April 2012

TRADE TALK: Wanted: depth and breadth of service (part 1)

Senior executives at third-party administrators surveyed tell Funds Europe about competition and challenges in their industry.

Talking_heads_1

Andre le Roux
(Maitland Trust)
, Mark Porter (UBS), Ian Stephenson (HSBC)
Toby Glaysher (Northern Trust), Joe Saliba (Caceis), Marcel Guibout (JP Morgan), Hani Kablawi (BNY Mellon)

Mark Hedderman, Custom House Global Fund Services

What are the main characteristics of competition in the third-party administrators (TPA) business right now?

Real-time reporting frequency, which was a fantasy a few years ago, is firmly on the horizon today. The ability to provide a wide range of reports covering, inter alia, risk management, attribution by type of investment, geography, industry, and so on. Also, sophistication of automation and IT back-up; and size – the big are getting bigger.

What are your clients’ most common demands?

There is increased demand for daily Navs [net asset values] if not daily dealing; special reports, for example, for their internal risk management as well as reporting to the regulator; more outsourcing – middle-office – in fact, almost everything over and above fund administration.

In your view, what are the major challenges facing the TPA business in 2012 going forward?

Regulation and its effects, including the knock-on effect of regulation targeted at investment managers; dealing with the unintended consequences of many regulations drafted by people who did not understand the business; designing programs and producing reports needed by independent managers; provision of services to enable managers to outsource some of their back office functions; providing shadow accounting services, for which demand has increased.

Maitland Trust
Andre le Roux, head of business development

What are the main characteristics of competition in the TPA business right now?

They are to get fund managers to engage around the institutionalisation of their businesses and the commitments they need to make to this process. Full service administrators have to convince managers of their bona fides when faced with cheaper, less robust alternatives.

What are your clients’ most common demands?

It is undoubtedly more rigorous, detailed and transparent reporting. This is being driven both by investor demand and regulatory oversight.

In your view, what are the major challenges facing the TPA business in 2012 going forward?

We see continued consolidation, so competition for acquisition targets.  As an acquirer, the expectation of price is still unrealistic, but some firms are still achieving what we believe to be unrealistic multiples.

From an operational perspective, the ability to roll out value-added services and move up the value chain is our biggest challenge. It is clear that the days of one-dimensional fund administrators are over. The TPA business needs to provide both depth and breadth of services on the foundation of the volume of data they have on their platforms and the power this gives them.

UBS Global Asset Management – Fund Services
Mark Porter, head UBS fund services

What are the main characteristics of competition in the TPA business right now?

Competitive success factors for TPA service providers are currently to be found in the area of technology, financial strengths to accommodate long-term commitment, and global offering across products and regions.

Service providers able to attract new business are those capable of supporting their client with the current challenging regulatory requirements and supporting their business with in-sourcing of larger components including middle and front-end solutions. So the game is pretty much about being able to absorb more complex business at a still profitable level.

What are your clients’ most common demands?

We were most definitely confronted with complex requirements in terms of transparency and stronger governance, tailor-made reporting, connectivity, and risk management. In the traditional area, our clients require a strong support in governance, substance and legal and tax matters. In the alternative space, clients continue to require daily capabilities and deeper investor services, such as reporting transparency.

In your view, what are the major challenges facing the TPA business in 2012 going forward?

TPAs, along with the rest of the financial industry, are faced with a period of significant regulatory change. This triggers increased demand to provide reporting, governance, and risk management solutions to our clients. Furthermore, as investors in alternative funds become more institutionalised, their requirements for daily Navs and transparency increase.

HSBC Securities Services
Ian Stephenson, global head of fund services

What are the main characteristics of competition in the TPA business right now?

A number of large middle-office and fund administration mandates have come to market from clients who currently have these activities outsourced to a TPA, so-called second-generation outsourcing deals. Some opportunities may prove to be merely re-pricing exercises but there is evidence that clients have a desire to move provider.

Increased regulation is influencing choice of provider with capital strength becoming an increasingly important differentiator.

What are your clients’ most common demands?

Clients continue to seek increased depth and flexibility of data provision for internal management purposes but also driven by regulation, for example, Solvency II. In some market segments, transparency has become more important and, as a result, there is increased demand for independent valuation and reporting.

In your view, what are the major challenges facing the TPA business in 2012 going forward?

There are several challenges facing the industry, the most notable being the impact of regulation including Fatca, AIFMD, Dodd Frank, Solvency II.

In part, the challenge is the degree of uncertainty created as legislation is debated, redrafted and implementation timelines changed. Providers have to be proactive and on the front foot in order to avoid unnecessary cost and failure to meet regulatory requirements and timescales.

The cost of change is also significant and for smaller providers this cost may prove prohibitive. As a consequence we will see further industry consolidation.

Northern Trust
Toby Glaysher, head of GFS for Ireland, Luxembourg and the UK

What are the main characteristics of competition in the TPA business right now?

The industry is faced with the common challenge of doing “more for the same” for their clients, having to deal with increasing complexity and regulation, both of which require significant investment in technology, infrastructure and people. The chief area of competition is how to manage this cost effectively as an administrator as well as for your clients, supporting their changing requirements.

What are your clients’ most common demands?

Clients are increasingly focusing on risk management, transparency and governance. They are also increasingly looking for greater granularity of data in a faster environment together with more flexibility of data sources - for example, asset characteristics.

In your view, what are the major challenges facing the TPA business in 2012 going forward?

Dealing with the growth and complexity of regulation will continue to be the biggest challenge in 2012 as not only do we need to understand how it’s impacting our business, but also the potential implications for our clients and our clients’ clients. The investment in technology, systems and expertise required to support the various new regulatory requirements is significant, of which some of the costs will have to be borne by the investor at some stage.

CACEIS INVESTOR SERVICES
Joe Saliba, deputy chief executive officer

What are the main characteristics of competition in the TPA business right now?

TPAs obviously compete strongly on price, but the ability to provide comprehensive risk management services and demonstrate a willingness to create a partnership both play a major part in competition among players.  “Consistently good service quality” is also often mentioned.

What are your clients’ most common demands?

Clients’ lists of demands are topped by services related to risk management, a strong reporting capability, and middle-office services that include OTC processing, securities lending and foreign exchange hedging.

As clients’ focus on the asset management area becomes sharper, providers are naturally moving in to cover services ever further up the value chain.

In your view, what are the major challenges facing the TPA business in 2012 going forward?

The TPA’s major challenge is to reduce costs while preserving service quality, and there is constant pressure from clients and investors to revise fees downwards. At the same time, clients are demanding a broader range of support services, and regulations at local, European and international levels are becoming increasingly complex to implement, both of which drive costs up. Finding the right balance between cost and quality is essential.

JP Morgan Worldwide Securities Services
Marcel Guibout, executive director, Emea fund administration product head

What are the main characteristics of competition in the TPA business right now?

We compete on the ability to offer a high quality, comprehensive range of services across multiple fund types, in a way that can add value to our clients. This means getting the basics right day-to-day and, additionally, offering services that can help our clients navigate and more easily do business and distribute their funds to the end customer.

What are your clients’ most common demands?

Clients frequently seek our help with regulatory change, and are also demanding additional services to facilitate increased fund distribution. We work across our wide ranging client base to help provide leadership and, where possible, common solutions. But we also run events such as client roundtables where we and our clients can engage collectively on these issues.

In your view, what are the major challenges facing the TPA business in 2012 going forward?

We must be prepared for related impacts on investment funds, such as governments implementing taxation changes, as Italy did in 2011 requiring a new tax calculation in a very short time frame.

BNY Mellon Asset Servicing
Hani Kablawi, head of Emea, asset servicing

What are the main characteristics of competition in the TPA business right now?

Regulatory developments play a pivotal role in shaping the market in which players operate. Clients are looking for direction. They want more market insight and shared experiences on specific regulations that will impact their operating model. Critical to all this rests on the strength and stability of their provider.

What are your clients’ most common demands?

Businesses are looking for avenues to expand, to distribute their services and raise and retain their assets globally. They want to optimise technology to deliver an efficient model while maintaining minimum costs. To maintain their brand and reputation, their agent must adhere to compliance requirements and support them with risk management.

In your view, what are the major challenges facing the TPA business in 2012 going forward?

The major challenges facing the TPA in 2012 will continue to be the increasingly onerous regulatory environment. The fallout from the financial crisis and uncertainty around the eurozone are still playing out in the market. The cost of doing business will inevitably increase given new requirements for enhanced transparency and risk management.

Regulators are still drafting and consulting on proposed reforms around market infrastructure and financial institutions. There is currently uncertainty as to exactly how this will reshape the post-trade landscape.

End of Part 1

©2012 funds europe