Magazine Issues » May 2012

EXECUTIVE INTERVIEW: Ambitious search to enter new markets

Mark-PorterMark Porter, of UBS Fund Services, talks to Nicholas Pratt about refocusing the firm and the commercial challenges facing the industry.

When UBS decided to reorganise its fund services division in January 2012, one of its initial moves was to appoint Mark Porter as the division’s first dedicated global head.

Prior to Porter’s appointment, fund services had come under the remit of the chief operating officer of the Global Asset Management business.  The next move was to refocus fund services on two dimensions – geographical coverage and product capability.

The first area to be addressed has been the US hedge fund administration business.

“In the past three years, we have been operating with a business development team of three people,” says Porter. “That’s not significant enough to bring in new clients or give us credibility in the market because managers increasingly want to talk face to face and be sure that providers understand their business.”

UBS has consequently recruited a person to head up the business and set up an operational unit to answer any technical questions – moves which Porter hopes will not only help to service existing clients but give some more credibility in pursuing new clients.

In Europe, the focus has been on making the operating model more effective by bringing administration, custody, transfer agency and banking services together to offer a cross-border capability for managers investing in alternative Ucits funds in Luxembourg, Ireland and Switzerland.

Whereas the US hedge fund administration business and the cross-border European Ucits markets are based on strengthening core capabilities, UBS’s plans for Asia are representative of an ambition to enter new markets.

“We set up a client service unit in Hong Kong and Singapore which will significantly enhance our presence in the region. Clearly, we have to have a global operating model that has availability of information at the earliest point of the day and with the content as up-to-date as possible. That is something we will pursue aggressively.”

Specifically, UBS is focusing on private equity, real estate and infrastructure investment in China. “There are some exciting opportunities in China regarding social housing as China undergoes a population shift from rural to urban areas. There will be massive investment involved and we want to be present with on-the-ground private equity and real estate services in the next year.

“We have a strong relationship with the authorities to help them shape the outsourcing market which is under-developed at the moment. We are expecting some regulatory change in China where the market will open up to overseas providers and we predict that to happen quickly.”

In addition to the regional refocusing and the related recruitment drive, UBS has also targeted three product lines – fund of hedge funds, single-manager hedge funds and private equity/real estate funds – and looked to overhaul the platforms used in these markets. For example, the fund of hedge funds platform will be available in all regions rather than just the Caymans. The single-manager hedge fund platform will look to satisfy client demand for transparency and reporting by making data more readily available via a web portal.

“The hedge fund business has not been invested in enough over the past two years and gaps have appeared,” says Porter. “We have established a global operating model with full reporting capability and we think this will help us to grow that part of the business significantly.”

UBS has also transferred the 25-strong private equity and real estate fund services team managing $10 billion (€7.6 billion) of assets based in Jersey that had previously been part of the wealth management division, to be a dedicated part of the fund services division. And there is likely to be a further recruitment drive as the team grows and pursues new business. “We are looking to accommodate new business and to be active in every major location. There are a lot of competitors moving to other locations or downsizing
but for us, it is about growth and development.”

Despite the recruitment drive and technology investment as well as the move into Asia, Porter is keen to stress that UBS does not intend to be all things to all people and is quite specific about its intentions.

“We want a multi-jurisdictional capability for our European clients so that we can service all their cross-border requirements. In the US, we are focused on the hedge fund and private equity markets. We are not planning to compete in the US mutual funds market, which I think is saturated in terms of providers.

“We want to be the best at what we do but don’t want to spend money on things we are not already good at. Where there are opportunities to add new services, we will partner with external providers. We are not arrogant enough to think that we can build everything ourselves and be all things to all people. I think some firms have suffered from that.”

The funds services division had €308 billion of assets under administration globally, as at December 2011, and €227 billion in Europe. A high proportion of the fund services business for UBS comes from its own internal clients, but Porter does not necessarily see this as a negative. “I think it’s important to have a good mix of internal and external clients and not be too weighted either way. UBS has two of the best managers in real estate and private equity and it is important to provide the best possible service to them. Part of that is to remain competitive in the third party market. Furthermore, having internal clients that are the best in their markets means we have a range of products that other managers are likely to demand, so I see internal clients as a good thing.”

Quality service
Porter recognises that the fund services industry does face several challenges. “It will continue to be important to provide a cost-efficient but high quality service. In the US especially, there is pressure on margins and clients are asking for more services for the same or even less cost. So we have to reduce costs in a way that is sensible and maintains service quality. I believe service quality is already under pressure at many organisations that have perhaps been too aggressive with pricing in the past and created an artificial level.”

The commercial conundrum is exacerbated by asset servicers’ ambitions to offer premium services. This requires intellectual property to create quality execution tools, risk management applications and reporting services, and all this can can come at a high price.

Consequently, asset servicers will need to price accordingly. “The margins in the industry do not always reflect the quality content of services provided. This needs to be recognised by providers and the clients and that equation needs to be rebalanced, but it is at a time when the industry can least afford it.”

©2012 funds europe