We live in an increasingly multi-asset class world. Unfortunately, fund administrators’ traditional technology infrastructures do not.
Transfer agency, accounting and reporting systems were typically developed to support the specific needs of what had been segregated markets, creating specialist software for mutual funds, hedge funds, private equity and real estate.
But the investment landscape has changed. The low interest rate years of paltry bond yields and stretched equity valuations have driven investors out along the risk curve and into a wider range of (especially alternative) asset classes. Hedge fund assets now top $4 trillion and are predicted to hit $5.44 trillion in 2026. Private equity is forecast to soar from $5.33 trillion in 2021 to $11.12 trillion by 2026, with private debt growing at an even faster CAGR. Meanwhile, the growing incidence of hybrid fund structures is reducing the distinction between asset classes.
Fund administrators are evolving in tandem. Through a combination of M&A and internal initiatives, industry participants are expanding their service offerings and the range of asset classes and clients they strive to support. Yet their system environments have often failed to keep up, leaving administrators with a jumble of asset-specific transfer agency platforms.
System proliferation doesn’t work
That’s a growing problem.
Each transfer agency application has a licensing cost. They require server space, plus a team of IT support and subject matter experts to run the software, adding headcount and key person risk.
In an effort to create a single source of the truth, administrators have taken to implementing a data warehouse to sit above the transfer agency applications, with the systems feeding the warehouse with all the investor data relating to the funds they service. But those warehouses introduce an additional cost and risk that the process will fall down.
Keeping the data warehouse and underlying systems up to date to get the most from the available functionality also takes significant resources on an ongoing basis – investments administrators can ill-afford to neglect. Not staying current with the latest functionality makes it harder for firms to cope with market changes and clients’ service demands. Operational risks creep in. Passing consultants’ and prospects’ due diligence examinations becomes more difficult. Competitiveness suffers.
And these cost pressures come as administrators are wrestling with intense and sustained margin compression.
Transfer to a multi-asset class solution
Move from today’s platform mishmash to an integrated transfer agency solution that mirrors a modern fund administrator’s business: multi-asset class, streamlined and digitalised.
Shifting to a single software set-up with end-to-end capabilities across all asset classes cuts much of the cost duplication and risk administrators currently face. Consolidating systems into one minimises the technology-related fees. And it frees up the human resources previously dedicated to supporting multiple platforms, bolstering firms’ ability to scale.
By becoming the single source of truth, an integrated platform also enhances data integrity and makes the data warehouse layer redundant. When married with high-quality reporting and a multifunctional portal solution, communications with investors and levels of transparency improve.
Platform for success
The solution may be simple in theory – but success depends on choosing the right transfer agency software with the requisite functionality.
To work, a single transfer agency hub has to be seamlessly integrated with multiple third-party systems and data feeds. Sophisticated APIs are needed to allow the increased volume of data to flow in and out of the system in an efficient way.
An intelligently designed fee engine able to support the full suite of fee calculations for different asset classes is similarly vital. Fee schedules across the funds industry are becoming more complex and customised. The fee engine needs the flexibility to cope with any model changes and new regulatory guidance as it comes out.
The regulatory requirements associated with different types of funds also vary. UCITS funds face particular scrutiny. Global regulators take a close interest in funds’ administrators and the technology platforms they use, so compliance capabilities must be up to scratch.
Scalability matters too. Consolidating transfer agency activities in one platform will increase the volumes to be processed in the system by an order of magnitude, especially if the business includes retail fund administration. Can the platform architecture cope?
Add in an advanced reporting suite and portal solution, and fund administrators will have the transfer agency infrastructure they need to support today’s funds industry realities.
ABOUT DEEP POOL
Deep Pool is the #1 investor servicing and compliance solutions supplier, providing cutting-edge software and consulting services to the world’s leading fund administrators and asset managers. Our flexible solution suite, developed by an experienced team of accountants, business analysts and software engineers, supports offshore and onshore hedge funds, partnerships, private equity vehicles, retail funds and regulated financial firms. Deep Pool is a global organisation with offices in Dublin, Ireland, the United States, the Cayman Islands and Slovakia. For more information, visit: www.deep-pool.com.