Fund administration: current trends and who’s getting it right?
July 21, 2017

The recent low-rate monetary period has brought added complexity to the world of fund administration. Investors have sought out unorthodox channels in the pursuit of yield, with a clear trend towards non-listed assets – private equity, real estate and loans – as an asset class which promises concrete financial return, while preserving capital. At the same time, there has been a blending of the traditional and alternative fund sectors.

Further complexity comes from the heavy regulatory drive for accountability and transparency, together with increasing client demands and developing best practices. As a consequence, intermediaries such as fund administrators, global custodians, asset managers, insurance groups and other financial institutions face steadily greater challenges. Efficient processing becomes paramount, as does the flow of information and the capability to deal with additional administrative tasks that confront all parties.

In the face of such fast-paced change, fund sponsors face a moment of truth. Do they continue with their in-house administration or outsource administration to relieve them of the management burden and the next round of fixed-cost investment, while allowing them to focus on the core business of investment and distribution? Service providers taking on such duties must have processes and systems that are capable of handling all of a client's requirements and that are future-proof for their developing needs, so they too face that same moment of truth – whether to buy or build technology.

State Street has a long heritage in fund administration and custody, dating back to 1924 when it was appointed custodian to the first US mutual fund, Massachusetts Investors Trust. For more than 40 years, the company was joined at the hip with technology firm DST Systems, Inc., the two having formed a joint venture, Boston Financial Data Services Inc., in the early 1970s. For some two decades, State Street contracted with Chase Manhattan for its global custody activities – before applying its technology platform to international markets in the early 1990s. In March 2017, DST Systems took full ownership of Boston Financial Data Services Inc. Transfer agency continues to be strategically important to State Street, and this decision involved a change in ownership, not a service-level change for its clients. State Street and DST maintain their joint venture in Canada, Ireland and Luxembourg, and continue to provide transfer agency services in these markets under their current arrangement. Given the strategic importance of traditional transfer agency services in these markets, State Street continues to invest in their technology and servicing capabilities. Outside of this, State Street and DST continue to work together across markets globally to service joint clients.

Fund administrators are facing a challenge from technology firms encroaching on their turf. A prime example is SS&C, founded in 1986 to provide software solutions. Through acquisitions and organic growth, it has entered the key segments of fund administration, middle- and back-office outsourcing for asset management firms and investment operations for insurance companies. A strong focus on the nuts and bolts of accounting, analytics and reporting for various funds, along with the accumulation of thousands of high-quality accountants, has served the firm well.

"Capitalizing on a key strength in technology, SS&C has employed best practices to hire and develop talent," says Bill Stone, Chairman and Chief Executive Officer, SS&C Technologies. "Working with universities around the globe has accelerated this top-tier talent accumulation. SS&C has garnered vast knowledge of operational best practices through a number of acquisitions ranging from Chalke Inc. in 1994 to Citi Alternative Investor Services in 2016 and has brought the best of these to bear in its offering."

The traditional fund administrators must be fleet of foot. Take Maitland, a fund administration house which was built on the back of a Luxembourg-based legal and tax advisory practice. The firm follows a ‘best of breed' solution-driven technology philosophy through the use of a combination of third-party administration platforms such as InvestOne, Advent Geneva, Flexcube and Investran.

"The critical need to keep systems up-to-date and in sync with both regulatory changes and the product innovations of the Investment Managers strengthens the case for investing in best-of-breed third-party sourced technology, rather than following an in-house proprietary solution," says Patric Foley-Brickley, Head of Business Development – Europe at Maitland.

Whichever route an asset manager or fund administrator adopts, they need to be confident that the underlying processes and technology will meet current and future needs and the strictures of the regulators – and that there are no hurdles to implementing and affording the next round of developments that may be required by a major regulatory change, business growth or a shift in asset management strategy.

For investment managers, the advice is to take a holistic approach when choosing a fund administrator and in periodically assessing the approach and performance of their chosen service partners. A July 2017 guide published by the Alternative Investment Management Association (AIMA) sets out best practice for alternative investment managers in this regard. When it comes to an asset management firm's evaluation of its administrators, this can be performed free-of-charge via one or more simple questionnaires at ServiceMatrix.





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The recent low-rate monetary period has brought added complexity to the world of fund administration. Investors have sought out unorthodox channels in the pursuit of yield, with a clear trend towards non-listed assets – private equity, real estate and loans – as an asset class which promises concrete financial return, while preserving capital. At the same time, there has been a blending of the traditional and alternative fund sectors.

Further complexity comes from the heavy regulatory drive for accountability and transparency, together with increasing client demands and developing best practices. As a consequence, intermediaries such as fund administrators, global custodians, asset managers, insurance groups and other financial institutions face steadily greater challenges. Efficient processing becomes paramount, as does the flow of information and the capability to deal with additional administrative tasks that confront all parties.

In the face of such fast-paced change, fund sponsors face a moment of truth. Do they continue with their in-house administration or outsource administration to relieve them of the management burden and the next round of fixed-cost investment, while allowing them to focus on the core business of investment and distribution? Service providers taking on such duties must have processes and systems that are capable of handling all of a client's requirements and that are future-proof for their developing needs, so they too face that same moment of truth – whether to buy or build technology.

State Street has a long heritage in fund administration and custody, dating back to 1924 when it was appointed custodian to the first US mutual fund, Massachusetts Investors Trust. For more than 40 years, the company was joined at the hip with technology firm DST Systems, Inc., the two having formed a joint venture, Boston Financial Data Services Inc., in the early 1970s. For some two decades, State Street contracted with Chase Manhattan for its global custody activities – before applying its technology platform to international markets in the early 1990s. In March 2017, DST Systems took full ownership of Boston Financial Data Services Inc. Transfer agency continues to be strategically important to State Street, and this decision involved a change in ownership, not a service-level change for its clients. State Street and DST maintain their joint venture in Canada, Ireland and Luxembourg, and continue to provide transfer agency services in these markets under their current arrangement. Given the strategic importance of traditional transfer agency services in these markets, State Street continues to invest in their technology and servicing capabilities. Outside of this, State Street and DST continue to work together across markets globally to service joint clients.

Fund administrators are facing a challenge from technology firms encroaching on their turf. A prime example is SS&C, founded in 1986 to provide software solutions. Through acquisitions and organic growth, it has entered the key segments of fund administration, middle- and back-office outsourcing for asset management firms and investment operations for insurance companies. A strong focus on the nuts and bolts of accounting, analytics and reporting for various funds, along with the accumulation of thousands of high-quality accountants, has served the firm well.

"Capitalizing on a key strength in technology, SS&C has employed best practices to hire and develop talent," says Bill Stone, Chairman and Chief Executive Officer, SS&C Technologies. "Working with universities around the globe has accelerated this top-tier talent accumulation. SS&C has garnered vast knowledge of operational best practices through a number of acquisitions ranging from Chalke Inc. in 1994 to Citi Alternative Investor Services in 2016 and has brought the best of these to bear in its offering."

The traditional fund administrators must be fleet of foot. Take Maitland, a fund administration house which was built on the back of a Luxembourg-based legal and tax advisory practice. The firm follows a ‘best of breed' solution-driven technology philosophy through the use of a combination of third-party administration platforms such as InvestOne, Advent Geneva, Flexcube and Investran.

"The critical need to keep systems up-to-date and in sync with both regulatory changes and the product innovations of the Investment Managers strengthens the case for investing in best-of-breed third-party sourced technology, rather than following an in-house proprietary solution," says Patric Foley-Brickley, Head of Business Development – Europe at Maitland.

Whichever route an asset manager or fund administrator adopts, they need to be confident that the underlying processes and technology will meet current and future needs and the strictures of the regulators – and that there are no hurdles to implementing and affording the next round of developments that may be required by a major regulatory change, business growth or a shift in asset management strategy.

For investment managers, the advice is to take a holistic approach when choosing a fund administrator and in periodically assessing the approach and performance of their chosen service partners. A July 2017 guide published by the Alternative Investment Management Association (AIMA) sets out best practice for alternative investment managers in this regard. When it comes to an asset management firm's evaluation of its administrators, this can be performed free-of-charge via one or more simple questionnaires at ServiceMatrix.