Awareness of alternative investments among Swiss institutions is not recent. For many years pension funds have been allocating a significant part of their assets to alternatives, notes André Valente (pictured), head of UBS Fund Services Switzerland. Perhaps unsurprisingly, therefore, one of the firm’s biggest growth areas has been institutional funds.
“We have committed many billions supporting pension funds and other institutions that wrap their direct investments into investment pools across normal registered funds and managed accounts,” Valente says. “Where we continue to be successful in this arena is in integrated asset servicing.”
One of the benefits to being a global bank is its wide range of services. UBS Fund Services’ integrated solution leverages the bank’s existing tools and services to deliver consistent reporting to the client across cash, custody and fund administration.
However, this still places a heavy technology burden even on a firm of UBS’s size. “Large institutional mandates entail a few months of preparation due to the IT development needed for tailor-made reporting,” Valente says. “However, due to our large institutional client base in Switzerland, we already have a sophisticated approach to reporting that can be leveraged.”
Another reason for UBS Fund Services to update its service model is that Swiss institutions want to invest in private equity and real estate vehicles as well as funds of hedge funds, “where we obviously are facing higher requirements in terms of asset servicing and reporting”.
The alternatives industry in Switzerland is steadily evolving, triggering renewed focus on the areas of product and technology development to meet clients’ needs. Valente believes administrators need to make dramatic changes in four main areas.
First is the need for integrated services. “Clients require a full-service offering that includes the development of legally-compliant products, advisory/consultancy support, asset custody and full reporting – in other words, a fully-fledged asset-servicing model,” he says. “Firms that don’t have that in the next couple of years will face a huge competitive disadvantage.”
Strong fund governance is the second area, particularly as more institutions start to write tickets. “We need to demonstrate strong capabilities from a legal perspective, compliance monitoring, risk management, fund formation, registering them with the authorities and acting as their representative,” Valente says
Third is strong reporting that goes far beyond the usual remit of performance and transaction/portfolio reporting. Regulatory reporting and more efficient risk reporting will grow in importance going forward.
“Finally, you need middle-office capability,” he says. “Promoters, irrespective of size, want us to take on roles that go beyond mere back-office support. This is about outsourcing anything that isn’t related to the investment management process.
“It’s about delivering not only NAV but valuation; not only risk reporting but ensuring the fund complies with investment restrictions; not only transaction reporting but a middle office that supports cash management, reconciliation and settlement. We see this not only in Switzerland but globally. We need to move away from being purely a back-office provider to a middle- and front-office provider.”
Although average investment in alternatives remains far below the legal ceiling for Swiss pension funds, Valente believes that if the market remains positive, hedge funds will continue to grow. “Swiss asset management industry assets are almost back to their peak, in parallel with increased interest in alternative investments,” he says. “I believe we’ll see even more inflows into alternatives throughout 2012.”