Canada
17 Oct 2018
Linedata Gravitas’ Jonathan Shapiro discusses the future of Canadian funds, the 81-102 Liquid Alternative Fund proposal and what it will mean for the future of Canada’s asset servicing industry
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What does your role as senior director of business development at Linedata Gravitas involve?
I am currently co-head of the Gravitas business line, which combines services and software for the investment management community. My core focus is on growing revenue by new client acquisition and organic growth within our existing customer base.
Why will the National Instrument 81-102 (NI 81-102) Liquid Alternative Fund Proposal bring possible disruption to the Canadian fund industry?
In 2008, liquid alternatives began to take off in the US, and you could certainly discern the level of disruption in the fund industry. Post the 2008 financial crisis, the US had about $83 billion under management, and now they have $218 billion, so it’s clearly a growing market that has yet to hit its limit. There’s a similar appetite in Canada. The retail investor is looking at ways to get high-quality asset management without the high fees, and NI 81-102 gives fund firms the opportunity to dip their toes into the liquid alternatives market and offer the investment styles and products that have already proved successful in the US.
Fundamentally, as managers are trading and looking at positions and analysts are valuing companies, there’s going to be a change in how they’re going to adjust positions in a more liquid strategy. The operations will be more robust and will need tools to reconcile on T+1 and be efficient in how they’re running their infrastructure. The proposal is expected to pass early on in 2019.
What type of technology is needed to support this? And how will firms have to alter their operations running up to and after the implementation?
They’re going to need to put in place different types of systems that are going to make the systems run smoothly, such as a robust order management system that will have capabilities intraday so the firms have a good view on their positions on trade day. Reconciliation will also be important for all counterparties since they’ll be operating on a T+1 basis. The technology will have to be much more fluid and agile to make sure they’re trading effectively and profitably. Partnerships will also likely be leaned on in order to beef up firms’ technology infrastructures. There are tech firms, like Linedata, that have the technology suited to the traditional and alternative investment manager space, so they can build a custom solution. NI 81-102 could push managers to look for a new system and other vendors out there, which could lead to disruption, but could also grow existing relationships.
What will this mean for asset servicing in Canada?
In Canada, you’re dealing with a lot of large players that have been used to doing things their own way for years. Historically, there hasn’t been a rush to do something new, but since there hasn’t been a lot of volatility in the market, firms are hopping on the opportunity to do something different as regulations like NI 81-102 come to light. That way, when market disruption comes down the line, there can be an understanding of how to protect assets through a market downturn. There will also be a call for new talent in asset servicing. Large institutional asset management firms in Canada have been taking a look at the new market environment over the past few years and think it’s a good way to hire new talent and see how they would employ their investing strategy and how that would translate into new investors going forward.
Do you think it provides more opportunity or challenge to the industry?
Essentially, we’ve talked to the market and the buzz we’re getting is quite positive. We’ve seen that there are some early adopters who are taking the time to build these new strategies out since it’s the best way to capture the investment dollars that they wouldn’t be able to capture normally. Firms like Mackenzie Investments, which filed for an exemption to launch the first mutual fund utilising alternative strategies in May, are taking this lead, and it’s an intelligent move since they’ll get the first crack at the market. The technology that will be necessary for this new infrastructure will also help break down fees, and my talks with clients have shown that there’s a particular demand for lower fees in Canada. With a dynamic infrastructure that involves more manpower, you want to get more functionality out of the tech, which is where you get the cost savings. Although there will be an initial spend to hire investing talent and change the infrastructure, there are certainly cost savings in the long term.
Canada is primed in an optimal position for these firms to do something dynamic—it’s not every day that this could happen.
I am currently co-head of the Gravitas business line, which combines services and software for the investment management community. My core focus is on growing revenue by new client acquisition and organic growth within our existing customer base.
Why will the National Instrument 81-102 (NI 81-102) Liquid Alternative Fund Proposal bring possible disruption to the Canadian fund industry?
In 2008, liquid alternatives began to take off in the US, and you could certainly discern the level of disruption in the fund industry. Post the 2008 financial crisis, the US had about $83 billion under management, and now they have $218 billion, so it’s clearly a growing market that has yet to hit its limit. There’s a similar appetite in Canada. The retail investor is looking at ways to get high-quality asset management without the high fees, and NI 81-102 gives fund firms the opportunity to dip their toes into the liquid alternatives market and offer the investment styles and products that have already proved successful in the US.
Fundamentally, as managers are trading and looking at positions and analysts are valuing companies, there’s going to be a change in how they’re going to adjust positions in a more liquid strategy. The operations will be more robust and will need tools to reconcile on T+1 and be efficient in how they’re running their infrastructure. The proposal is expected to pass early on in 2019.
What type of technology is needed to support this? And how will firms have to alter their operations running up to and after the implementation?
They’re going to need to put in place different types of systems that are going to make the systems run smoothly, such as a robust order management system that will have capabilities intraday so the firms have a good view on their positions on trade day. Reconciliation will also be important for all counterparties since they’ll be operating on a T+1 basis. The technology will have to be much more fluid and agile to make sure they’re trading effectively and profitably. Partnerships will also likely be leaned on in order to beef up firms’ technology infrastructures. There are tech firms, like Linedata, that have the technology suited to the traditional and alternative investment manager space, so they can build a custom solution. NI 81-102 could push managers to look for a new system and other vendors out there, which could lead to disruption, but could also grow existing relationships.
What will this mean for asset servicing in Canada?
In Canada, you’re dealing with a lot of large players that have been used to doing things their own way for years. Historically, there hasn’t been a rush to do something new, but since there hasn’t been a lot of volatility in the market, firms are hopping on the opportunity to do something different as regulations like NI 81-102 come to light. That way, when market disruption comes down the line, there can be an understanding of how to protect assets through a market downturn. There will also be a call for new talent in asset servicing. Large institutional asset management firms in Canada have been taking a look at the new market environment over the past few years and think it’s a good way to hire new talent and see how they would employ their investing strategy and how that would translate into new investors going forward.
Do you think it provides more opportunity or challenge to the industry?
Essentially, we’ve talked to the market and the buzz we’re getting is quite positive. We’ve seen that there are some early adopters who are taking the time to build these new strategies out since it’s the best way to capture the investment dollars that they wouldn’t be able to capture normally. Firms like Mackenzie Investments, which filed for an exemption to launch the first mutual fund utilising alternative strategies in May, are taking this lead, and it’s an intelligent move since they’ll get the first crack at the market. The technology that will be necessary for this new infrastructure will also help break down fees, and my talks with clients have shown that there’s a particular demand for lower fees in Canada. With a dynamic infrastructure that involves more manpower, you want to get more functionality out of the tech, which is where you get the cost savings. Although there will be an initial spend to hire investing talent and change the infrastructure, there are certainly cost savings in the long term.
Canada is primed in an optimal position for these firms to do something dynamic—it’s not every day that this could happen.
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