With increasing competition from third party management companies (ManCos) to traditional business models, ManCos must become fintechs and invest heavily in technology, according to Arnaud Bouteiller, general manager, member of the executive committee, Casa4Funds.
Speaking on the ‘Embracing change – Governance that unpacks complexity’ panel at the speaking at the Association of the Luxembourg Fund Industry (ALFI) European Asset Management Conference, Bouteiller says ManCos could also partner with fintechs.
“When you see the regulatory pressure, technology is paramount to help the ManCo concentrate on what they should do – which is helping the client provide governance,” adds Bouteiller.
Usually, third-party ManCos are provided by specialist fund administration houses and offer an infrastructure for UCITS funds and EU-regulated alternative managers to distribute investment products across the continent.
The lure for managers is that a third-party ManCo can result in a reduction of regulatory compliance and administrative costs compared with those who would run their own operations in this space.
Discussing the role of a ManCo, Martin Vogel, CEO MDO, a DMS Group Company, says: “We give the client the guarantee and the safety of having a smooth day-to-day running of operational business. They also seek guidance with regards to what is changing in the regulatory and risk environment and how to address liquidity and environmental, social and governance (ESG) issues and policies.”
“They also help us to help them when there is a problem. We can take care of the troubleshooting and make sure hopefully the problem is resolved in a timely and less costly manner. That is what a client would expect from a ManCo today,” Vogel adds.
Weighing in on this, Steve Bernat, founding partner at ONE group solutions, says: “I’d like to see [ManCos] more as fund governance solutions providers. We are providing modular solutions, which were not necessarily typical client targets in the past.”
According to Bernat, boutique firms need to find a niche and look for specific types of clients.
Meanwhile, Vogel affirms that one of the biggest challenges is data access. Vogel say: "The costs are very high. The ultimate benefit for investors is that many players need to pay each of them data access and the end investor ultimately pays double, and that is an issue we have in regards to digitisation. The industry needs to resolve how we can organise ourselves best.”
“We are at the beginning of an evolution. ManCos have become bigger and more sophisticated over the years. ManCo specific technologies and providers have emerged but I think there will certainly be a few more years before we see large implementations of blockchain technology and artificial intelligence for example,” adds Bouteiller.
In terms of how it has impacted the business model, the panellist says it has allowed us to diversify our servicing models and some have even become providers in the governance space.
Bouteiller reveals: “I’ve definitely seen a lot more technology in a space where there was none at least five to six years ago. However, this is lots of room too for improvement.”
"Our work still has a certain element of looking at the old, and that is not that easy to break down into pieces to the point where a computer would take over,” Vogel adds.
Discussing increasing competition, the moderator then asked about trends in other financial hubs such as Ireland and Singapore.
According to Vogel, Luxembourg has been a first mover in the sense of making the ManCo become popular.
As well as growth in Luxembourg, the sector has seen growth in outsourcing centres such as Ireland and Guernsey.
In Singapore, there is new legislation for venture capital companies (VCC). The VCC could be a game-changer for Singapore's asset and wealth management industry, according to a panellist, who explains this could be offered to third party companies.
“That is linked to a passport, we now have a partial Asian passport out of Singapore, which leads to the question — who is our service provider. The ManCo and third-party ManCo company models move in parallel across the big fund places on the road,” one speaker adds.
Later in the panel, speakers agreed that one major trend that large managers are outsourcing more. “The [covid] crisis that we are currently going through will only accelerate that trend because everyone has to reevaluate their business model for efficiency,” says the panellist.
One panellist concludes: “When you looked at fund administration business a few years ago you had local players. Today you have global players too. Today we have a global reach. We will be the partner to the asset manager with regards to oversight and governance in a broader frame rather than just a management company.”
“The threshold to do it on your own will continue to increase. There will be a lot of consolidation until we are there.”
