up again. Instances like these have quite the knock-on effect for fund administrators as expenses can increase, or not change at the same pace as asset values, leading to quite the balancing act on the part of administrators. This is also affected by the growing trend to outsource support for firms that are tending towards self-administration.
Below are the key observations by Langham Hall of how the current volatility of the market and the downward spiral being experienced by the industry overall, are affecting illiquid asset administration in 2022.
The fundraising environment is thriving despite market volatility
The US in particular is experiencing considerable market volatility, with threats from the Federal Reserve of a forced recession at some point to get inflation under control. However, despite trepidation for the future, Langham Hall’s clients specifically have not been too adversely affected.
In fact, in the fundraising environment, more fund managers are coming back into the market than before, and more quickly. Langham Hall has seen clients raise funds, do final closes and get back in with other funds at speeds not seen before. This fast turnaround time is unlikely to be a short-term trend, but rather the way of the future.
However, market volatility is still a concern, and fortunately for fund administrators like Langham Hall, thoughtful preparation appears to be the current game plan for fund managers, and this planning for future volatility puts fund administration in a good position for now.
Interesting developments among Limited Partnerships
Another interesting trend being seen is among Limited Partnerships in the industry. Looking to leverage good opportunities to the fullest, Limited Partnership capital is being allocated earlier, with some LPs having already allocated all capital for 2022 in April, and others already allocating for 2023. In fact, some LPs are now looking at up to 15 funds a day, compared to an average of five previously.
While this has increased competition among existing and new funds, this trend should trickle down to the illiquid asset space and have a positive impact on both how these assets are managed and administrated.
Convergence League Table Summary
With every episode of In Conversation with Convergence, we report on the findings of the Convergence League Table for that month, tracking and comparing the growth of various asset management industry players through our comprehensive database. To unpack the highlights of this month’s Convergence League Table podcast, at the time of the May podcast release, the Convergence League Table revealed that between April 2021 and April 2022:
- Assets grew about 16%
- Fund Administrators in positions one through five in the league table grew at about 25%, six through ten grew at only 11%, and 11 through 25 grew at almost 24%. Compared to the market growth during this period of 16%, admins one to five, and 11 to 25, significantly outpaced the market.
- In terms of Fund Auditors, the big four saw growth of a little over 7%, compared to 16% growth for the industry, and auditors five through ten grew a stellar 29%, while Auditors positioned 11 to 25 grew close to 27%. This reveals that new businesses and funds that are appreciating saw the bulk of this growth during this period in comparison to established funds in the top four positions.
- Looking at prime brokers, the primes grew at about 15% in the given period, with prime brokers in positions one through ten grew at about 3.2%. Prime brokers 11 through 25 grew close to 7%, and those in positions 26 and above grew close to 14%, revealing that most business during this time went to prime brokers positioned 11 through to 25 plus.
- In terms of custodians, fund growth over the period came in at about 14.5%. Custodians positioned one through ten grew 11%, custodians positioned 11 to 25 grew only a little over 1%, and all other custodians from position 26 onwards (of which there are 1,400 servicing the SEC-registered market) grew close to 17%. While the top 10 held their own in the period, what this growth distribution reveals is that business is moving down the ranks significantly, resulting in a fair amount of growth for custodians in position 26 onwards.