Deutsche Bank has launched a fund processing service for investment managers that invest in illiquid assets, such as private loans, in a move that reflects wider efforts by fund administrators to improve support for alternative asset classes.
The bank’s global transaction banking division has combined its existing loan administration platform with its fund administration platform to provide the service to “hybrid” funds, which Tim Fitzgerald, head of alternative fund services in Deutsche’s institutional cash and securities services unit, says share characteristics of private equity and hedge funds.
Hybrid funds typically have closed-end structures and complex calculations surrounding both fees and payment of returns, making them like private equity funds; but they can also invest in multiple asset classes, giving them hedge fund characteristics.
Deutsche Bank was already supporting hybrid funds – for example, some hedge fund clients have invested in bank debt for several years – and so the launch represents a combination of existing processes to gain efficiencies.
Loans are sometimes highlighted as an alternative to traditional fixed income and, therefore, a growing asset class for institutional investors. The EU’s Capital Markets Union may provide funds with an opportunity to provide direct finance, a role traditionally provided by banks.
"As investors, especially institutional investors, continue to increase their appetite for alternative investment funds, hybrid or illiquid asset funds represent a major operational challenge for fund managers to differentiate their product,” says Fitzgerald.
The past two years have seen important moves as alternative fund administrators consolidate their businesses. In April, Deutsche Asset and Wealth Management completed an outsourcing deal with BNY Mellon for $46.3 billion (€41.4 billion) of assets under administration, covering direct real estate and infrastructure assets. Eighty Deutsche employees were expected to move to BNY Mellon, which is integrating its various alternative administration offerings.
Back in 2013 State Street expanded its real estate and alternatives business by lifting-out Morgan Stanley Real Estate Investing’s fund servicing operations.
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