What trends are driving the need for external fund services?
We are seeing an increasing drive by alternative asset managers to expand the amount of work that they outsource to external, expert professional service providers. Different regional territories are in different stages of development in terms of their propensity to outsource but all are being tasked with meeting increased demand from key stakeholders for information in many areas – transparency of information is key.
Ultimately, outsourcing is driven by a need for increased efficiency. When done properly, it will expose asset managers to expertise in the performance of specific functions and allow them to access systems capability that would be extremely costly to implement and maintain in house.As such, outsourcing arrangements – when implemented optimally with the right outsourcing partner – allow fund managers to focus on their core business activities rather than spending time and money on the administrative aspects of running a fund.
What kind of managers are more likely to outsource – is it always appropriate?
Across the Sanne alternatives business, we have seen over the past few years an increase in outsourcing from a range of fund managers whether private equity, real estate, private debt or hedge. Each asset class has specific market pressures and challenges, but all benefit from professional third-party service providers like us. Critically, while there are similarities, each strategy has intricacies from an administrative perspective and Sanne has implemented a divisional model which allows us to specialise at the asset level as opposed to a wider ‘funds’ outsourcing solution. We are genuine subject matter experts in all of our jurisdictions which makes us a genuine partner as opposed to simply an outsourcing solution – our clients benefit significantly from our cross jurisdictions asset-led experience and the expertise of our teams.
Has the nature of outsourcing changed or evolved over time?
I do not necessarily think that the nature capabilities required to be considered a true outsourcing partner for clients has changed materially. Some clients are very specific about maintaining certain functions in-house and therefore cherry pick specific services in isolation.
However as the sophistication and capability of administrators has increased over recent years, the appetite for out- sourcing has increased significantly.
As fund structures become increasingly jurisdictionally diverse, multi-jurisdictional administration capability is becoming increasingly important. However, in my experience clients do not want to deal with multiple teams in multiple locations
– they want a one-stop solution covering all aspects of the relationship from a single central team. In my view the administra- tion of multi-jurisdictional engagements is challenging. However, when done well, it is where the real value add from an out- sourcing perspective is achieved.
A hot topic now is cybersecurity and consequently there is a heightened requirement for administration providers
to maintain robust controls from both an operational and IT perspective – IT capa- bility in the industry has certainly pro- gressed significantly over recent years. The drive for efficiency and increased accuracy via the implementation of new and improved IT solutions is critical to our product offering and is something of the utmost importance at Sanne.
Are there any functions managers are reluctant to outsource – how do they overcome that?
The question of whether to outsource a particular function is often considered in the context of the fund manager’s size. A first-time fund manager may not need to engage a fund administrator and the costs to do so may be prohibitive if there is a very low level of assets under administration. However, once a fund manager reaches a certain size, an outsourcing solution becomes more appealing.
I think that the core functions out- sourced – financial reporting, analytics, company secretarial support, etc – will remain.Areas of increased sensitivity, such as the administration of carried interest arrangements, are items that are outsourced.
However, there is sometimes a reluctance from fund managers to outsource this type of function to a third party.
That said, in our experience once the fund manager has worked with us and understands our capabilities, these higher- profile areas are often added to our administration mandate, which is great to see.
What are the biggest challenges fund administrators face when trying to offer a seamless service?
Outsourcing is tried and tested, and there are no surprises in terms of client expectation. Information must be accurate and timely – nothing else is acceptable from my perspective. I noted multi-jurisdictional engagements previously and this
“Some clients are very specific about maintaining certain functions in house and therefore cherry pick specific services in isolation, however, as the sophistication and capability of administrators has increased over the recent years, the appetite for outsourcing has increased significantly”
is definitely an area which is challenging in terms of service delivery. Specific jurisdictional requirements and functions need to be understood and executed, while also ensuring that consolidated financials at the fund level are accurate and timely.The ability to deliver a top-quality service to clients with complex multi-jurisdictional structures is key if you are to be considered a genuine outsourcing solution for sophisticated fund managers. Sanne operates an asset led divisional model and utilise a single platform spanning our jurisdictions – it is a combination that works exceptionally well for these types of engagements.
Is technology making outsourcing easier?
Clearly, the use of technology and constantly looking to innovate the way we do things is key. However, in our experience, effective and efficient service to those managers which have outsourced their business administration needs is supported by three key elements: technology, people and processes.
You can have the best IT capability in the market, but if the individuals utilising those systems do not understand the transactions and do not have the procedural framework to follow, the output will be inaccurate and ultimately unsatisfactory.
At Sanne we place significant impor- tance in all three pillars which, when combined, allows us to provide clients with tailored solutions that are delivered on time, efficiently and by highly qualified professionals.
How are regulatory trends impacting manager appetite for outsourced fund services?
Regulatory change has been consistent over recent years and we do not believe that this trend will abate any time soon. Money laundering and financial crime are always on the agenda and we have all seen the rise of FATCA, BEPS and CRS driven by increased transparency requirements (significant pen- alties can be incurred for non-compliance which clearly results in heightened focus). With such an uptick in reporting requirements and the associated volume of information to be held, fund managers are increasingly looking to work with admin- istrators that have the systems capability and the technical know-how to report in all of these areas with exceptional speed and accuracy. Critically, it is also not an area that our clients want to spend their time on – we can look after these areas, while they can focus on their core activities.