In its response to our 2010 Fund Administration Survey, SEI said: “During 2009, we have seen a movement towards more regulated products including Irish authorised Ucits and non-Ucits vehicles. Many hedge fund managers, who were previously happy to run Cayman and other offshore vehicles, felt the need to establish these Irish-domiciled vehicles at the bequest of institutional investors.”
Similarly, BNP Paribas Securities Services says: “A number of hedge fund managers decided to redomicile alternative funds to Ucits III vehicles or set up Ucits III sister funds.”
The interest in Ucits III products by hedge funds is clearly reflected here, but the survey results do not offer any clear indication of which domicile will benefit the most as an admin centre, with the exception of SEI’s response which points to Ireland’s significance.
“With changes to the Irish regulatory framework, new funds could be established, with the cooperation of the different service partners, within 48 hours of the submission of the relevant fund incorporation documentation.
“Recent changes from the Irish regulator also permit fund managers to redomicile their funds from Cayman to Ireland in a relatively simplified process, again minimising the cost and effort to change to Ireland.”
It should be noted, however, that SEI’s European fund admin business centres on Ireland and the UK, so its experience cannot be taken as indicating a bigger trend among admin providers, many of whom have numerous European locations including Luxembourg and France.
BNP Paribas said the countries where it saw the fastest growth in assets during 2009 were France, Germany, the UK and Ireland. That the firm saw growth in France – and is alone in specifying this country – is perhaps not surprising given that it is a French firm. However, it will be interesting to note if France grows significantly further as an admin base – though principally as a custody base - this year since the draconian French law was introduced in the wake of Lehman Brothers’ failure and which stated that custodians must return assets lost in complicated hedge fund operations, such as rehypothecation, immediately. This could give clients of hedge funds some comfort and influence them to domicile there.
Neither Société Générale Securities Services (SGSS) nor BNP Paribas, both French players, highlighted France as a future growth market, however.
SGSS expects to see its growth products do best in Luxembourg, Germany and Ireland this year. BNP Paribas flags up the Netherlands, Belgium and Switzerland.
Caceis, another French firm, says Luxembourg and Dublin, as financial centres with recognised experience in alternative asset administration, are likely to be the biggest beneficiaries of the trend from offshoring to onshoring.
Luxembourg remains important to Citi also, along with Ireland and the UK, again for Ucits products.
“Citi is gearing up to capitalise on our position as a leading provider of both traditional and alternative fund services by streamlining our operating models across key European jurisdictions to capture the opportunities that will arise from renewed fund launch activity and [the Alternative Fund Managers Directive and Ucits IV],” the firms says in its survey response.
A waste of time?
Hedge funds are clearly demanding much administrator time. If it is not handling their disasters in 2009, it’s converting them to Ucits in 2010 or thrashing out new ways of supporting their operational arrangements and infrastructure.
As an example HSBC Securities Services says it is bringing together and leveraging its ‘Custody Plus’ offering, products from its global markets division, and distribution platform. This is presumably no easy task.
Similarly, EFA, a Luxembourg-based independent fund administrator, is also looking to increase coverage of alternatives this year.
It can only be hoped all this will pay off Third-party administrators are under a lot of cost pressure, partly because their clients’ assets under management are down and administrators’ revenues are linked to this. Even so, asset managers with traditional strategies still hold many more assets than hedge funds, who – despite the hype – still only manage relatively little money for pension funds.
©2010 funds europe