Customisation instead of commoditisation
By Peter Hughes – In the wake of the financial crisis, the global alternative fund industry finds itself in a changed environment characterised by increased regulation and new investor demands in areas such as liquidity. As a result, the way in which managers operate and the kinds of domicile and investment structure they favour is evolving to enable them to flourish in this new climate – and service providers are having to adapt too.
One of the key changes is a shift from commoditised, industrialised administration services that placed a premium on economies of scale and operations in low-cost jurisdictions toward greater flexibility and personalisation, which requires a much closer ongoing relationship and the ability of the service provider to determine and respond to the manager’s needs, rather than presenting them with a fixed menu of services.
With more than 20 offices around the world – the latest in Australia – Apex Fund Services has long made it a priority to establish a presence wherever fund managers cluster together. Proximity to the client facilitates feedback and makes it easier to adapt to an individual manager’s characteristics such as size, strategy, reporting needs and investor base. This customised service helps managers in their efforts to grow their business, which in turn benefits the administrator.
The past few years have been tough for the industry in financial terms, and the fund-raising environment remains difficult, especially for new entrants to the market. One way in which service providers can assist managers is in developing lower-cost solutions for setting up their funds, helping them to create a track record and build a business platform that will stand them in good stead when market conditions improve. Bigger fund managers can also benefit significantly from the white-labelling by Apex of services such as real-time risk management and P&L reporting, enabling them to provide a better service to their investors at a lower cost.
The growth in oversight of the industry worldwide and a greater preference among many types of investors for regulated fund domiciles and products is prompting managers to set up funds in onshore European Union jurisdictions such as Malta, Luxembourg and Ireland. They are also embracing the Ucits regime, which offers greater security for individual investors, greater flexibility for institutions and increased distribution opportunities, but also more restrictive and onerous investment, liquidity and transparency rules.
Managers fear that increased regulation will automatically add to their costs, stifle entrepreneurialism and raise entry barriers to the industry. The task – and opportunity – facing administrators such as Apex is to provide systems that enable managers to meet the new requirements without a crippling increase in costs. Outsourcing of IT-led functions such as regulatory compliance, risk management and reporting can save clients from having to invest in staff and system development, enabling them to focus on the core activities of attracting capital and delivering investment performance.
One of the casualties of the crisis has been the one-size-fits-all approach to fund services that formerly prevailed among some providers, coupled with an obsession with cost-savings and efficiency at the expense of customer service. Today that is evidently a false economy. Whatever the manager’s requirement – Luxembourg or Cayman domicile, unregulated fund or Ucits – administrators must have a thorough understanding of their clients’ needs and the flexibility to meet them, wherever in the world they are located. Helping the manager achieve success will bring success for the service provider, too.
Peter Hughes is managing director of Apex Fund Services
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