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Administrators look to tackle growing pains

At the end of last year Deloitte & Touche conducted the first in what is planned as an annual series of surveys on the fund administration industry in Ireland.

At the end of last year Deloitte & Touche conducted the first in what is planned as an annual series of surveys on the fund administration industry in Ireland. The sector has been growing over the past five years at a compound annual rate of more than 30 per cent a year and currently services traditional assets exceeding USD1.1trn and an estimated EUR700bn in alternative funds, reflecting not only growth in asset values but a near doubling of the number of funds serviced in Ireland.

The survey participants comprised more than 20 Irish fund administrators including 15 of the top 20 firms ranked by assets. The respondents, who accounted for around 70 per cent of the industry’s total assets under administration last year, included providers of services to both long-only and hedge funds, but the survey’s conclusions largely hold good for administrators of alternative as well as traditional asset classes.

The survey concludes that the ‘phenomenal’ growth in Ireland’s fund administration business is unlikely to come to an end any time soon. The firms surveyed overwhelmingly expect hedge funds to be the main driver of business growth over the next five years, with 60 per cent selecting single-manager funds as the biggest product growth area and a further 20 per cent citing funds of hedge funds, trailed by moneymarket funds, common contractual funds and private equity funds.

But management of this growth is seen as the biggest challenge facing administrators, which are examining a range of strategies including fresh investment in technology, redesign of business processes to boost productivity and reduce costs, and changes in operating models such as greater use of outsourcing.
The report notes that internal expansion involves a significant effort in recruitment and training, exacerbated by the high staff turnover common among administrators in Dublin. Deloitte estimates that a firm starting with a workforce of 100 and growing by 20 per cent a year would have to hire 164 new staff over a three-year period, taking into account an attrition rate of 25 per cent, to finish up with 173 employees.

The ‘growing pains’ identified by the report are prompting close to half of the administrators polled to undertake changes to their operating models through standardisation and centralisation of business processes and automation of workflow and reporting. Many firms have already set up operations elsewhere in Ireland to tap into additional labour pools, but the industry is also seeking to move certain lower-value administrative functions to lower-cost locations overseas, subject to the rules on minimum activities that apply to Irish-domiciled funds.

One technology area in which change is expected is fund accounting systems, with 50 per cent of respondents reporting that their system is at least five years old and 25 per cent more than 10 years. The most likely beneficiaries of a change are Advent Geneva and SunGard InvestOne, which are already the dominant commercial systems used in Ireland, although more than 20 per cent of respondents use in-house systems.

Fewer firms are considering a change in transfer agency system, with more than 70 per cent of respondents having installed a new system within the past five years. However, the survey found that many administrators are planning IT changes aimed at boosting productivity, enhancing service and meeting compliance requirements, with improved internal and client reporting a top priority.

Ronan Nolan is partner in charge of investment management services with Deloitte & Touche Ireland

Christian MacManus is a director of financial services audit with Deloitte & Touche Ireland

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