The people factor
With hedge fund industry assets now standing at more than USD1.5trn, at least half of which is in funds of hedge funds, Bank of Ireland Securities Services has a positive outlook for the fund of funds business. The trend of spreading risk across many managers and many strategies will continue apace, and the use of collective funds, both traditional and hedge, will remain the main way of achieving this. The involvement of BoISS in this business did not happen by accident, involving a long process of evolution and experience that has made it a key growth area today. The organisation has provided custody services since the 1940s and supported sister company Bank of Ireland Asset Management in its domestic funds business since 1966 and internationally since 1980.
In the process BoISS developed experience and capabilities in fund administration and custody, including valuations, financial reporting, transfer agency, securities lending and custody, for domestic and offshore funds. As Dublin's International Financial Services Centre enjoyed runaway success, the organisation supported third-party clients launching international funds and investing in Irish domiciled funds.
The feedback of third-party clients indicates that BoISS is proving successful in its efforts to achieve high-quality delivery, a determination to be the best that has been extended from traditional fund administration and custody to the fund of funds and fund of hedge funds business. The people factor is very important, because custody of funds of funds involves a hands-on, flexible and intelligent approach. BoISS benefits from Ireland's well-educated, English-speaking workforce; around 75 per cent of staff have graduate and professional qualifications, and many have wide industry experience.
The recent launch of a specialist hedge fund administration unit was a crunch point in many ways. Until then, BoISS provided a very good investment fund custody service, having learned the processes, controlled the risks and refined the service, but it wasn't a core service. The organisation's new capabilities in administering hedge funds provided the opportunity to look at the custody of hedge funds and fund of funds afresh.
To deliver a service clients want involves understanding what they need. BoISS spoke with its clients, with the clients of other service providers and with consultants. It became clear that the fund of funds and hedge funds custody industry was under strain. Business volumes were beyond most expectations, giving service providers little time to plan for changing requirements because they were heavily focused on meeting day-to-day needs.
By listening, the firm heard what clients wanted and learned from others' mistakes. Custody of funds of funds has become a core product, reflected in the establishment of a dedicated team. Following the rebuilding of its product, BoISS now offers clients central points of contact who are highly experienced, qualified and able personnel, and a team consisting of people with direct experience in transfer agency, hedge fund administration and traditional custody, to ensure full understanding of the needs and processes.
Clients can now choose a comprehensive service solution involving valuation, financial reporting, transfer agency and custody. Alternatively, they can select from a menu of options, such as having access to a thirdparty transfer agent either directly or through BoISS, the recording of equalisation shares, and an automatic re-investment programme. BoISS will not become complacent, recognising that things change, and will continue to listen to clients, the wider marketplace and beyond, to ensure that its product evolves to meet changing needs.
John Sheridan is an associate director at Bank of Ireland Securities Services
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