Managers and investors are not the only industry players that have had to diversify to face the challenges posed by the global macroeconomic environment. Service providers have also been forced to rethink how they allocate their time and money.
MUFG Investor Services CEO John Sergides told Alternatives Watch in a recent interview that his fund administration business has been able to maintain and grow its client base by supporting managers during these uncertain times — an effort that has required investment in new offerings aimed at helping their clients compete for new pools of capital.
“Our top priority is to help clients through difficult times,” said Sergides.
He emphasized that his sales team is small but is hyper-focused on providing the competency and empathy that asset managers need as they navigate the shifting macroeconomic environment.
MUFG Investor Services currently has $770 billion in assets under administration but is expecting to surpass $1 trillion by the end of the year. Their client mix is a 50/50 mix of private versus public markets across hedge funds, fund of funds, private equity, private debt, real estate, infrastructure, and 40 Act funds.
“Our long-term commitment to the clients is absolutely paramount,” Sergides said, adding that his team has not lost a single client in the last five years, a time period in which absolute return strategies have especially struggled to attract capital.
The number of new hedge fund launches has fallen to its lowest level since the 2008 Global Financial Crisis, according to recently released data published by Hedge Fund Research. The research shows the estimated number of new launches tumbled to just 71 during Q3 in 2022, compared to 80 launches recorded the previous quarter. That represents the lowest launch rate since 56 new hedge funds were rolled out in Q4 2008 in the midst of the Global Financial Crisis, marking a 14-year low for launches.
As hedge fund launches have stalled, many fund administrators have consolidated their businesses with competitors or have bought into new business lines with mixed results. At MUFG, Sergides has expanded its fund administration services to include FX overlay, banking and treasury, fund financing, securities lending and business services broadly.
Since Sergides joined the firm, AUM has grown more than 25% annually in a down market. His aim is to work with both investment firms and MUFG’s parent, which conveniently is one of the largest banks in the world with assets of over $3.3 trillion.
As some banks divested their fund administration businesses in recent years, Sergides says they have missed out on resilient, exponential growth over the past decade. MUFG’s investments in business diversification have overcompensated the bottom line for the bank in his estimation.
Moves in recent years have included the hiring of a new securities finance team, launching new products in fund financing, private equity, and FX. Sergides also focused on building in-house technology to help improve data security and user experience.
The FX Services division began over two years ago with the hiring of Hans Jacob Feder as global head of FX Services from JP Morgan Securities and Alberto Baptiste as executive director and head of FX sales from BNY Mellon. The aim was to deliver cutting-edge FX solutions to clients, and indeed the group made a difference to its clients’ fund performance, especially last autumn during the UK Sterling crisis that sparked currency fluctuations of 15%.
The MUFG FX Overlay solution has been promoted as a comprehensive, cost-effective and transparent currency overlay hedging solution, designed to mitigate risks related to FX exposures within a portfolio or hedged share classes. Fully automated, the service is flexible and cloud-based, allowing managers to tailor every aspect of their FX overlay program across the entire lifecycle of a hedge, including hedge ratios, hedge frequency, NAV triggers, tenors and execution methodology, officials said.
Other areas of expansion at MUFG include offering investor communications and report distribution services, payments processing (i.e. salary/invoices/global payment processing) and ultimately plans include offering of corporate services such as providing office space and accounting services.
Perhaps the most interesting growth area for the firm centers on the offering of new products and ESG-oriented solutions. Within both public and private markets, these services include a data collection service pre-investment, ESG risk assessment frameworks and helping managers monitor portfolio exposures.
Energy-focused strategies really began to proliferate as Europe’s energy crisis made headlines thanks to the war in Ukraine. As more fund managers look to launch new funds and deploy assets into ESG-oriented programs, Sergides is confident that MUFG will be able to aid them in having state of the art technology and tools at their disposal to make the right decisions. At the same time, the team may just gain a client or two in meeting the investment manager where their business has yet to evolve.
