As the sector continues to innovate Martin Bock, Ramy El Houayek, Melanie Herbert, Michael Johnson, and David Rochford discuss the challenges and future developments facing fund services in Europe
Panellists:
Martin Bock
Head of Global Fund Administration Product
BNP Paribas Securities Services
Ramy El Houayek
Global head of Fund Services
Caceis
Melanie Herbert
Regional head of UK and Ireland in Institutional Client Services
JTC Group
Michael Johnson
Chief commercial officer for Europe
Gen II Fund Services
David Rochford
Managing director and global head of Public Markets
MUFG Investor Services
In light of the recent regulatory changes in Europe, how do you foresee fund administrators adapting their compliance strategies to ensure alignment with evolving regulatory standards such as MiFID II and AIFMD?
Ramy El Houayek: Fund administrators will adapt to evolving European regulations by enhancing reporting and transparency, upgrading technology, and strengthening data management.
They will focus on continuous staff training, collaboration with legal experts and improving risk management practices. It will require stronger governance structures and prioritise investor protection to ensure compliance with new regulatory standards.
Michael Johnson:Gen II is continually enhancing its compliance strategies through increased investment in technology and expertise. This includes regulatory technology solutions to streamline compliance processes, improve data accuracy and ensure timely reporting. Training programs are also continuously rolled out to keep staff abreast of regulations and their implications, ensuring a proactive approach to compliance, whilst horizon scanning for new legislation that can then be fed back into Gen II’s training and RegTech solutions.
David Rochford: It is critical that fund administrators and their trusted partners closely monitor the shifting regulatory standards.
That means staying abreast of the regulatory updates and court rulings, having a clear idea of the ramifications internally and to clients, and developing solutions to support their needs.
Martin Bock: Fund administrators need to constantly adapt their services to evolving market needs in order to manage the complexities that managers of AIFs and UCITS are facing. For instance, offering a full range of expert solutions to manage liquidity at fund level through a range of Liquidity Management Tools (LMTs), or ensure fully transparent fair value pricing and price selection scrutiny for each asset held on the portfolio, including OTCs.
Furthermore, clients require an easily accessible yet very holistic oversight of every aspect of the services that are delegated to us, which in turn calls for enhanced oversight reporting solutions ranging from drill-down dashboards to data solutions that include APIs. Likewise, increasingly complex regulatory reporting requirements call for a full range of regulatory reporting solutions that can be easily adapted to changing requirements.
In terms of service strategy, fund administrators need to move away from offering standardised services by offering customised services that bring added value to each client, and yet work as efficiently, as integrated, and as robust as any standardised service does.
Especially for AIFMs, a perfect example of this is BNP Paribas’ loan solutions, which enable AIFMs to close their deals, monitor their loan portfolios and provide detailed reports. This solution is fully embedded within a broader private debt offer, spanning across fund servicing and financing.
Digital transformation is reshaping the financial services landscape. How are fund administrators leveraging emerging technologies like blockchain and AI to enhance operational efficiency and improve client service delivery?
Melanie Herbert: Digital transformation from a fund administrator perspective is all about driving operational efficiencies and enhancing service delivery – and that is being driven from both the manager and the investor side. Managers, for example, are looking to be able to access real-time information, while investors are increasingly hungry for data – and they do not want to have to log in to multiple portals, they want singular, easy access.
Fund administrators need to be alive to that challenge – it is about integrating systems. In the past, it has been a sector that has been somewhat fragmented in terms of its implementation of technology. Bringing new and different systems together to work seamlessly with each other and with what is already in place is really important.
Johnson: Fund tokenisation at asset level, and digitised ledgers at investor level are largely expected to be phased into existing regulatory frameworks around the world. Tokenisation will enhance operational efficiency, transparency, and global competitiveness by automating key processes like transaction settlements and record-keeping. It also promises greater data transparency, which could revolutionise investor relations and fund governance by providing better access to investment data and simplifying voting processes. Combined with digital ledgers this could accelerate more secondary transactions within private capital. By digitising such processes, the administrative burden and associated costs can also be reduced.
Gen II has recently introduced AI into its quality control processes, which not only improves efficiency at peak periods but is also leading to even greater levels of accuracy in identifying accounting and clerical errors.
Rochford: AI shows great promise, but it is still very early days regarding how it will shape the industry. We are testing AI with internal solutions to better understand its capability, and we’re working with tested large language models and more readily available end user tools.
We have launched Clarity, our own AI-powered bot for operational teams, that helps users with day-to-day questions relating to operational processes or internal policies and procedures. Security of data also is critical when developing AI solutions and we’ve adopted a secure-by-design approach. One of our core principles is ensuring that client and business data does not leave our environment, ensuring that we remain in control of our data.
In addition, we are working with fund managers to transform their operating models by implementing ‘golden sources of data’ and developing improved workflows to help better service clients. We have created workflows to help clean and capture data accurately as it enters our ecosystem and is tagged for its entire lifecycle to provide traceability. We can then make this data available to our clients or investors through APIs, dedicated investment manager and investor portals, directly in their data warehouse to provide on-demand, real-time access in their platforms or even an investment manager’s SharePoint.
El Houayek: Fund administrators are leveraging emerging technologies like blockchain and AI to enhance operational efficiency and improve client service delivery by automating processes, reducing errors, and improving data accuracy.
Blockchain enables a transparent and secure transaction process, while AI can play a role in predictive analytics and personalised client interactions.
Even though it is still at an early stage, blockchain enabling asset tokenisation projects could, for the fund administrator, lead the way to an instant NAV by leveraging its instant settlement benefits. On the subject of AI, most projects focus on efficiency gains, and initial results are really promising, not only for fund administrators but also for all our business lines. We should keep in mind that AI goes hand in hand with data, and that the real challenge is probably mostly related to the quality and availability of the data rather than the AI algorithm.
With the rise of digital assets and cryptocurrencies, what challenges and opportunities do you anticipate for European fund administrators in terms of custody, valuation, and regulatory compliance?
Johnson: While these relatively new assets can be complex to work with from a fund admin perspective, there are opportunities to offer specialised services in this emerging sector, attracting more clients and expanding market reach. The primary challenge is the nascent and fragmented regulatory framework. The lack of a cohesive regulatory environment means fund administrators must navigate a patchwork of regulations across different jurisdictions. This increases the burden, requiring varied approaches to satisfy different regulatory bodies.
Additionally, as regulations evolve, administrators must continuously monitor changes to stay compliant. Some jurisdictions may currently lack dedicated frameworks for these assets, focusing instead on specific areas like anti-money laundering or consumer protection.
This scenario is typical when a new asset class emerges, and over time, these challenges will likely be resolved, usually using principles of the past that are tried and tested.
Herbert: The rise of virtual assets should, overall, be seen as an opportunity, and not just a challenge. For fund administrators, there is certainly considerable opportunity in this space – the fact that the Boston Consulting Group estimates that the size of the tokenised illiquid asset market could reach US$16 trillion by 2030 gives some indication of the potential in this sector.
But it is not just the size of the virtual assets landscape that is interesting, it is also the impact on the overall shape of the sector.
One of the main selling points of tokenisation is that it allows for assets to be split up into much smaller units, breaking down some of the entry barriers investors typically face, and making the private markets more accessible to a broader group of investors.
That is an interesting proposition for a fund administrator, opening up a number of new avenues in terms of the custody, valuation and regulatory compliance services we offer – in particular as the sector continues to evolve rapidly and as regulators tighten up their frameworks.
El Houayek: The rise of digital assets and cryptocurrencies presents challenges in terms of custody, valuation, and regulatory compliance for European fund administrators.
They must navigate evolving regulations, establish secure custody solutions, and develop accurate valuation methods. However, this also opens opportunities for offering new investment products and services.
The rise of digital assets is a reality on the market, which is why we decided to create a dedicated business line for all related activities. It is important to mention that digital assets encompass both securities tokens and crypto currencies including utility tokens and future CBDCs.
One of our key challenges is to hide the complexity for our clients while enabling them to benefit from the technology. This is why we have equipped ourselves with new IT systems and a specialised team, to ensure we can provide a similar trust and security framework as that for traditional assets.
It is also important to emphasise that traditional asset servicers are the only ones to be in a position to act as a one-stop shop for both traditional and digital assets.
Outsourcing of fund administration functions has become increasingly prevalent among asset managers. What factors should asset managers consider when selecting a fund administrator, and how can administrators differentiate themselves in a crowded market?
El Houayek: When selecting a fund administrator, asset managers should consider factors like regulatory expertise, technological capabilities, cost-efficiency, and service quality. Administrators can differentiate themselves by offering specialised services, innovative technology solutions, and exceptional client support.
Rochford: Fund managers must see their administrators as ‘trusted partners’ that know and understand their business. A true, trusted partner understands a manager’s requirements — sometimes starting with a small or discrete task and proving it can do more. The best partners are intensely focused on building trust, being flexible and open-minded, and providing the best possible solutions. We are seeing a trend where managers previously outsourced accounting activities, then middle office services and now front office support services, and administrators need to adapt to these changes.
Bock: Asset managers face considerable market pressure due to investor demands on transparency and advanced analytics over portfolio performance and cost management, growing competition, lowering margins, managing operating costs and their operating model for more efficiency and especially better integration of middle and back office data.
With these multiple elements to handle, asset managers need to be able to rely on a partner that addresses their needs today and tomorrow and moreover allows them to focus on their core competence – asset management and generating performance for their investors.
Selecting a provider is also a long-term commitment since setting up interfaces, fine-tuning the operating model to deliver optimal performance and meet precise and measurable expectations, and implementing an optimised change management process, takes time and is costly to switch. We also see growing scrutiny from investors and other stakeholders on the choice of outsourcing providers. Hence the need for a reputable, stable, reliable, knowledgeable, resilient and flexible partner who constantly invests in systems, operational efficiencies, new services, new geographies, and stay in tune with a constantly changing industry.
BNP Paribas’ clients are especially vocal on our teams’ expertise, their dedication to serve them and to constantly enhance our services. It is a question of mindset. We work on the long term and endeavour to constantly improve ourselves.
Johnson: All in all, Gen II’s focus has always been on enabling fund managers to focus on their core fund raising and investing while providing them with tools and solutions to optimise their operations — and that is how fund administrators should be evaluated. Asset managers can break this down by looking at three fundamental areas that influence all services provided by fund administrators; asset class expertise, service quality and technological capability.
On the technology side, Gen II’s capability is now stronger than ever, offering strategic and digital solutions to meet our clients’ operational needs. For example, Gen II offers clients powerful access to their fund data through the Sensr product suite. This fully integrated, next-generation, web-based set of solutions allows firms and their investors access to all aspects of their fund data and analytics through our Portal, Analytics and DataBridge products.
In terms of expertise and service quality, Gen II is the largest independent private equity fund administrator, with the longest-tenured, most experienced team in the industry. Following the recent acquisition of Crestbridge, we offer unparalleled real asset services which support global strategies, tailored for scalable success. Finally, because our experts and clients maintain a strong partnership over the duration of our relationship and we’re able to tailor our services to our clients’ specific needs, we produce exceptional value add – and maintain a strong track record of client satisfaction.
Herbert: Outsourcing has risen up the agenda for managers for a number of reasons. First and foremost, it is about risk mitigation – managers are alive to the fact that the landscape is increasingly complex and outsourcing risk is a sensible play for them. It can be a cost-effective solution too, with outsourcing often being easier and more attractive than hiring a permanent in-house expert. And it can provide access to deep pools of specialist talent and expertise. It is why JTC puts so much emphasis on its shared ownership model, because it engenders such good talent retention. Managers like the fact that they can call on consistent, broad, and independent expert advice from a stable multijurisdictional team.
When it comes to selection of an outsourced administration solution, there is no doubt that in the current macro environment, there is an extraordinary downward pressure on pricing in the sector. But choosing a fund administrator should not be about price alone — it should be about added value, the capabilities an administrator can bring, the long-term picture, the quality of service, and the ability to harness technology in a smart way.
All these things are vital, because a manager needs to know that their administrator can be there to support them throughout their funds’ life span, at every step, with an ability to grow with them. Ultimately, it is about helping a manager to come across as best they can to their investor audience. That is where an administrator can really differentiate themselves, particularly in an environment where it is so hard to raise capital — by building that relationship and being the trusted link between the manager and the end investor.
Cybersecurity threats pose a significant risk to financial institutions. How are European fund administrators proactively addressing cybersecurity challenges to safeguard sensitive financial data and maintain the trust of their clients?
El Houayek: European fund administrators are addressing cybersecurity challenges by implementing robust security protocols, conducting regular risk assessments, and investing in advanced cybersecurity technologies. They focus on safeguarding sensitive financial data and maintaining client trust through continuous monitoring and incident response strategies.
Cybersecurity is not only a matter of IT, and although we do pay much attention to technology, cybersecurity issues often come from the human part of the process, which is why our people are trained and regularly tested on those topics. This allows us to benefit from a best of breed set-up for combining both the Human and IT side.
Herbert: In an increasingly digitised environment, it is clear that cybersecurity remains a major risk. Administrators should not position themselves as cybersecurity experts, though – instead, they should seek to work with and have the best-in-class software and solutions to protect their own clients.
Again, it is about digital integration, bringing together the digital solutions they need to deliver what they do best – fund administration - backed up by leading cybersecurity experts and software.
Rochford: We see trust as being critical across the industry. Accordingly, fund managers and administrators continually are investing to keep information secure, especially as digitisation increases. This is centred around understanding the threats facing their businesses through timely threat intelligence and exposure management, and ensuring that information is used to support the design and operation of security measures.
While technology continues to play a critical role in securing information, the role of employees here is fundamental. We must equip them with the knowledge and provide support to operate securely. This should include regular cyber training and awareness activities, supplemented with timely, targeted activities related to changing cybercriminal tactics. Firms also must have an open culture that encourages employees to report anything that looks suspicious so it can be fully investigated.
Johnson: To proactively address cybersecurity threats, European fund administrators are implementing comprehensive cybersecurity frameworks that include regular vulnerability assessments, advanced encryption protocols and continuous monitoring of IT systems.
Employee training on cybersecurity best practices and incident response plans all form part of a wider system to safeguard sensitive financial data and maintain client trust. Gen II also has additional specialist technology focussed around the two highest risk areas, payments and emails. This includes features such as being able to set network restrictions on the use of email attachments.
The trend towards consolidation in the fund administration industry has been evident in recent years. What factors are driving this trend, and how do you foresee it impacting the competitive landscape and service offerings of European fund administrators?
Johnson: The biggest factor is perhaps the need for economies of scale, enhanced technological capabilities and both broader and deeper service offerings. This consolidation is likely to result in fewer mid-sized companies and a larger pool of both small and large fund administration firms. The larger firms will likely have more robust and integrated service platforms, potentially increasing competition between them whilst driving innovation and efficiency. The smaller fund administration firms will likely specialise in particular niche areas and develop deep expertise, technology and processes for those niches.
Rochford: It is similar to the world of fund managers in many ways — big firms are growing bigger as the funds market grows and the amount of assets to manage and service increases. Administrators, especially those that are bank-owned, can provide a comprehensive breadth of services, offer more stable revenue and can be less capital intensive.
Herbert: What we are seeing is managers moving increasingly towards one provider that can offer them end-to-end service delivery and a seamless transition along all stages of their fund lifecycle. Rather than having to go to multiple providers, for instance, the preference is to have one point of contact that can support them in multiple ways – whether that is fund launch, administration, accounting, corporate services, management company services, governance or depositary services, across multiple jurisdictions such as the Channel Islands, UK, Ireland, or Luxembourg.
It means they save time, not having to explain a situation to multiple providers, it means they benefit from consistency and having an administration partner that really understands them in depth, and it means that they get benefits of scale and efficiency from a provider that is not just involved in one aspect of their business.
El Houayek: The fund administration industry’s consolidation trend is driven by the need for scale, cost efficiency, and enhanced service capabilities. This trend is expected to increase competition, leading to more comprehensive service offerings and potentially lower costs for clients.
With the growing interest in alternative investments such as private equity and real estate funds, how are European fund administrators adapting their platforms and processes to support the unique requirements of these asset classes?
Rochford: We are providing fund managers with a ‘one-stop shop’ for services. We support clients globally on our unique platforms and same experience covering key fund jurisdictions, so they have the same experience to address their needs across global and local teams. We spend a great deal of time developing tailored, best-in-breed solutions for our clients and support them with our own applications that complement and differentiate our services.
For example, we have created robust models to help determine complicated carried-interest calculations. At the same time, we are centralising repetitive tasks, payments, recs, and the capital call process while providing flexibility on how we deliver our services.
Bock: Private equity and real estate funds present significant growth opportunities for asset managers. The increasing sophistication of all aspects of asset management, from identifying opportunities, to measuring performance down to managing all administrative aspects, drives the platform strategy of service providers.
The key to a successful approach is twofold.
We actively listen to our clients. Asset managers place great value in highly specialised and integrated bank services that cover fund accounting, complex reporting requirements, loan management, liquidity management, asset valuation and reporting, and more – whatever their investment strategies.
We help them meet operational deadlines and handle complex fund structures while supporting transparency and disclosure requirements for investors, stakeholders, and regulators.
We continuously invest in our systems by offering new functionalities, better reporting, and above all extensive automation and connectivity with the outside world to exchange data.
While we do operate highly sophisticated systems to address the needs of private capital, hedge and traditional investments, we invest considerably in making the operational boundaries between traditional and private capital asset classes disappear, allowing for a single service experience worthy of a truly global service provider.
El Houayek: European fund administrators are adapting their platforms and processes by developing specialised expertise, enhancing reporting capabilities, and integrating the appropriate technology solutions that respond to the specific needs of these asset classes.
Johnson: Gen II is continually evolving its platforms to support the requirements of our private equity and real estate fund clients.
This involves customising reporting frameworks, enhancing valuation methodologies and integrating specialised investment management software to handle the unique characteristics of these asset classes.
For example, Gen II uses FIS Investran for private equity and Yardi for Real Estate at the GL level, and we will not compromise when it comes to the use of best-of-breed platforms for asset classes.
Looking ahead, what do you see as the most significant challenges and opportunities for European fund administrators in the coming years, and how do you envision the industry evolving to address them?
Bock: The industry will have to take up a lot of exciting challenges in coming years. Our clients expect that we embrace increasing personalisation of investment portfolios, increasing integration with their front office systems, along with a cost-efficient setup – both internally and externally.
We expect that the extent of outsourced services will increase considerably, and will encompass tasks for which fund administrators interact with external platforms on behalf of their clients.
Data and reporting stay at the forefront of BNP Paribas’ developments for clients. Asset managers need to monitor all aspects of their outsourcing arrangements and the operating costs of their funds to a great level of detail. We need to ensure full data consistency across multiple systems and geographies to help our clients meet the increasingly complex regulatory requirements across the globe. They count on their fund administrator to ensure compliance and investor protection.
We furthermore expect the enhanced Accounting Book of Records (ABOR) to become increasingly important as it is the only fully reconciled source of truth for investors and regulators.
Eventually, we see that scale and resilience are gaining in importance for asset managers, which underlines the relevance of large and integrated services providers.
El Houayek: The most significant challenges for European fund administrators include regulatory changes, technology evolution, new products such as cryptocurrencies and cybersecurity threats. Opportunities are in digital transformation, expanding into alternative investments, and providing value-added services. The industry is likely to evolve towards greater efficiency, transparency, and client-centricity.
Herbert: The key challenge for managers is likely to revolve around market instability. We have seen the extent to which market and geopolitical instability over the past year or so has impacted fundraising and transaction flow – and with unrest in Europe, the Middle East and elsewhere set to persist, and with the regulatory landscape continuing to evolve at pace, that fluid and uncertain outlook is set to continue.
From a fund administrator’s point of view, the key is to be agile. We have very much taken the view at JTC that we need to be big enough to deliver deep pools of expertise, but also agile enough to be able to evolve, adapt and respond to the market as needs be, to support managers. That agility – both in terms of people, and infrastructure and systems – is rooted in having the right organisational culture. It will be critical in the coming years with the potential to be a real differentiator.
In tandem with that, we are going to see technology continue to shape our landscape too. The important thing for us as an administrator will be to balance the best of both worlds – embracing our entrepreneurial mindset to realise the benefits of smart adoption of technology, whilst at the same time drawing on the power of our people to nurture our client relationships, something that is so embedded in our culture.
Rochford: We will continue to see a dramatic transformation in operations and technology. Target operating models within funds and across service providers that support these funds are already changing and we expect that to significantly increase in the coming years.
There is no doubt that regulators will continue to amend existing rules and implement new ones — we have already seen an increase in disclosure and transparency regulations, and we anticipate seeing new rules governing AI soon.
Fund administrators must closely track these changes and develop new processes and systems to ensure we continue providing clients with superior client experience. We make our clients’ needs a priority, and we want to know what is important to them. Increasingly, we are providing back, middle, and front office functions to make the investor experience, especially onboarding, more efficient and easier.
ESG investing has gained significant traction in recent years. How are European fund administrators incorporating ESG factors into their service offerings and reporting frameworks to meet the growing demand from investors for sustainable investment options?
Herbert:The issue of environmental, social and governance (ESG) factors continue to pose complex questions for managers. When you distil it, there are really three points a manager has to think about when it comes to ESG – what are their requirements and obligations under regulation; what is their capability in terms of gathering and managing data; and how are they going to report that to investors?
Generally, the strengths of a fund administrator really lie in the last point, around investor reporting. That is the sweet spot — what a good fund administrator should be able to do well and where they can add most value.
We are fortunate that at JTC we are also able to draw on the expertise of our wider Sustainability Services team too, who can provide specialist additional knowledge to support clients in this evolving space.
El Houayek: Providing ESG data and reporting services has quickly become a standard feature for fund administrators driven by the rise of ESG and sustainable investing regulations in Europe.
With the introduction of the Sustainable Finance Disclosure Regulation (SFDR), sustainability risk monitoring first became a necessity for funds and has since evolved into a broad spectrum of ESG monitoring and reporting services, including regulatory and industry reporting — for example; SFDR, EET, Taxonomy, and TCFD — ESG factsheets, controversial activity screening, and investment restriction monitoring. Additionally, stress testing and advanced modelling for climate risk are emerging areas that are gaining traction fast.
Given the specialist nature of ESG and enduring challenges around data consistency, it is often looked at in isolation by specialist teams. However, there is an increasing trend towards combining ESG analysis with traditional risk and return analysis. Such an integrated approach helps provide a more comprehensive view of a portfolio’s performance and sustainability.
Looking ahead, as the fund industry faces new challenges in the age of sustainable finance and ESG rulemaking, the role of asset servicers will continue to evolve.
Our mission is to help asset managers implement ESG investment strategies, meet regulatory and industry reporting requirements and promote best practices to enable them to grow their businesses sustainably.
