The expanding role of the fund administrator

19 September 2023

Technology, and particularly AI, will drive significant transformation in the way we work.

The challenges facing fund CFOs and COOs continue to grow in number, scale and complexity. With the fast-moving regulatory landscape, navigating the need to comply with complex rules that differ from jurisdiction to jurisdiction is not easy, and the escalating costs associated with that compliance increasingly strain budgets and impact operational efficiency.

But it is not just the regulatory burden that weighs on the minds of functional leaders. Geopolitical risks and market disruptions have hindered fundraising efforts and impacted investor risk appetite, demanding innovative solutions in the face of dynamic market conditions.

Meanwhile, a competitive market for resources has made it hard to recruit and retain top talent. Those hiring challenges are particularly evident in specialised roles essential for effective fund management, where there is intense competition. And then there is service provider consolidation occurring, leading to a one-size-fits-all approach that limits access to the kinds of specialist boutique offerings that some funds may need.

Funds face challenges opening bank accounts & other operational issues

One specific issue we see managers grappling with today relates to banking, where it has become increasingly difficult for funds to open bank accounts an essential part of any business, especially in financial services. We are seeing this across jurisdictions and, as fund administrators, ZEDRA is fortunate to be able to draw on our established relationships with various banking providers to help our clients. Many banks will not accept fund clients without a known, reputable fund administrator being appointed to assist with fund administration and act as a co-signatory.

This is just the latest example of the expanding role of the fund administrator, as businesses like ZEDRA step in to help managers reduce costs and enhance operational efficiencies. By becoming subject matter experts and extending our services to support multiple managers, external providers have been able to streamline the provision of regulatory support – in areas such as:

  1. FATCA (Foreign Account Tax Compliance Act) and CRS (Common Reporting Standard) Reporting;
  2. Specific AML/KYC needs for fund investors; and
  3. reducing the burden of the compliance and regulatory needs of funds in certain jurisdictions by the provision of fund Anti Money Laundering Compliance and Reporting officers.

This allows managers to leverage economies of scale and be confident that their legal and regulatory needs are being taken care of. These economies of scale also permit administrators to invest in innovative technology solutions that can significantly expedite reporting turnaround times and provide support on cybersecurity.

Additionally, by offering up insights and thought leadership built on a breadth of industry relationships, administrators can help managers address the challenges wrought by geopolitical risks and market disruptions and can facilitate accelerated fund setup at a time when agility and time-to-market is so important.

Growing role and relevance of fund administrators

Across the industry, the range of services offered by fund administrators has evolved considerably over time. Initially restricted to the preparation of Net Asset Value reports, they have grown to include project management in respect of fund set-up and structuring, registrar and transfer agency services, audit support, regulatory reporting, directorships, provision of registered offices, general corporate secretarial support for clients as needed and compliance support.

Today’s administrators take a much more holistic approach to servicing a fund, and hence managers should consider the breadth of services on offer before appointing external providers because there are efficiencies realised when one organisation offers all these services. Funds should also seek out a customisable approach from their service provider: is the administrator willing to consider your specific needs and work with you to ensure that they are met in a timely manner, keeping you regularly updated on progress, or are they more rigid in approach?

Further credentials to consider will include the skill level and experience of the administrator – whether the fund accountants have the requisite experience, and the business has all the expertise and experience to meet the fund’s needs – plus time zone coverage, responsiveness, regulatory understanding and track record. Managers should prioritise a true partnership with the fund administrator, seeking seamless integration between the businesses, and should look for an administrator than can accommodate the increasing diversity in fund structures and strategies rather than simply adhering to market standards.

Technology is transforming the fund industry

There is far more change to come in the next five to 10 years as businesses like ZEDRA continue to change in response to client demand. Technology, and particularly AI, will drive significant transformation in the way we work, with AI integration streamlining various aspects of administration, improving regulatory reporting efficiency and accuracy and enabling quicker, data-driven due diligence of investors.

We have already seen administrators respond to the demand for ESG reporting, expand their expertise to include a broader range of asset classes and develop sophisticated systems and processes to manage and adapt to ever-changing regulatory requirements. The future will hold more automation and the greater use of technology to address resourcing issues, optimise workforces and enhance efficiencies.

As market consolidation persists, larger players will dominate fund administration just as larger funds dominate the private markets, but smaller boutiques will continue to thrive by offering specialised and tailored services.

The role of the fund administrator continues to grow and transform in line with tightening regulation and exponential growth in the industry globally.

How ZEDRA can help

At ZEDRA we have extensive experience supporting clients with their fund administration strategies and we have market expertise across the world including the US, Cayman, Guernsey, Jersey, Luxembourg and Singapore.

Please contact Damien Fitzgerald, Head of Funds, Guernsey or Philippa-Lucy Robertson, Director, General Counsel, Cayman Islands.

 

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