Once upon a time, fund administration did just what it said on the tin and nothing more. Outsourcing the day-to-day of back office detail was a natural step for a global funds industry rapidly growing in size and complexity.
The chief benefit to funds was an essentially ‘negative’ one: administration was about removing headaches for the fund manager, not positively adding value to the fund’s proposition.
But funds now operate in a vastly changed world. Thanks to post-crisis regulatory reform, the volume and complexity of data that funds are expected to capture and report to regulators and investors alike has ballooned. Globalisation has unlocked a variety of new markets, meaning new opportunities but also greater complexity. And competition for capital is more intense than ever before.
This has had a profound effect, in turn, on fund administrators. Thanks to the sharp uptick in the volume of data and reporting, leading administrators have evolved into central hubs for a huge array of business-critical information from myriad sources – information that is waiting to be turned
into value.
At the same time, increasing complexity and the newly ascendant role of technology forced the best administrators to invest heavily in intellectual capital. Fund administrators today are rarely the bean-counters of old.
The result has been the rise of a new breed of fund administrator. Accurate, quality third-party administration remains at the heart of the model, but it is quickly becoming the bare minimum. Leading administrators are using their newfound position to take on a much bigger role: one that positively adds value to the client fund’s proposition.
A good example is the area of investor communications. Given administrators’ preoccupation with detail, along with the wealth of client and portfolio data they are privy to, they are well placed to absorb – and usually improve – this function.
Leading administrators now routinely help funds engage more closely with their investors, providing information in better formats, more regularly, and in more depth than before.
Regulatory compliance is another case in point. The fact that so much administration is now connected to regulatory reporting means modern administrators have to be fully clued up on the technical, ever-changing nature of the rules, and precisely how they differ across jurisdictions. It is a natural step from here to the wider provision of compliance consultancy.
Consultant is the right word. The general trend is towards administrators taking on an increasingly advice-based, consultative role: helping managers improve their businesses and navigate the marketplace, especially those with unusual needs. The ideal relationship between a fund and its administrator is now one of active partnership.
This in turn will enhance the importance of specialism within the fund administration space. A generalist approach may have sufficed for the old model, but the new model will rely on administrators knowing their clients’ businesses inside out and understanding how the different expanded roles translate into different sectors. For instance, the Alternative Investment Fund Managers Directive places very different demands on private equity and real estate funds than it does other asset classes.
The industry will continue to travel in this direction as the more myopic fund administrators realise that the bare minimum just won’t cut it. No longer a simple facilitator of back-office processes, the new breed of specialised fund administrator will come to fill an indispensable niche. ‘Fund administrator’ is well on track to becoming a misnomer.
©2015 funds europe
