Regulation is at the forefront of the European funds industry and, says Keith Hale at Multifonds, the developments can be considered under three categories.
When discussing the challenges within Europe’s funds industry, it is difficult to avoid the subject of regulation.
For Keith Hale, executive vice president of client and business development at Multifonds, the implications of the regulatory developments could be a case of the good, the bad and the ugly.
The Alternative Investment Fund Managers’ Directive (AIFMD) stands out as the one potential “good” regulatory initiative. However, there will be a significant amount of work to do if market participants are to benefit from the opportunities on offer.
Despite the recent announcement from the Central Bank that Ireland is taking applications, Hale believes there will be a last minute rush to be ready, particularly from service provides as the July deadline approaches for new AIFs.
“The reporting format is not finalised yet and there are still some outstanding questions around the additional cost of depositary liabilities which will be passed onto funds and ultimately investors.”
If the underlying costs are too high, it may lead to EU alternative managers choosing to domicile offshore for non-EU investors.
The AIFMD has also been a catalyst for the continuing convergence between long-only and alternative funds. Institutional investors using alternatives prefer to see long only characteristics such as daily valuations and more risk controls, while the growth of the alternative Ucits market has been a testament to the number of retail and institutional investors looking for Ucits controls in an alternative fund.
A successful AIFMD regime will further drive this convergence between long only and alternatives, says Hale, encouraging institutional investment and making it easier to distribute these alternative funds easily
across Europe. In the longer-term, the AIFMD may even replicate the global success of Ucits funds and become a popular investment vehicle for Asian investors.
This convergence has, and will, significantly impact the underlying administrators.
“Managers are looking for service providers with the expertise to service both alternative and long-only funds, ideally on a single software platform for consistency of reporting and efficiency of processing
in order to reduce costs.”
Developing these capabilities, where the system has the automation expected for daily long only funds combined with the flexibility required for alternatives such as asset class coverage and performance fees processing, has been a major but successful mission for Multifonds, says Hale.
Another challenge for service providers has been the globalisation of the industry. As managers and service providers expand into new countries, Multifonds has had to mirror their international expansion.
It supports funds domiciled in more than 30 countries, recently adding China and Brazil to its fund accounting platform and is going live with Indonesian retail funds on its Transfer Agency Platform later this year. “It is an ever increasing capability that we have to add. New markets may present new opportunities but clients will always want the efficiency and scale a common system brings.”
A global servicing capability may also prove critical to meeting the obligations of two other regulatory initiatives – the Financial Transaction Tax, and the Foreign Account Tax Compliance Act, which could be considered the “bad” and the “ugly” of the regulatory landscape.
Given the populist negative opinion on corporate tax practices, neither initiative is likely to go away and we will see the sons, daughters and cousins of FATCA in other countries in the near future, says Hale.