As major regulations reach the implementation stage, the industry is finally looking beyond compliance and to new investment opportunities. Keith Hale of Multifonds speaks about how a more efficient systems infrastructure will be key in pursuing these ambitions.
These last five post-crisis years have been dominated by regulation. And for the funds industry, 2013 was one of the most intensive to date, particularly with the Foreign Account Tax Compliance Act (FATCA) and the Alternative Investment Fund Managers Directive (AIFMD) coming to fruition.
However, says Keith Hale, executive vice president, client and business development at Multifonds, managers and administrators are at last beginning to look beyond their regulatory requirements to the wider investment world and the possible opportunities that may be out there.
“There has been a return of risk appetite in the investor community, an ever increasing interest in liquid alternatives and ETFs, and the opening up of markets, such as China,” says Hale. These positive trends have led managers to expand into new fund types and markets, leading their administrators to bolster their own capabilities who have, in turn, looked to system vendors like Multifonds for new technology to meet these growing demands.
Over the years fund administrators have ended up with an infrastructure that relies on a patchwork of often poorly connected core processing systems. The pressure to reduce costs combined with increasing regulations, has been a catalyst for a move toward the ideal single core platform that covers all fund types and markets.
“The advantage of going to a vendor rather than developing technology in-house is that you gain economies of scale from a syndicated development approach,” says Hale. “That is how we believe software should be developed – with a common code that is used across the entire client base and that works with all of the fund types, markets and regulations.”
For administrators the logic of reducing the complexity of their infrastructure makes economic sense as their clients look to pursue investment opportunities in new markets and fund types.
“Margins are not what they used to be. By reducing the number of systems we help clients to reduce the cost of their technology, but more importantly we help significantly improve efficiency which ultimately facilitates growth.” Convergence has been a constant theme in the funds industry and another catalyst for the reduced number of systems, says Hale.
“Not only have we seen convergence in fund types, between long-only funds and liquid alternatives, we have also seen convergence on the processing side between the fund accounting systems in the back-office and the portfolio management systems in the middle office. Administrators offering a combined Investment Book of Record (IBOR) and Accounting Book of Record (ABOR) gain major efficiency and a reduced total cost of ownership with a common platform.”
In the next 12 months, Hale believes that the successful implementation of the AIFMD will be a driving force for even more convergence.
“The concerns about the cost of the AIFMD seem to have diminished significantly in the last 12 months, particularly with respect to depository liability. This will help make the AIFM brand more attractive, especially for non-EU alternative fund managers, who will look to set-up AIFs most likely in Luxembourg or Dublin.”
The net result, says Hale, is that there should be greater interest from the offshore world over the medium to long term. “It seems likely AIFMD will develop in a similar way to UCITS, as an asset gathering opportunity for alternative managers, probably after a couple of iterations.”
“As UCITS became a good export for Europe’s funds industry, especially to Asia, AIFMD may well follow in a similar vein. At Multifonds we will be looking to support both managers and administrators to facilitate this growth,” he adds.
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