Back office servicers move up the chain
Fund administrators are moving up the chain into middle office and portfolio management functions as they broaden their services to offer more holistic support to their asset management clients. The success of this is currently reliant on a strong human relationship between administrators and fund managers. However, as the alternatives industry moves to more standardisation, technology will play a greater role in helping fund administrators provide a superior service to their fund management clients.
“Historically, the fund administration business was very much about the back office. In the past few years, however, administrators have taken steps up the chain into the middle office. This trend is going to continue,” explains Anita Lyse (pictured), head of real estate at Alter Domus.
She says administrators are able to take some of the “hassle” of reporting away from fund managers. “We consider ways in which we can be smarter about certain types of reporting, data aggregation and analytics to produce meaningful reports that will help our clients take informed asset management decisions,” Lyse adds.
This change in service means fund administrators can provide additional support to fund managers, freeing up time for them to focus on transactional and portfolio management activities.
Lyse notes this is driven both by firms like Alter Domus offering such services and also by client demand. “We’ve had clients who want us to go a lot further than the traditional back office, fund administrator role. But also, we have a lot of both financial and non-financial data and also many good people who understand the different asset classes. So sometimes it’s simply easier for us, to take that additional step further up the chain,” says Lyse.
This is a lot easier to do when there is a true partnership between the administrator and the client. However, Lyse thinks the reliance on this human connection may ease as technology solutions for the alternatives industry become more efficient.
She says: “I think in tomorrow’s world, technology will continue to play an increasingly important role in the delivery of our services. The relationship between the provider and the client will always be important. I don’t think technology will ever replace that, but it will help improve it as it continuously reduces risks of human error, increases speed of execution, and facilitates communication and access to live information.”
However, she notes that to be able to use a technology solution to improve efficiency or to automate processes, some form of standardisation is needed. Presently, the alternatives investments arena lags behind traditional UCITS when it comes to standardising processes. Lyse highlights the additional complications in the space: “By nature, there is a lot more complexity around each trade in private equity real estate, which makes it harder to standardise and also to find a one size fits all technology. And whilst the industry is catching up, there is still significant room for improvement.
“I believe you can push the standardisation a lot further than we currently do. This has started to happen, with for example the definition of a fund’s NAV and more broadly investor reporting being standardised by various industry bodies both regionally and globally. It doesn’t mean there isn’t a need for more customised approaches in some areas, but there are certain domains where we can start building that standardisation and plugging into technology a lot more.”
Technology investment never stops. Alter Domus has been investing heavily in the area and this is something Lyse says will continue. Technology is in constant evolution and there are internal processes fund administrators can automate to allow their own experts to focus on the value-add tasks based on their skills and competences.
Lyse also explains that the application of technology is not only about taking away the painful or low value processes. She notes: “Technology is also about how we can provide a best in class service to our clients to meet their constantly evolving needs, and how to do this in the most efficient way possible to enable us to remain competitive from a cost perspective and to retain our own margins.”
Technology investment is driven by a number of elements – from the regulatory burden that has created needs for data and additional reporting, to investor demand for support and transparency. The need for more sophisticated technology solutions also arises from the call for new products such as look-through capabilities and data analytics.
“Any large pan-European or global fund structure will be set up in Luxembourg, but will have assets in a number of jurisdictions across an entire continent and sometimes globally. So the question is, how do you pick up the data around those different assets and consolidate it in a meaningful and useful way? This is a challenge all of our clients are struggling with and where we are trying to help. Having a globally integrated technology platform is the only way to go in my opinion,” Lyse remarks.
Another significant trend Lyse identifies is the increased usage of the third party AIFM. She points out how regulation, cost and other factors have heightened the barriers to entry in Luxembourg, particularly for small or mid-sized managers, making the third party AIFM model very attractive.
There has been an increased acceptance for the third party AIFM model,” says Lyse. “Luxembourg is undoubtedly the best way for many managers to access European capital and for some, the only way in is by using a third party AIFM.” She explains that the hurdles for managers getting their own AIFM licence are many and that maintaining an existing licence can be onerous and expensive.
“For some clients, the third party AIFM is a transitional solution, and in these cases, they would have a strategy to build up their own office in Luxembourg. For others, this can be a longer term or permanent solution,” Lyse says.
Luxembourg has proved successful at giving the AIFM its seal of approval and as Lyse concludes: “The AIFM is following in the UCITS footsteps. UCITS has become a trusted brand and Luxembourg is the place to go for that. Now this is also happening in the AIFM world.”
Head of Real Estate, Alter Domus
Anita oversees Alter Domus’s global real estate operations. She has worked with some of the world’s largest private equity and real estate funds, and developed her expertise in management, accounting and financial reporting, corporate tax and legal aspects of Luxembourg vehicles set up by such investors. Anita holds a MSc in Business and Economics from the University in Toulouse and is a certified chartered accountant in Luxembourg.