Ireland is now the dominant alternative investment fund centre in Europe. To keep ahead of growth while keeping abreast of regulation, fund administrators need to use technology wisely to add efficiency and capacity, warns Ras Sipko, chief operating officer at Koger.
Over the last decade, Ireland has become something of a hub for fund services. Over 60 per cent of European hedge funds and more than 40 per cent of hedge funds globally are serviced from Ireland. For hedge funds and private equity funds in particular, Ireland has become the domicile of choice, driving significant growth in funds under administration.
This growth has continued despite significant challenges. Service providers based in Ireland operate in a part of the European Union which has not only seen considerable economic volatility but also undergone significant regulatory changes. In particular, the recent Alternative Investment Fund Managers Directive (AIFMD) has had a major impact on funds services providers in Ireland, especially when it comes to reporting, compliance and implementation.
Transparency is one of the key elements of the AIFMD, and it has put reporting methods and standards under considerable pressure. The reporting requirements of the AIFMD mean many different types of data have to be gathered from different parties as well as different systems, all of which have to be aggregated and processed before being passed to the regulator.
Reporting is therefore a process that presents numerous complexities. For many administrators, the changes have necessitated working with their technology providers. Together, they have implemented software solutions that ensure their immediate and longer term business needs are met, while the possibilities for error in data collation and presentation are minimised and mitigated.
“Now more than ever, fund service providers are really having to re-think their business models when it comes to technology,” says Ras Sipko, chief operating officer at Koger. “AIFMD places greater pressure on transparency and reporting standards. With hundreds of data points, reporting can become complex unless solutions have been put in place for greater automation to make business practice as seamless as possible.”
Partnering with a software provider has proved cost-effective. More importantly, despite the demanding regulatory environment created by AIFMD, effective technology has also helped ensure service providers can continue to run their businesses smoothly quarter after quarter.
As firms gradually navigate the challenges of AIFMD, many will inevitably make significant changes to their structures, strategies and operations. Investing in the right technology to facilitate that process of adaptation is essential. “At Koger, we have a number of solutions to help the funds industry, particularly when it comes to maximising automation and improving transparency – a key requirement of the AIFMD,” explains Ras Sipko.
The NTAS system from Koger, for example, provides a high quality, cost-effective, robust, and scalable solution for fund administrators. Its features include investor registration, cash management, trade processing, compliance, reporting, and fee processing.
The PENTAS system from Koger allows for the administration of all private equity fund structures, such as master-feeder, fund-of-funds and pure private equity funds. It provides easy fund set-up options; automated carried interest calculations; valuation allocation and processing; automated calculation and allocation of management fees. with in-built industry-standard fee types; flexible drawdown and distribution transaction processing; versatile set-up of limited partners’ commitments at each stage of a fund launch; cash flow reconciliation on drawdown; receipts for investment managers' investment scheduling; and a user-defined dashboard for quick accessibility and effective task completion. Koger also tailors its services to the specific needs of its clients.
It is argued that the alternative investment industry has lagged behind when it comes to automation. Whatever the merits of that argument, that will not be the case in future. This is especially true of Ireland, where the rapid expansion of the volume of business makes automation not just desirable but necessary. Regulation is reinforcing that pressure on capacity. Firms are also conscious of the costs of regulatory shortcomings. Firms want to do everything they can to reduce regulatory risk. Higher levels of automation are an essential part of the solution.
However, fund service providers should not forget their clients. In particular, they are playing a vital support role in the high profile areas of management and performance fees and fund governance, both of which are priorities for alternative investors. “Again, this is where a reliable software provider comes into play,” says Ras Sipko. “Working with a software provider will certainly help minimise costs, but also provide solutions that meet investor requirements.”
With alternative asset managers driving more administration business to Ireland over the next few years, now is the time for fund servicers to up their game and ensure that they are ahead of the curve by being fully automated and as efficient as possible. “If you can become efficient, you can become profitable,” explains Ras Sipko. “Asset managers already recognise the opportunities in Europe and, if they see that servicers are investing to further develop their automation and reporting standards, then it will become even more attractive to non-European managers.”
Ireland already administers around $2.5 trillion in net assets, but the opportunity is greater still. As the alternative investment markets strengthen, and volumes expand, it is greater investment in technology that can automate processes and procedures that will ensure Ireland remains the top choice for alternative managers.
“It really is all change in Ireland, and cutting-edge technology will help deliver the services fund managers will require administrators to provide,” says Ras Sipko. “We are already seeing demands for software services, and in the coming years we expect this to increase significantly as fund service providers develop to accommodate regulation and new business opportunities in Ireland.”
In such a challenging environment, there are bound to be winners and losers. It is clear that those service providers which take the time to re-think their operational structures, and invest in technology and automation, will find themselves attractive to fund managers bringing business to Ireland. “Now is the time for servicer providers to act and to start thinking about putting in place a sustainable business model,” concludes Ras Sipko. “Be prepared for further changes that regulators may impose and the services that asset managers will want going forward.”