After 12 years of increasing regulation in the wake of the global financial crisis, fund administration is now at a tipping point. Leading funds have not only digitised their administration platforms, they’re increasingly weaving seamless and granular data insights into the full length of their value chains. This is leading to a widening gap between the digital ‘haves’ and ‘have nots’ – a gap that has been exposed by the pressures of Covid-19.
Here, Richard Hansford answers questions about the current state of digitisation within fund management and what excellent fund administration looks like in 2020.
What have been the biggest technology advances in fund administration in recent years?
The biggest advance I’ve seen in the past five years is the administrators’ ability to automate data transfer. This enables us to track capital flows from asset level all the way up through a holding structure to the fund manager and investor, and everywhere in between. This is what Ocorian means when we talk about delivering an end-to-end service platform.
Technology and big data have been a key driver in that process. While the concept of big data has been around for a long time, we can now do so much with that data – and that’s where the human element adds real value. Administrators may have the technology to gather data, but they also need the expertise to interrogate it in the right way in order to extract the actionable insights that LPs, GPs and regulators need.
We’re not seeing technology replace practitioners, instead it is increasingly becoming a key part of the fund administrator’s team. Global fund platforms still have human teams – fund administrators, accounting, depositary and so on – but technology plays an increasingly important role supporting them.
Ultimately, the end users may not see the technology in operation, or the mechanics of the administration process, but they’re certainly benefiting from increasingly granular data-driven insights.
What are the biggest drivers of technology adoption among fund administrators today?
Without a doubt, the biggest driver is the increasing demand for more information from both regulators and investors. The industry experienced a transformational shift, which was triggered by the global financial crisis and, for some years now, regulators have been ramping-up fund managers’ and investors’ reporting requirements to ensure transparency and compliance.
We’ve also seen a demand for more customised reporting – ESG funds, for example, will have to increase their reporting next year to comply with new EU regulations.
As for investors, when I started my career in private equity and general fund administration 15 years ago, there was very little data flow going up to the fund managers and investors. The information was very basic. Investors now want information more frequently and in an accessible manner.
Is the demand for technology adoption accelerating?
Yes, it’s most definitely been accelerating and that’s due to the need to protect client information. If we look at legacy systems, they are pretty much Microsoft-based, relying heavily on software like Excel.
However, there are lots of concerns with legacy systems – there’s a desperately limited ability to track errors and monitor data flow; there’s a lack of a clear audit trail and no real control authorisation processes in place. These kinds of shortcomings are a real concern for everyone in the fund management industry, especially LPs. They want systems and controls set in place. They want to see authorisation levels within the business and segregated access to data.
It’s no longer enough for administrators to show how they administer a fund, LPs also want to know who can see their data and that kind of granular information can only be achieved with greater levels of digitisation and technology.
What other fund administration shortcomings are making technology adoption more critical?
We’ve had a lot of potential clients approach us because they need a more efficient technology solution. But successful fund administration in 2020 isn’t just about investing in the right technology, it’s also about having a team with the right skills and experience to operate it.
We’ve spoken to a lot of firms this year who have been unable to carry-out key activities, such as fund launches and closings, because Covid-19 has prevented them from taking place. And fund managers have been missing deadlines – reporting deadlines in particular.
Covid-19 has provided the ultimate stress test, and these delays have exposed a real lack of flexibility and agility in their fund administration systems. This is one of the main reasons prospective clients have been speaking to Ocorian, to see if we have a better solution.
These fund managers are looking for administrators that can move quickly, and a big part of the answer is having technology, such as robotic process automation (RPA), that can dramatically streamline and speed up processes.
Having the right technology isn’t enough though. It’s critical that fund managers work with administrators who can skilfully deploy and optimise new technology that adds exceptional value from the outset and every hour of the day.
What technology trends should we look out for in the months and years ahead?
There are lots of exciting tech developments adding real value to fund management right now and they’re only going to get better in the near future.
RPA is a great example as it enables fund administrators to automate labour-intensive and repeatable tasks so they can be executed in a fraction of the time and with a far higher degree of accuracy. These tasks typically include making accounting entries, automating billing cycle runs and cash reconciliations. The drive towards RPA is happening right now and has been in train for the past 12 to 18 months.
Application programming interfaces (API) are another exciting technology with lots to offer. APIs are software integrations that allow a third-party administrator to transfer data between platforms, straight into the GP or LP’s technology system. The usual way of transferring data would be to share an Excel document or make the information available on an online portal, but APIs are totally integrated and seamless.
Is the evolution of fund administration technology causing more GPs to outsource?
This depends a great deal on where fund managers are in their life cycle. Start-up managers without the infrastructure to administer their own funds will generally outsource. Some start-up managers do initially administer in-house but when they get to funds two and three, they often look for an outsource model rather than recruiting a bigger team and investing in technology. The advantage is that they can simply transfer to a platform that already has size and scale that they can leverage.
Many larger private equity houses are also looking at outsourcing partnerships, but for different reasons. They may have developed relationships with multiple administrators, but now they are interested in consolidation.
Some GPs, for example, may have eight or nine administrators working for them, which isn’t necessarily the most efficient operating model. These managers may be looking to create efficiencies internally, so they’re reviewing their model to identify duplications and sources of delay. Technology adoption usually plays a key role in this restructuring and rationalisation process.
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