Mon, 06/06/2011 - 15:43
There’s a lot to be said about getting a fund administration location correct. Get it wrong and you can damage client relationships along with your reputation. Get it right, and growth opportunities can blossom, says Dermot Butler, chairman of Custom House Global Fund Services Ltd and Custom House Group.
So when I read last week that the Monetary Authority of Singapore (MAS) was planning to strengthen the Lion City’s fund administration business, I rather welcomed it, not least because we ourselves operate there.
Far from being a threat to competition, I think having a concentration of administrators will actually benefit us. It reminds me of Houston, Texas. Go to get your car fixed and you literally drive to the equivalent of Garage City where multiple car garages all compete for business. They all do well. I think the same will happen in Singapore with global administrators.
As long as MAS regulate sensibly I’ve got no problem with it. If they want an oversight, visit administrators’ offices to check they’re valuing things the way they say they’re valuing them, then that’s fine. It strengthens the hand of the administrator: not only are the funds regulated but so are we.
When we merged with Equity Trust we had three offices. Costs in Dublin were skyrocketing so we had to decide: Where can we set up that’s going to give us a decent global footprint?
In the end I chose two locations: Chicago and Singapore.
As a location, the Windy City has many advantages: it’s in the centre of the States, you can fan out into the Canada market, it’s the home of the CTA market, and it’s one hour nearer southeast Asia. I’m also a great believer in the “Mid-West” work ethic. Of course, many might think New York would be the obvious choice, but it’s expensive, and there’s a real risk of having good staff poached by hedge funds. Not to say this couldn’t happen in Chicago, but at least there they’re more likely to say ‘Please’!
Turning to Asia, my choices were Singapore, Sydney or Hong Kong. Sydney has undoubtedly the greatest lifestyle but it’s too remote. Singapore was ultimately chosen for two reasons: I happen to think it’s politically more stable than Hong Kong. And the Singaporean education system seems more procedure-orientated than Hong Kong where it’s more entrepreneurial. And no administrators want entrepreneurs at the coalface!
Settling on Singapore proved propitious. We’d just picked up the Innocap account: the National Bank of Canada’s managed account platform. Using Singapore as the fulcrum location, we’re able to provide T+1 valuations. Starting in Chicago the whole book is shipped to Singapore to finish trade capture and commence reconciliations and NAVs. The book is then rolled on to Dublin to complete the NAVs of all 28 master funds before being sent back to Chicago where the NAV of the feeder funds is calculated.
This illustrates how useful having a location like Singapore can be in terms of operational efficiency. And the Innocap platform has now grown to over 100 funds with daily NAVs.
Moving forward, as China opens up and more funds start investing into and out of the Mainland many may, depending on choice of domicile, choose Singapore for administration: it’s got the language, it’s in the right time zone, and as I said earlier, there’s a strong talent pool of educated people.
What we’re already starting to see in Singapore is the growing influence of India on the region. Everyone goes on about China but I happen to consider India a sleeping giant. That’s one area where we as a business have got to hone up our act.
We’ve started to administer a few Indian funds in Singapore and things are beginning to pick up but it’s early days. Whilst India is on our radar, I don’t think we’re anywhere near outsourcing into the sub-continent. We only have around 250 employees spread globally. Companies that have made it work in India have much larger numbers of managers and employees than us.
One interesting side issue in terms of Singapore benefiting from the growth of India’s hedge fund industry is the fact that it has a double tax treaty with India, similar to Mauritius. There are a number of problems there currently, typically involving corruption, and this might well have a detrimental effect. A number of Indians have come to us saying they want to set up Indian-owned funds in Singapore so that’s a trend we’ll be keeping our eye on.
One thing I will say about choosing a new location is that a lot of it is to do with timing.
It seems logical to me that anyone investing into or out of North Africa and some parts of the Middle East should be nervous that it could take months, if not years, for stability to be achieved. Egypt is slowing heading in the right direction but you never know what kind of political contagion is going to ripple out of MENA.
Prior to Christmas last year, I was telling someone that the next obvious place for us to open an office would be Bahrain in the Middle East. Dubai might have a better lifestyle but there’s not too much substance to it. Qatar is doing quite well but it’s still a small burgeoning area. Bahrain, however, has a solid infrastructure, it’s been in the business a long time and it has all that Saudi money. So to me, it seemed like a sensible place to consider.
Thank goodness we didn’t.
With political unrest in MENA, I think Malta and Singapore are well positioned to capture MENA investors. Investment managers wanting to set up funds to invest in the Middle East might not want a Bahraini or Dubai fund because of all the uncertainty. Therefore, a Maltese fund with a Middle East adviser could be preferable. And it can be Shariah-compliant.
I haven’t seen any MENA re-domiciliations yet, but what I have seen is a change of attitude towards moving into the region. People are having second thoughts. That’s why I believe Malta and Singapore can steal a march.
We’re actually in the process of developing a Shariah Nascent Fund. It’s likely that we’ll choose to locate it in Singapore or Malaysia. We’ve had talks with people in Malaysia and might well consider the Nascent Shariah there, given its expertise with Shariah-compliant products, but for the present we would administer it from Singapore.
There’s a lot to consider when choosing a location. You can cover and plan every detail. But if you get the timing wrong, even the best laid plans can go to waste.
Dermot Butler is the chairman of Custom House Global Fund Services Ltd and Custom House Group
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