Dissatisfied with your third-party AIFM provider? 5 red flags to look out for and what you should do about them
For all the benefits of using a third-party AIFM, there is a growing sense of disquiet among users that some providers are falling short.
Given the highly regulated environment in which fund managers operate, asset managers can ill afford to make mistakes when it comes to appointing service providers. If the service they receive from their third-party AIFM is falling behind expectations, they could be left vulnerable to regulatory implications.
It is important to watch out for signs that your third-party AIFM provider may be starting to miss the mark.
Five red flags to look out for from your third-party AIFM provider are:
- A lack of attention to detail
- Missed regulatory filings
- Poor response times
- High turnover of staff
- A lack of personalised service
What are common causes of dissatisfaction with third-party AIFM providers?
1. Staffing constraints
One of the main responsibilities of an AIFM is to provide substance and governance to their clients’ businesses. It is critical they have the requisite resources and systems in place to ensure everything runs smoothly and within the limits of their regulatory environment.
Yet as competition between AIFMs has intensified, a fierce fight for the best staff and technology has begun.
Research by KPMG of third-party ManCos reveals staffing challenges, especially in internal control functions. And while the average risk management team/ compliance function increased by 19% in 2021, the consultant identifies a migration of talent from third-party ManCos to internal, proprietary ManCos.
Combined with a high turnover of staff, this may leave some third-party providers with a skills and manpower deficit that will likely impact on their client service levels. This also means that the costs of operating an internal, proprietary ManCo are increasing.
2. A lack of expertise in specialised asset classes
With the rise in growth of ‘Super ManCos’ that service a broad range of clients across both UCITS and alternative investment funds (AIFs), fund initiators should assess whether their current third-party ManCo possesses the required expertise and skills amongst their staff to service their specific fund strategies. Particularly if dealing with specialised asset classes such as private equity, venture capital or real estate.
Expertise in particular investment asset classes such as private equity, real estate, infrastructure, private debt and other bespoke offerings might not be available at a broader ManCo service provider, whose processes and controls may not reflect the underlying fund strategies.
Does your ManCo offer its services under both delegated portfolio management and advisory models? If the latter, ask how many portfolio managers they employ and whether they have expertise in your relevant asset classes.
3. Being a ‘small fish in a big pond’
Some fund initiators have found themselves in a situation where they were receiving a personalised service in the past, but due to market consolidation within the industry, are now one client amongst dozens of others.
Combined with lack of resources and margin pressure, the AIFM’s staff may not be able to allocate the appropriate time to servicing smaller, needier clients, resulting in poorer service levels or actual off-boarding by the AIFM.
4. Pressure on pricing
Inflationary costs in recent years and a higher cost of talent have put considerable pressure on third-party AIFM costs.
Competition in the third-party ManCo space has inevitably led to a squeeze on fees. This is compounded by stringent capital requirements imposed by the Alternative Investment Fund Management Directive, which requires a UCITS ManCo to have an initial capital of €125,000 plus 0.02%, of the value of the portfolios it manages in excess of €250 million, subject to a cap of €10 million. In addition, regulated AIFMs are required to hold a further 0.01% either in available cash or equivalent in third-party insurance.
This puts ManCos under further pressure - especially where businesses have consolidated and legacy fund manager contracts have been inherited by the new enterprise - to sever ties with their least profitable clients, or at the very least, substantially renegotiate fees.
5. A lack of technology solutions
Also required, is the need for considerable technology expenditure as ManCos endeavour to keep pace with changing regulatory structures, demands for responsible investment capability and the need to become more streamlined in their operations. Therefore, it is not a surprise that 64% of ManCos surveyed by KMPG see automation and digitisation as an opportunity.
This begs the question as to the service levels some funds managers receive where a ManCo’s current technology capabilities fall short. It may be there are better equipped alternative providers available who possess the systems capable to facilitate many of the day-to-day tasks of an AIFM.
“It is an unfortunate position for a fund initiator to have got to a point where they're ready to switch AIFM provider. These are long-term business relationships, built around the right balance of people, know-how and technology. When we onboard a new client we expect to see the fund project through from cradle to grave, from incorporation to liquidation, with re-up fund launches in the meantime.”
Why asset managers are choosing Ocorian’s AIFM services
Ocorian is a specialist provider of AIFM services to private capital alternative investment managers.
Our AIFM teams are based in Ireland and Luxembourg and have extensive expertise in managing private equity, real estate, infrastructure, and private debt funds.
By having sector specialists amongst its team, the AIFM can ensure a smooth alignment on investment processes with the fund manager and offer expertise on complex risk and compliance matters. We provide the necessary substance, infrastructure, expertise and legal documentation in place in Luxembourg and Ireland to enable the fast and efficient set-up and launch of a new fund or migration from another provider. This enables you to focus on capital raising, asset management and generating returns.
Why choose Ocorian AIFM Solutions?
Responsive and dependable service
Our teams understand the importance of a responsive service and n you can rely on us to deliver an accurate and dependable service.
We work as a seamless extension of your team and tailor our services to your specific needs.
Dedicated onboarding team
Ocorian have a dedicated solutions and on-boarding team, that take on the heavy lifting and will take the pressure off you to meet the required timeframe.
100% retention rate
We have had a 100% retention rate of our AIFM clients over the past 15 years.
Expertise in alternatives
We have sector specialists on the team, in the areas of private equity, venture capital, real estate, infrastructure and private debt funds.
Our AIFMs in Luxembourg and Dublin are staffed by specialists in AIFMD, compliance, governance and accounting. We are experienced in handling the day-to-day operations of an AIF in compliance with AIFMD and local requirements. Our AIFM teams are supported by 300+ funds specialists globally who offer multi-jurisdictional and time zone support to fund managers in the US, Europe and Asia.
Breadth of service
Ocorian are also authorised to provide fund administration services and real asset depositary services. As a result, we provide a seamless one-stop-shop solution so you can focus on delivering value to your investors.
At Ocorian we are well placed to support fund managers in a review and potential refresh of your third-party arrangements.
For more information on switching your third-party AIFM, download our guide to switching your third-party AIFM provider.