The Changing Landscape of Banking Relationships in Private Funds

09 January 2024

When it comes to getting to know your clients’ business goals, there’s no such thing as ‘too close for comfort’.

Comfort is exactly what clients want.

This is especially true for first-time fund managers who are navigating challenges such as setting-up and maintaining their bank accounts. It can take up to six months to set up a bank account – which is a long time to wait. To add to the frustration, some big banks are closing bank accounts for funds that are still active and in need of banking services.

Read on for how ZEDRA’s Damien Fitzgerald, Head of Funds – Guernsey and Jon Bulloch, Head of Institutional Coverage at AstonCM Guernsey provide a steady hand – and solutions – to help set their fund clients up for success.

Q1. Let’s talk about what you’re both seeing going on in the market. We’re in an environment of high interest rates, inflation, and geopolitical upheaval. Against this backdrop, how is the landscape of banking relationships changing in private funds?

Jon: The primary challenge for smaller private funds, and even some larger funds, is the diminishing risk appetite of the traditional big banks. They’re being very careful about where they’re investing their time and resources; decision making and onboarding times have increased significantly.

Damien: It’s a difficult fundraising environment at the moment. So, if a fund manager has investors lined up, they’ll want them in quickly, which means having a bank account to receive monies. But that’s taking a lot of time from a fund manager’s perspective – some banks are taking anywhere from three to six months to open an account.

Jon: The other challenge we’re seeing is traditional banks deciding to close the accounts of funds towards the end of their life cycle. In wind-down, which may take months to realize illiquid assets, the fund still needs to run its operations. It still has its investors, it still needs servicing, it still needs a bank or a payment account. So, what does the fund do when their banking provider serves notice, where do they go?

Q2. What type of clients do you work with? Are there any common denominators?

Damien: I’d say we have a diverse range of clients and industries – but one thing they all have in common is that they have almost all tried a traditional bank in one way or another, before coming to us to help them find a solution. We’re also seeing more and more enquiries from private funds – it’s increasingly common for owners of start-up businesses to look to family and friends for support when they make their first Fund foray and need additional funding.

It’s also interesting seeing the ways in which demographics play a part. Broadly speaking the younger generation tends to want to move faster. That’s their normal. They don’t like red tape or waiting a long time for the service they need. They’re used to things happening at the press of a button. They’re open to innovative ways of doing things and have that mindset of smoother, faster, seamless. Often, they’re looking for an alternative to the traditional big banks.

Potential clients will ask us who we liaise with and who should be in our rotation of trusted advisors that we might suggest. That will depend on the individual client, and what their proposal is and what they’re working on. We tend to start broad, and then narrow in as to who would be an aligned relationship for those parties. We’ll consider what the client is looking for from a service point of view. That’s really what drives our decision making and who we put forward.

Once you’ve helped a client narrow in on what asset class they’re offering, what the size of the fund is, what jurisdiction they’re looking at for their investors, the next big question is how can this work operationally? That’s where service providers such as Aston come in.

Q3. What are the opportunities for your clients, given this appetite for alternative ways of doing business?

Jon: We offer simple and flexible financial services solutions for those frustrated with legacy banks. Our clients typically have significant challenges securing banking services from the traditional big banks; we are the only independent financial services firm able to offer named accounts domiciled in Guernsey able to address the needs and complexities of clients quickly and reliably. Put simply, local account solutions, foreign exchange risk management and global payment solutions – faster than the traditional banks because of our investment in technology and enabled by top talent, and because we work closely with the client to understand what they are doing and how they are doing it.

We’re still a small company in terms of headcount, around 35, but with that comes an advantage. Agility combined with the personal touch. We look to open accounts in two to three weeks. In fact, by working closely with the fund administrator, we recently opened an account for a first-time promoter in under a week. That ability to be nimble is incredibly valuable to the businesses we serve.

Speed is combined with surety though – clients know we are credible. Being dual regulated by the FCA and GFSC, and leveraging our unique approach to KYC and AML, ensures swift account opening without compromising regulatory checks.

Q4. What does ‘good service’ look like for your clients?

Damien: It’s about making it frictionless, seamless, making the client feel comfortable that we’ve got this, we’re moving fast but we’re looking after you as well. Fund managers want to spend most of their time looking after their investments. They don’t want to hear about problems or experience delays. They want business as usual and that’s what we are here to provide.

Jon: You’ve got to make it work for the client. Whilst traditional banks struggle with the complexities of onboarding investment vehicles, our account management team and technology accelerate onboarding whilst reducing cost and administration. Working alongside existing service providers, we understand that instinctively.

Damien: Clients don’t want to have any surprises in their relationships with their service providers, that’s why we work very closely with them – not just at the start of the fund, or the mid-life of the fund, but throughout the whole life of the fund.

Jon: I echo that. Clients need to know their partners are scalable and adaptable to changing market dynamics and their requirements across the fund’s life cycle. For example, an FX strategy for one funds may not work for another; taking the time to develop a bespoke strategy for the structure, assets, and flexible enough to evolve. This is the role of a FX risk management specialist like Aston.

It comes down to relationships. Clients appreciate our simple, intuitive and bespoke platform supported by Tier 1 Guernsey banks, gives confidence, scalability, and support for external connectivity. However, the personal touch is being on hand to discuss FX and manage operational needs.

Damien: Providing user-friendly and easy access for clients to their accounts is also important.

Jon: There are some good banking systems out there that can do everything, but sometimes that’s their downfall. They can do so many things that it’s a bit intimidating from the client’s perspective – especially if all you want to do is check your balance or make a payment.

Q5. If you had a magic wand and could make one aspect of the industry easier for your clients, what would it be?

Damien: It would be around increased compliance and regulation. Of course, it’s important – but there’s a fine line between the comfort you gain and the additional hoops that you may have to jump through to get business done.

Jon: I think this is where our combined knowledge and experience comes in. We get the spirit of the regulation; we understand what the regulators are trying to achieve – we also understand what our clients are trying to navigate.

All the more reason why getting close to your clients is always going to be a winner, versus being faceless.

Damien: You need to get close for comfort.

Jon: I agree. Clarity, comfort, and control are the three things clients want.

How ZEDRA can help

As the industry gets ever-more complex, third-party fund administrators like ZEDRA can help guide clients through the entire life cycle of a fund, from the initial concept stage, through the execution of fund formation, to ongoing operational delivery and then supporting with end-of-life close-down.

Bringing a wealth of experience across jurisdictions, fund structures and asset classes, and with familiarity of dealing with a broad client base, we can help funds respond decisively to escalating regulatory scrutiny and intensifying reporting requirements.

In a fast-moving market, there are few issues we have not navigated before and plenty that we can anticipate before they cause problems. As private capital continues to power forward, we look forward to remaining at the vanguard as managers position to thrive.

For more information please contact:

Damien Fitzgerald, Head of Funds, Guernsey, ZEDRA

Jon Bulloch, Head of Institutional Coverage, Aston CM Guernsey

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