[ G C L E G E N D | J A Y P E L L E R ]
What initially sparked Peller ’ s fascination with hedge funds during his senior year at college was when he picked up a copy of a seminal book widely considered to be one of the most authoritative texts on investment , namely Jack Schwager ’ s Market Wizards , which comprises a series of interviews with some of the industry ’ s trading titans – including Paul Tudor Jones , founder of the eponymous Tudor Investor Corporation . “ It really interested me learning about how people like Paul Tudor Jones and other great traders made their money and the strategies which they operated ,” he recalls . After graduating , Peller went on to work in the Financial Services division at EY , where he acquired a deeper understanding of futures and commodities – but also funds . Following a three-year stint at EY , he was then hired by Tudor Investment Corporation in 1993 to help support the firm ’ s back-office operations . “ My time with Tudor ultimately led me to Citco . Tudor was a client of Citco at the time , and in 2000 , the latter acquired the former ’ s back-office technology and staff – and the rest is history ,” says Peller . During his 22 year tenure at Citco , Peller has seen some extraordinary changes in the hedge fund landscape . Among the most significant was the industry ’ s shift towards outsourcing middle- and backoffice functions . Up until 2008 , many hedge funds self-administered but the financial crisis put an end to that practice . With large institutions struggling to etch out returns in the aftermath of the crisis , many turned to hedge funds for alpha . In contrast to high net worths and family offices , pensions funds and insurers did not look kindly on managers selfadministering their portfolios , especially as many allocators were still reeling from the Bernard Madoff fraud . “ Institutional investors wanted hedge funds to use an administrator to oversee their books and records ,” he says . As competition for client mandates grew , hedge funds had little option other than to appoint third party administrators . There were other factors behind the post-crisis outsourcing boom too . In the 1990s and early-mid noughties , hedge funds typically provided only piecemeal transparency to clients , often nothing more than a month-end NAV [ net asset value ] statement or a periodic
Legend
JAY PELLER
In the last three decades , hedge funds have morphed from being a purely cottage industry - which managed money on behalf of high net worth individuals and family offices - into something far more diverse and institutional in nature , with the asset class currently sitting on $ 4 trillion + of client cash . As the head of fund services at Citco , Jay Peller has witnessed the sector ’ s remarkable transformation .
( i . e . monthly ) performance report . These transparency lapses were brutally exposed in 2007 / 8 when countless hedge fund clients found themselves exposed to esoteric assets and markets , which were well outside of the scope of their original investment mandates . In some instances , investors were gated for long periods of time as hedge funds desperately sought to offload problem assets . The really unlucky allocators – including many funds of hedge funds – suffered catastrophic losses after being exposed to frauds such as Madoff . As investors and regulators demanded more transparency from hedge funds , managers increasingly started delegating reporting activities to fund administrators . Beyond providing reporting services , Peller says administrators have invested heavily into other middle-office tools including collateral management , treasury , and reconciliations . “ Over the last few years , administrators have really become a value-add for hedge fund clients . When I first arrived at Citco back in 2000 , the company was a purely month-end administrator . In the 10 years after I joined , Citco integrated all of the Tudor technology enabling it to develop middleoffice solutions ,” continues Peller . Another milestone in Citco ’ s recent history has been its diversification into new asset classes beyond hedge funds . “ Nine years ago , 99 % of Citco ’ s AUA [ assets under administration ] was hedge funds ,” he says . Since then , Citco has expanded into private markets supporting burgeoning and fast growing strategies such as private equity , private credit and real assets , he adds . This is in part a response to the increasing hybridisation that is presently sweeping through alternatives and traditional asset management . Asset managers of all persuasions – stung by market volatility – are now embracing private capital in their droves as they look to diversify returns and widen their investor base . It is here where fund administrators like Citco – which can support multi-asset class portfolios – have benefited . Moving forward , Peller believes digitalisation will be something that differentiates fund administration leaders from the rest of the pack . Citco , he says ,
28 Global Custodian Fund Services Annual 2022