How would you differentiate transfer agency services in Europe from Asia or America?
The major differentiator between transfer agency services offered in Europe, Asia and America would be the fund types themselves serviced, and the regulatory requirements arising within the differing jurisdictions, largely in response to the global economic crisis. For example, with the growth in legislation such as the Alternative Investment Fund Managers Directive (AIFMD), as well as the introduction of new fund structures such as UCITS and qualified investor funds, European-domiciled funds require very specific transfer agency services in comparison to their Asian and American counterparts.
The transfer agency services provided in Europe and America are based on more established mature markets in relation to Asia, which is relatively new to the transfer agency market, so its service needs will vary greatly. But the scope of services offered will generally be consistent across all jurisdictions. Typically, these services would include: share register, document management, anti-money laundering and compliance, and investor relations, just to name a few.
Finally, we must also consider the market trends in terms of the fund types that are common to different locales. For example, Dublin has long been synonymous with hedge and UCITS funds, as is Luxembourg with real estate and private equity funds, whereas the US market has an established presence in the mutual, hedge and private equity fund markets. Asia has had a preference for UCITS funds. Therefore, the transfer agency services offered will all vary according to nature of the market being served, whether it is Europe, Asia or America.
What are the challenges to increasing automation?
Automation has come a long way over the past decade, and there is still quite a bit of difference in the levels of automation between the institutional and the retail side. One particular challenge on both sides is having unifying standards for processing orders. However, there are still many different areas where automation can increase substantially. Many think of automation as being limited to STP of orders. The alternative investment industry will need to take further steps toward automating communications between custodian banks, administrators and transfer agents with defined standards.
What are the latest developments to affect transfer agency?
The latest developments are undoubtedly all of the regulatory requirements that have been put in place. Post 2008, there have been significant developments that have not only affected the transfer agency industry but the entire global financial services sector as a whole. We have seen more regulatory change in the last five years than we have seen in the previous 20 years combined. We have seen considerable regulatory change in almost all jurisdictions around the world. In addition to this, we have seen investors demanding greater controls, transparency and liquidity from the alternative investments funds industry.
As fund managers reengineer their product offerings to appeal to investor demand, they will look to fund administrators to add significant value to the transfer agency process. Transfer agency departments will look for robust IT solutions that can minimise risk, enhance automation, and offer greater controls and flexibility for real time data distribution.
From a transfer agency perspective, the current regulatory changes pose the greatest challenge of all with most fund administrators already investing considerable sums of money in resourcing and IT infrastructure to meet these demands. Altering current transfer agency processes while simultaneously upgrading IT infrastructure to meet these regulatory demands can be a significant challenge, especially with ever-shortening deadlines for compliance. Yet, these challenges can also create opportunities for innovative quick-to-market fund administrators that are looking to gain a reputation for having niche capabilities.
Do you think it is advantageous to outsource transfer agency functions to cheaper labour markets?
There are both pros and cons to outsourcing. Certainly cost saving is one of the biggest advantages to outsourcing to places like India or the Philippines. Over the past few years, competing on costs has become even more critical for all administrators, even those that operate with niche capabilities. It has certainly become a popular approach among major transfer agents in recent years to outsource certain transfer agency functions to lower cost centres.
The results have shown varying levels of success. Largely it is dependent on a standardised approach being developed by the administrator and support functions being in place in both locations. Once implemented successfully, it can certainly drive down labour costs and create opportunities for more value-added functions to be carried out in the higher-cost labour centres. There is still, however, a lot to be said about lowering cost through automation rather than outsourcing to lower cost jurisdictions.
With clients looking to merge their funds located in different domiciles, how will consolidation of this kind affect the industry?
I think this will be most evident in jurisdictions that attract UCITS funds. Setting up a fund group in Dublin or Luxembourg can often make it easier to market to 20 different countries than it would be to set up each fund as, for example, a French- or an Italian-domiciled fund. This approach can often enable fund managers to increase their AUM more easily.
The main knock-on effect would be killing off or merging less profitable home-domiciled funds. Due to this merger process, AUA will increase per jurisdiction, allowing funds to drive down fund administration costs and improve the quality and standardisation of data distribution to their investors.
Is the move towards European harmonisation having an effect on the sector?
European harmonisation is being driven by legislation such as AIFMD, the goal of which is to provide transparency in relation to the activities of alternative investment funds managers. This is having both a positive and a negative impact on the industry. For investors, it gives another layer of security as they have a clearer picture of what is being done with their investment and therefore have an extra level of confidence.
However, there is likely to be a reduction in the number of smaller fund managers and non-EU managers that will see the new directive as overly complicated and burdensome, while in turn, the bigger fund managers will see it as an opportunity to increase their market share as they will have the resources to meet the new requirements.
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