A decade ago when Maitland (then FinSource) first explored the possibility of selling services into Europe, we were confronted with the twin challenges of establishing the credibility of outsourced
A decade ago when Maitland (then FinSource) first explored the possibility of selling services into Europe, we were confronted with the twin challenges of establishing the credibility of outsourced administration as a concept, as well as South Africa as a viable outsourcing destination. How things have changed! The outsourcing of back office functions is now well established as best practice and independent administration is increasingly specified as a requirement by end investors. The setting up of substantial administration operations in South Africa by the likes of State Street and JP Morgan has gone a long way to establish South Africa as a recognised offshoring destination.
This is not that surprising given that the South African economy, founded as it was on capital intensive mining activities, developed a truly first world financial sector from the outset. Moreover as a British colony, it inherited English company law and a legal infrastructure which is immediately recognisable and comfortable to Europeans. The developed nature and internationally relatively small size of the South African financial services sector has made it easier to keep pace with the rapidly evolving operational landscape. South Africa has therefore remained abreast of, and in some limited areas been a leader in, the move towards dematerialisation and straight through processing.
The ability to match European service providers is of course not enough – there needs to be positive differentiators as well. In South Africa’s case these come largely in the form of a substantially lower cost operating environment and the availability of a large pool of skilled resources. Based on our own experience, the cost of administration staff is about 30% of comparable staff in London and about 50% of that in Luxembourg. In the same vein, costs for premises are 15% of what they would be in London and 40% for Luxembourg. Other positive factors are a strong regulatory framework, the fact that we are broadly in the western European time zone and have no language difficulties (at least for English speakers!).
Issues within the South African hedge fund industry are very similar to the broader international experience. Like its international counterparts, the South African regulator, the Financial Services Board, is grappling with the difficulties of developing a regulatory framework for alternative funds. Despite a lack of clarity and an uncertain tax environment, the sector has grown rapidly and many traditional long only managers offer alternative funds alongside the numerous specialist hedge fund managers. Third party administration is very well established and is rapidly evolving from best practice to the industry standard.
Given these positive differentiators Maitland’s fund services business has adopted the development of its European client base as a core strategy. In terms of our model, all administration is performed at our Cape Town premises and client support is rendered out of our Luxembourg office. Further satellite offices may be established in time as required. Our administration platform is built around the SunGard InvestOne system and is highly automated, both as regards trade and corporate action processing as well as reconciliation. We therefore believe that we are well-placed to take advantage of industry trends such as daily NAV’s, enhanced performance and risk reporting. Maitland’s fund services business currently administers over 1,500 funds with an approximate value of EUR28bn and has a complement of 250 staff.
By Dale Lippstreu of Maitland Fund Services
