“After 29 years in the industry, it’s hard to be surprised anymore,” David Goldstein, the director of product, fund services at STP Investment Services, reflects. Goldstein has spent the majority of his working life in the financial services, with 24 of those 29 years spent in fund administration.
Goldstein’s life was not always destined to go down this path. At undergraduate level, Goldstein majored in hotel management and was determined to make a success of himself in the hotel business — until he actually started his career.
“I was dead set on the hotel industry. It was fascinating to me. But, what you find out after graduating from school is that it’s fun to be on one side of the front desk of a hotel, it’s a totally different story to be on the other side of it,” he laughs.
“When somebody is 18 or 19 years old and has to declare a major in college, they have no idea of what the rest of their life is going to look like. It’s a really young age to think about what you want to do for the rest of your life.”
Despite insisting that he never foresaw the career he ended in, Goldstein has forged success in fund administration.
Taking off
Goldstein left the hotel business and joined H&R Block, a tax preparation service, in what was, he says, “supposed to be a temporary role”. He explains that his interest in taxes and his experience in customer service made him an ideal fit for the role. Goldstein soon moved to Trident and was trained in fund administration. He never looked back.
“Back in that time, in the late 1990s, fund administration was hardly ever talked about. It was just not something that many made use of,” he explains. “In 2005, I decided to move over to HSBC, which was at the time one of the largest fund administrators, and my career has really just taken off from there.”
Goldstein was part of the rise of fund administration from a niche, small industry into one of the most vital aspects of financial services. But how did the space grow so quickly?
In part, Goldstein admits, out of unfortunate circumstances.
“The most challenging moment in my career was definitely the Great Recession, starting in 2008,” Goldstein says. He details how fund administrators suffered as they generally charge on a basis point scale, based on the amount of assets that a manager has under administration.
“You saw funds take a humongous hit in their asset size, which was a humongous hit to any firm that was servicing those assets in terms of revenue,” Goldstein continues. “There was good that came out of that, however, and the fund administration industry really got a boost from the Bernie Madoff scandal.
“If Bernie Madoff had had an administrator on his funds, he would not have been able to get away with what he did.”
The fund administration business suffered greatly in the financial crisis, yet the impact of such a crisis catapulted its importance to the top of the agenda. “It started out as a pullback and then ended up, two or three years later, a big boom for the industry.” Goldstein remembers.
An outside perspective
Few can offer an account on the changes the fund administration space has been through since the turn of the millennium as detailed as Goldstein. He notes outsourcing is one of the biggest changes in the industry, and a trend that will continue to dominate the space in the future.
Goldstein says: “When I first got into this industry, most managers kept the majority of what they did to themselves — with obvious exceptions like audit and tax work, prime brokerage. Now, managers, for cost saving reasons, are going to much more of an outsource model.”
He points to compliance, and human resource work as key examples of where fund administrators have been looking to outsource. Goldstein does not find it surprising either.
He speculates: “If you hired somebody in New York to do that work, you’re talking about a human resources price tag of US$150,000 to US$300,000 a year. Whereas, you can potentially outsource that for a third of the cost.”
Goldstein adds that managers launching smaller funds, with US$10 million funds no longer uncommon, as another driver of the outsourcing trend.
“Smaller funds simply can’t afford to do everything in-house. They can’t hire all those people to do that work at a reasonable cost,” Goldstein explains. “Also, nobody can have all those expertise in-house either. To find a partner with those expertise on an outsourced basis just makes everybody’s life a little bit easier.”
The other major development in the fund administration space, and financial services more generally, is in the advancement of technology — even if Goldstein is still slightly sceptical about its wholly revolutionary impact.
“People seem to think that the less humans actually touch a fund administration mandate, the better,” he explains. “But it is still very much a people-driven business and a people-driven service. You cannot fully outsource everything to technology, which some of my competitors have tried to do.”
With the advancement of technology has come the increased threat of cybercrime and, for fund administrators, protecting their data from criminals is of the utmost importance.
Goldstein explains: “Cybersecurity is exceptionally vital. Managers that play in the private capital space generally will hold their trading strategy very close because it’s proprietary to them. The integrity of their data is vitally important to them.
“There are managers that are very transparent with their investors about what they’re investing in and their methodology, but many managers are not, and for those that are not, it’s obviously vital for us to protect their data.”
After all this time, there must be something that surprises Goldstein — even if he suggests otherwise.
“I would say the biggest surprise is probably how many new administrators have popped onto the scene in the last 20 years, coupled with how much M&A activity around those administrators has taken place in the last 10 to 15 years, that is surprising,” he says.
A competitive field
After 29 years in the industry, what does the future have in store for Goldstein and STP Investor Services?
Even though he is keen to downplay any achievements made in his brief tenure at the firm, Goldstein has a clear strategy.
“One of my big tasks is to help the firm get brand recognition,” he explains. “I have developed a very large network of industry sources, especially in New York, and I have been able to introduce the STP brand to them. We’re doing a very good job of getting our name out in the industry.”
Goldstein is not completely satisfied with their progress just yet and knows he, and the firm, have more work to do.
“I want to get a seat at the table,” Goldstein insists. “When a manager is looking for an administrator, I would like for them to come to STP.”
Goldstein knows that his task is not simple, particularly given the increased number of fund administrators and levels of competition in the industry, but is determined to keep fighting.
“There are probably 50 or more reputable firms that do what STP does,” he says, before adding. “But I’m hoping that my efforts, and the efforts of other people within our firm, are going to drive people to us for the business.”
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BNP Paribas
Fabrice Silberzan
Image: STP Investment Services 
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