State Street’s investment servicing arm, State Street Global Services, is building out its fund administration services platform in Asia Pacific.
SSGS’s alternative investment solutions group (AIS) – which provides administration services to hedge, private equity and real estate fund managers – will open a new office in Shanghai in November.
The firm has identified two client service employees for the new branch and will hire more in the coming months, says Carol Hall, Asia-Pacific senior managing director of State Street AIS based in Hong Kong.
Eric Chow joined State Street from BNY Mellon last month to spearhead these growth efforts, as Asia-Pacific head of client relationship management in the AIS group. From his Hong Kong base, Chow will oversee the Shanghai office and focus on expanding the unit’s offering in China and North Asia, reporting to Hall.
The firm’s growth plans are two-fold. In addition to targeting Asia-based hedge funds, private equity firms and real estate asset managers, State Street also seeks to support global fund managers looking to expand into the region.
Many expect foreign fund managers to seek opportunities in the mainland via schemes such as Shanghai’s qualified domestic limited partner (QDLP) scheme. This allows offshore investors to set up onshore feeder vehicles for raising money from Chinese investors. Through these structures, the firms then invest offshore.
Six firms received approval to raise $50 million each under the QDLP scheme in September – Canyon Partners, Citadel Group, Man Group, Oaktree Capital, Och-Ziff and Winton Capital. Hall declined to say whether any them are State Street clients.
The six firms are said to be already meeting with mainland investors, and while the quota for the programme remains small – at $300 million – the Shanghai Financial Services Office (SFO) is expected to expand this amount should the initial phase prove successful.
It’s too early to tell whether the programme will take off, says Hall, but the prospects are too encouraging to ignore. “This is the first time this has happened. For a hedge fund manager, this is a great [chance] to access a new market where there are great opportunities.”
Before 2008, many hedge funds performed fund administration in-house. That is a practice unheard of now, largely due to the Madoff ponzi scandal, and has led to the third-party fund administration industry taking off.
Chow says mainland institutional investors are particularly keen on ensuring their underlying hedge funds have third-party administrators in place.
Meanwhile, Hall notes a shift among hedge funds and private equity firms in Asia as regards investment strategy. Equity long/short has been the preferred strategy in the region for years. “What we’re seeing now is increased complexity from some of our clients, who are looking at more debt products and hybrid strategies,” Hall says.
In addition to Shanghai, SSGS has offices in Hong Kong, Singapore and Hangzhou. There are 80 employees across Hong Kong and Singapore, roughly split 50/50 between the two, while the Hangzhou office houses around 240 employees.
While State Street has offered fund administration services in Asia for several years, it is a relative newcomer to alternatives administration, having entered the space via its acquisition of Jersey-based Mourant International Finance Administration in April 2010.
The purchase of Goldman Sach’s hedge fund administration arm in June last year boosted State Street AIS’s total assets under custody to $25.7 trillion as of June 30, compared with $22.4 trillion at the time of the acquisition.
“When we first started, the view was that we were too late in Asia, that the market was already saturated by service providers,” Hall says. The firm has proved this wasn’t the case through its rapid growth since then, she notes.