Interview - Erik Jens, Fortis Prime Fund Solutions: "The hedge fund model will certainly survive"
Erik Jens, chief executive of Fortis Prime Fund Solutions, says the move into public ownership of its Dutch parent has reassured clients and even helped to win new prime brokerage business, and that the organisation is well placed to help hedge fund clients come through the current difficult market environment.
HW: The ownership structure of Fortis was recently changed. Can you clarify what has happened?
EJ: Fortis Bank Nederland (Holding), the parent company of Fortis Prime Fund Solutions, was acquired by the government of the Netherlands for a total consideration of EUR16.8bn.
As a wholly-owned subsidiary of Fortis Bank Nederland (Holding), we believe Prime Fund Solutions is now one of the most stable counterparties in the alternative asset management industry. In recent weeks the shareholder of Fortis Bank Nederland has announced its strategic decision to merge ABN Amro with Fortis Bank Nederland to rebuild a national champion in retail, commercial, private and merchant banking, including a strong international network.
Prime Fund Solutions is already known for its autonomous international network and global operational platform and will not be affected by separation or integration issues. It will continue to focus on its clients and developing the business in an innovative way, including development of new products and services, while maintaining a high level of operational excellence.
HW: How have clients reacted to the change?
EJ: Prime Fund Solutions has been completely transparent with its clients, regularly communicating changes in the group's ownership structure. As the majority of our clients have been with us for many years, we have found them to be extremely supportive. Rather than losing any clients, we have recently won several new mandates, including prime brokerage. Feedback from our clients tells us that end-investors in funds administered by Prime Fund Solutions view the new ownership structure as a positive development.
HW: Has the change of ownership affected your day-to-day operations?
EJ: Day-to-day operations have been completely unaffected by the change in ownership. Prime Fund Solutions employees remain committed to providing continuity and service excellence to all of our clients. All operational enhancements and projects are continuing as planned. Indeed, Prime Fund Solutions has recently received SAS 70 Type I for Europe, which follows on the back of our SAS 70 Type II approval for the Americas.
HW: What is Prime Fund Solutions currently doing in terms of projects and business development?
EJ: A number of projects are currently underway with a focus on reducing the operational burden on our hedge fund and fund of hedge funds clients. They include enhancements to daily reporting and online client tools, introduction of teams to help clients with cash management, FX share class hedging, and liquidity monitoring for funds of hedge funds.
Prime Fund Solutions is also taking advantage of the headcount reductions by a number of our competitors to hire key personnel to develop our business in general and to accelerate our growth in Luxembourg and the US.
HW: How are you helping your clients through the difficult market conditions? What trends are you seeing?
EJ: It is easy to build relationships in good times. However, it is the relationships that you continue to build in the difficult times that set you apart from your competitors. With this in mind, we continue to reach out to our clients to ask how we can assist them and how we can provide additional value.
Many of our clients are finding the current market environment to be very challenging and we have seen an increase in the use of side-pockets, gates and fund restructuring. Given our long experience in the fund administration business, we have been able to provide valuable assistance and guidance in the creation and administration of all of these mechanisms.
HW: Will deleveraging squeeze out performance opportunities?
EJ: In the short-term, deleveraging is harming performance, but in the medium to long term, a deleveraged environment will present compelling opportunities. In the past, during periods of high economic growth, it has been tempting to pick good assets and make leveraged investments. In tough economic climates, inefficiencies and mispricings arise, meaning that good investors can actually perform much better.
HW: How will the alternative investment industry develop over the next few years?
EJ: Given the average hedge fund performance, liquidity issues and the current financial climate, it is likely that the industry will contract sharply over the next year. Furthermore, the industry will almost certainly be regulated within the major centres.
However, the hedge fund model remains an attractive one and it will certainly survive. It is likely that we will see a smaller number of hedge funds with specialised strategies, and larger funds of hedge funds becoming more mainstream, more regulated and with lower fee structures. We are moving toward a bifurcation of the industry, and standards of practice in all areas will rise, particularly in operational areas.
HW: What are clients looking for when choosing an administrator?
EJ: Clients are focusing on robust operational structures, as this is what their investors are demanding. No matter how good our reporting or technology is, we place particular emphasis on exceptional fund accounting, as investors need to be confident that what their funds report is actually a fair reflection.
In the past, difficult periods for the hedge fund industry have resulted in investors turning their attention to risk mitigation. Operational risk is one of the most important and visible areas for investors, and we continue to assist new and existing clients through site visits at our operational offices. Our experience with the investor community sets us apart from many of the newer market entrants.
HW: What are Prime Fund Solutions' plans for the future?
EJ: Prime Fund Solutions will continue to focus on client intimacy, operational excellence and thought leadership, meaning that we work closely with our clients to help develop their business, we continue to service at the highest level, and remain committed to introducing services to help our clients ride out difficult periods. We have made provisions for further investment in our business throughout the current downturn, and remain focused on building long-term partnerships with our clients.
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