Helping managers absorb rising costs
The one known unknown facing managers amidst increased regulation is the rising cost of doing business.
But it’s not just managers facing cost pressures. Service providers are too, especially fund administrators who serve as gatekeepers to data managers and need to meet their myriad reporting needs.
“Each jurisdiction has their own agenda and has come up with their own form of reporting requirements. This creates a situation where everybody needs information from a number of different sources and that drives up the costs for managers and service providers,” says Canover Watson (pictured), Managing Director at Admiral Administration, now part of the wider Maitland Group with USD175billion in combined AuA.
In Watson’s view, the costs incurred by managers trying to cope with these demands, which he estimates to be around 65 basis points, could be assimilated into the fees paid by outsourcing key functions to the administrator. This would help managers keep a lid on cost expenditure and at the same give firms like Admiral the opportunity to build out their offering and bring enhanced service to its clients.
“There’s a thirst for data now. As an administrator we are in the best position to aggregate and provide that data to the various regulators. We have a Form PF solution, we have solutions for AIFMD which include reporting and an AIFMD-compliant platform and we’ve developed our technology to track and report information on investors and the fund itself for FATCA.
“We are looking at how many of those functions within that cost expenditure of 65 basis points we can provide and upsell to a manager using the scale and structure of our administration platform,” explains Watson.
Just as smaller managers are under threat from being squeezed out of the industry the same could apply to smaller administrators. Managers expect their administrators to deliver enhanced services at no additional cost. Yet at the same time, administrators are having to invest more heavily in technology and expand their knowledge base and service teams.
“We want to support managers and remove that 65 basis point cost burden. We want to understand what our clients are doing and build solutions to assist them by outsourcing a lot of that work they are doing. It’s not just about growing exponentially in size. We want to grow deeper not wider,” states Watson.
From the manager’s perspective, once those functions have been outsourced a lot of that cost gets absorbed by the fund. Moreover, investors are willing to pay that extra cost because they take comfort from knowing the fund is being administered independently.
“Managers are paid 2/20 to generate alpha. As they’ve grown – particularly in the US – they’ve hired a CFO, a COO, a chief compliance officer and built out their internal infrastructure. You have a situation now where the 2/20 is being absorbed by a lot of non-investment professionals: it brings no added value to investors.”
“We have the infrastructure and depth of resources. We are using the latest release of Advent Geneva World Investor, which gives us the capability to handle a lot of the regulatory reporting and day-to-day financial reporting that managers require and take that operational burden off their shoulders. We want to allow them to do what they do best, which is managing the fund and growing the business.”
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