As assets under management have grown – and become more complex – it has emerged that there is now a dearth of skilled fund administrators in cross-border centres. Fiona Rintoul tries to uncover a solution.
“Calling all expert talent!!!” screamed a recent job advert for a fund administration professional on a well-known careers website. For many fund administration firms, especially those that service the cross-border market, this is a heartfelt cry. Finding – and keeping – the right kind of talent is becoming increasingly difficult, a situation which can inhibit business expansion.
Of course, the talent shortage is not confined to the fund administration side of the business. “The industry has had issues in the labour force in the fund business for quite some time,” says Bernard Hanratty, head of fund services EMEA at Citi. “It’s not confined to any one business segment or any one market.”
In this sense, the fund management business is a victim of its own success. Assets under management (AUM) have been growing at a phenomenal pace. The AUM of European mutual funds has practically doubled over the past four years, while global hedge fund assets have reached e2.5 trillion and are said to be growing at 30% per annum.
“No one expected the boom,” says Gerhard Fusenig, global head of fund services at UBS Asset Management.
With the business growing exponentially – and becoming more complex – finding enough of the right kind staff is a challenge for every company involved in fund management. But for the fund administration companies that service Europe’s cross-border funds, matters are made worse by the fact that they are often located, not in London, New York or Paris, but in smaller centres, such as Luxembourg or Dublin.
Luxembourg has a population of just 400,000 and no major university. Thus far, it’s got round these problems by attracting workers from outside its borders. Some 140,000 workers currently commute into Luxembourg from Germany, France and Belgium.
Dublin has a larger population, but it’s still more limited in size than most major financial centres, and, as Harley Murphy, head of offshore administration at BNY Mellon Asset Servicing, points out, Dublin doesn’t have the history in finance that, say, London does. “We have 15 years history at most,” he says. “The labour pool has been growing, but not at the same rate as the industry.”
Assets outgrow centres
And here’s the other rub. Assets under management have generally been growing faster in the centres such as Dublin and Luxembourg, where international funds are registered, than they have in the national markets that might be better able to support the growth.
“In Ireland the industry has typically been growing at 20%-plus per year,” says Murphy. “To meet that you need a lot of people.”
More people, it would seem, than Dublin can offer up. Fusenig says it took UBS eight months to hire 14 qualified resources in the fair city. And, of course, with competition for staff so fierce, there’s no guarantee they’ll stay or that they’ll remain affordable. Average turnover in Dublin is 28% and staff typically move for a substantial increase in salary.
“Our turnover is lower at 16%,” says Fusenig. “But you still have to replace that 16% before you can grow.”
Some may feel this begs the question whether it was entirely wise to concentrate Europe’s cross-border funds in a couple of smallish centres when we are, after all, meant to be operating in something resembling a single market for funds. Why not sell around Europe from Paris or Milan where there might be a larger pool of potential staff?
Why not indeed. These are valid questions. But the reality is that this is not currently how the business works and fund administration companies need to find solutions to their immediate human capital requirements that work within the industry’s existing parameters.
In any case, the problem is not confined to Luxembourg and Dublin. UBS doesn’t fare much better with staff recruitment in Basle, where it takes four to six months to find qualified staff, than it does in Dublin.
Neither is the problem confined to Europe and the specific idiosyncrasies that exist there. Globally, fund hubs tend to be small and the same situation afflicts them all. The Cayman Islands, the premier hedge fund domicile, is a prime example.
“Traditionally, the likes of Cayman has recruited from London, Canada and Ireland,” says Fusenig. “But with the overall success of the financial industry in the last five years, the flow of accountants from London is no longer there. Now they try to attract accountants from South Africa or The Philippines, but it’s more difficult. It’s not exactly the same education.”
So, what can companies do?
UBS thinks it has found the answer in Poland, where it is about to open a service centre in Krakow. The service centre is a pan-UBS venture with capacity for 1,000 workers planned in total. About 200 of these will work for fund servicing, which will be the first segment to come on-stream. “We are generating added capacity by extracting processes that are not location-specific, such as data reconciliation and the preparation of marketing reports, and transferring them to Krakow,” says Fusenig.
Progress in Poland
It is not the first time UBS has made this kind of move. In the Americas, it already has a service centre in Toronto, and it has an offshoring centre in India. When choosing its European location, it considered carefully before plumping for Poland.
“We wanted to avoid the error of being in a small domicile again,” says Fusenig. “It doesn’t make sense to go to a country where you could be sold out again in three years. Poland has a population of 40 million and it’s a young population. You can choose from seven big cities with a university around. You’re not locked into one place.”
he Poles themselves were also an attraction. The education system in Poland is good, and the workforce is talented and hungry. Local universities have also provided a level of co-operation not always on offer in Western Europe.
“University professors are even happy to design courses for us and we can hire from there,” says Fusenig. “That’s a story we could not find in other locations.”
Of course, the Polish workforce is also cheaper, but Fusenig says that was not a big part of the equation. “That will be a short-term effect,” he says.
“Poland is not a low-cost location. It’s already higher than people expect. A normal accountant is already at about 50% of what you would pay in Western Europe.”
The main point was to generate additional capacity. And perhaps because cost was not the driver, there is no sense in which the Polish operation will be a second-class part of the business; Fund Services Poland will be fully integrated into the rest of the business.
These people will be peers,” says Fusenig. “They will have the same level and the same career opportunities as staff in our other offices, and if a job opportunity comes up in another part of the business, they can go for it.”
It is with one eye on this future that UBS chose Krakow. “We assume that Poland will develop quite fast,” says Fusenig. “Then you need to be in an attractive city.”
A Polish office is a solution for which many financial services companies, in fund administration and beyond, have opted. Credit Suisse has launched a ‘centre of excellence’ in Wroclaw, while other firms have opened in Łódz and Gdansk.
But, of course, it’s not the answer for everyone. It takes a long time to set up – UBS first visited Poland in 2005 – and it requires substantial investment.
Another approach is to get them young, which is what they do at Citi. “In certain locations we have a graduate hire programme specifically for fund administration,” says Hanratty. “We hire business graduates into fund accounting.”
Others have chosen to open up new centres closer to home. In Ireland, Northern Trust has opened in Limerick and State Street is in Kilkenny, while BNY Mellon has set up in Cork.
“It allows us to draw on a labour pool other than the Dublin pool,” says Murphy. Universities outside of Dublin also show a willingness to design courses for the fund administrators similar to that which UBS has found in Poland.
Even here there’s a Polish axis, however. In addition to distributing leaflets at Cork Airport in the hope of attracting ex-pat Irish that would like to come home, BNY Mellon has travelled to Warsaw to look for new talent there. It is working with an agency in Warsaw to identify people that might be willing to come over to Ireland for several years, as well as advertising in Polish papers in Ireland to try and attract staff from the large Polish community already living in Ireland.
Another strand to BNY Mellon’s strategy for keeping their headcount at the right level to allow for expansion in Europe is secondments. “Within the merged company we now have a wider global presence in 37 countries and we are looking for people within BNY Mellon who would be willing to give time to our operation.”
Another option that is being looked at in Ireland is expansion into Northern Ireland. There’s a limit to what jobs can be put
in Northern Ireland, because Ireland, like Luxembourg, requires key fund administration functions
to be carried out within its national borders. However, this only applies to funds that are registered in Ireland. The many hedge funds that are registered in the Caribbean but administered in Ireland are therefore not covered. The likes of the Bank of Ireland has taken advantage of this to put its hedge fund business in Ulster.
There is also some pressure at the political level to allow functions for Irish-registered funds to be carried out in Ulster. It’s a delicate issue, however, and it’s not yet clear if the pressure will yield results.
But anything’s worth a try, it seems. The need for new capacity in fund administration is pressing. and likely to get worse instead of better. At least in part, this is because of the increasing complexity of the industry that has resulted from the growth
of alternative investment and the changes to traditional investment brought in by the likes of UCITS III.
“Knowledge of derivatives is now a big factor,” says Murphy. “That will mean more training and a need for higher skilled individuals.”
Each company will have to find its own solution to this dilemma. But it looks very much like many companies are going to be thankful that Poland joined the EU.
© fe November 2007