The focus of this year's survey pulls together topics ranging from whether competition is forcing adm...
The first thing to note is the level and detail of response to this year's survey, both of which were exceptional. It has been difficult to include all the information provided that reflects the true response, but the following tables and text should serve to inform both those currently using fund administration services and those looking to buy them what is available. In addition, fund administrators that have taken the time and trouble to respond should be congratulated and taken as an indication of the level of service they afford to clients.
As well as showing comparative information on fund administration services provided, the survey also aims to shed light on how innovation in the fund administration industry is shaping the fund industry generally and vice versa. The balance between the expectations of fund managers' appetite for more complex investment structures along with global reach, together with the demands on fund administrators in terms of level of service and technological innovation, is clearly illustrated (see table, page 41).
The general consensus among respondents is that there is indeed over-concentration on added-value services in the bid to attract more clients. Although many respondents make the observation that rather than concentrating on value-added services, the perception of core services is simply broadening. For example, performance measurement has normally been the function of the fund manager, yet as technology improves it makes sense for this function to come into the sphere of the administrator who has developed the technology to analyse performance data.
Administrators are indeed responding to this. For example, Custom House is near to launching a performance measurement service for clients. It does point out, however, that offering added value services such as risk analysis compromises an administrator's position. The suggestion here is that if the manager does want to outsource this function, it should be to someone independent of both the manager and the administrator.
Some administrators have rolled out niche products based on services they have been supplying to other parts of their own group. Luxembourg-based BNP Paribas launched a performance measurement and analysis product via their custody service for third party clients in September last year. The system is based on 10 years' experience in performance measurement and analysis for BNP Paribas' Asset Management Arm. The system complies with AIMR and GIPs. The performance is calculated on a monthly basis and is done by weighting cash flow by the amount of time held in the portfolio.
Maintaining quality of service while also embracing innovation is a balance most fund administrators have to live with and it is no surprise this does not get any easier. While the improvement in systems via new technology will allow administrators to increase productivity eventually, the maintenance of services through hiring experienced staff is increasingly difficult. Neither does offering more money seem to make much difference. Custom House puts this down to a cultural change taking place in the work force across financial services generally in that a career path is no longer deemed necessary or attractive.
Bermuda-based Fulcrum sees controlling growth as one measure, which means having the courage to turn away business when an administrator lacks the resources to provide a good service.
This however relies on a good relationship between the sales department eager to clinch the deal and the relationship manager responsible for managing client expectations - from the outset of the relationship when the fund administrator is completing the RFP. Northern Trust looks at getting regular feedback via the relationship manager, client forums and client surveys.
A further of way of ensuring quality of service is through the adoption of more standardised services and protocols.
The analysis, treatment and distribution of massive statistics and data flows from fund managers to administrators are crucial to a successful administration service and indeed the transparency of fund managers. But measurement of this success is notoriously difficult. One suggestion is to impose standard service provisions that give the client some form of benchmark, but most respondents do not believe this will work. Indeed this suggestion makes less sense when applied to the hedge fund world where the funds themselves are not standard.
That said, certain procedures could be put in place to avoid fraud. Custom House suggests a clear valuation policy which must be specified in the offering document and requires valuations taken from a source independent to the investment manager. In addition, the administrator should have direct contact with the broker and should draw down all information necessary for valuing the fund and calculating the NAV directly from the brokers and banks and not rely, in any part, on information supplied by the investment manager. Finally, the administrator should be one of the authorised signatories on all third party payments out of the fund to ensure that they are paid to the correct person or entity and, except for redemptions, are a justifiable expense of the fund.
In agreement with the difficulties of imposing standards, but for different reasons, is US group SEI. It points out that, unlike the US, it is impractical to assume that most countries can agree on standard where the culture, buying patterns and languages differs.
State Street is one of the few respondents in the survey that does agree with standard service provisions. It argues
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected