Fund administrators hold large amounts of money that belongs to others: subscription and redemption flows, operating balances and investor money in transit. Much of it sits with one or two banks chosen for relationship reasons, often long before anyone weighed the counterparty risk.
The exposure
A single banking relationship is a single point of failure for balances that belong to your clients and their investors. The larger the balance, the more material the exposure if that bank fails.
Why diversification tends not to happen
The textbook answer is to spread balances across several banks. In practice that runs into operational obstacles.
- Each new bank means another onboarding and KYC cycle
- Reconciling balances across several institutions multiplies the administration
- Moving money to follow capacity or rates is manual and slow
- Reporting has to be assembled from several sources
Faced with this, most teams accept the concentration and carry on.
A managed panel
A single relationship that opens access to a panel of banks removes the trade-off. Balances can be spread across counterparties, with onboarding, money movement and reconciliation handled centrally and one consolidated view of who holds what.
“Diversification becomes the default. That is the difference between knowing you should spread counterparties and doing it.”
What to look for
When assessing an approach, weigh the breadth of the panel, how deposit protection works across jurisdictions, the quality of the reconciliation and reporting, and the controls over who can move money. The money belongs to your clients, and the infrastructure around it should reflect that.