Q&A: SuMi TRUST's Bathurst on the Challenges Facing Fund Administrators

Dec 16 2015 | 7:33pm ET

Editor’s Note: Fund administration is a key aspect of every alternative asset manager’s overall strategy, but it is often overlooked as administrivia relatively unconnected to the core business of managing money. Nothing could be further from the truth, according to Charles Bathurst, consultant to the board of SuMi TRUST Global Asset Services, a global provider of operational and administration support services to institutional quality asset managers in Europe, the U.S. and Asia. 

FINalternatives recently sat down with Charles to get his take on modern fund administration, the expansion of asset services into the front- and middle office, and the challenges faced by fund administrators heading into next year. 

All else being equal, how much does the fund administration relationship impact a manager’s return?  

Investment managers are entirely dependent on the quality, consistency and service delivery of their appointed administrator. Managers need to assess whether their administration partner is appropriate to support their growth, and if they meet the due diligence requirements of their investors. Moreover, are they financially stable? Can they provide the service levels needed, and are they up to speed with changes in regulation and have solutions? Ultimately, managers need to understand what added value does an administration partner provide outside of delivering NAV's and shareholder services.

What are the biggest issues facing fund administrators heading into 2016? 

Regulation. Administrators are being continuously challenged by new regulations like UCITS V, a new Irish ICAV structure, MIFID II, Basle III, Irish Client Money Regulations, just to name a few. To ensure ongoing compliance, administrators need to be aware of all the regulations and how they will impact their business model and those of the investment managers they service. They need to enter into early discussions that put in place changes to current agreements and operations. This also requires an ongoing review of technology used and the necessary updates.

Has the more complex regulatory environment for alternative asset managers created opportunities for fund administrators?  

In some cases, yes. Administrators tracking the new regulations, and actively reviewing their systems and technology to meet the new demands, will benefit the most. Importantly, those administrators with strong balance sheets and capital ratios and who are not impacted by other activities within their organization, such as investment banking and prime services, will also benefit.  

How is the shift towards Asian funds impacting the administration business? Will it continue, and did the market volatility (and regulatory reaction) over summer/early fall change anything from this perspective? 

The expected growth of Asian ex-Japan funds has not materialized as forecast in terms of the number of new funds or assets raised.  Asia ex-Japan continues to be the smallest region for hedge fund administration business, and the volatility of returns means more turnover in terms of funds closing, their AUM and also for pricing.

How is SuMi addressing the push into middle- and front office functions?  

There are many definitions of both middle and front office functions. We do not see discussion around the front office, and in our opinion, the definition of middle office is the activity post-trade reconciliation involving settlement, shadow accounting and regulatory reporting. We deliver a tailored administration solution that focuses on 100% accurate NAV's, shareholder services, TA and, where required, Irish and Cayman trustee and Irish depositary whether for AIFMD or UCITS V.  We have partnered with a well-established and fast growing middle office provider, and are working with them for various clients either on a tri-party basis or as an extension of our administration service. 

Interest in structured products such as private debt is growing as the window to generate alpha from traded credit instruments closes. Does this asset class present unique challenges to fund admins?

No. The administrator is valuing the assets of a fund, including leverage or financing, so where managers are using a variety of leverage or finance facilities, provided they are well documented, this does not create any additional challenges to the administrator. 

How does the shift towards liquid alternative instruments, and the related downward pressure on alternative investment management fees, impact the fund administration space?  

Administrators should not be impacted by liquid alternative investments. In fact, they are by definition easier to value, as UCITS regulation applies restrictions so NAVs can be created with more frequency than the traditional monthly model.  Any pressure on management and performance fees is an issue for the manager, and may result in discussion around the administration and related charges, but we do not see any pattern emerging. 

How is SuMi TRUST Asset Services unique? What separates you from the competition?

SuMi TRUST Global Asset Services is part of the global fiduciary business of Sumitomo Mitsui Trust Bank, Japan's largest trust bank and Asia's top asset manager. The global fiduciary business acts as trustee, custodian and administrator for $1.8 trillion of institutional assets, primarily Japanese, with offices in Tokyo, Dublin, London, New York, Luxembourg and Cayman Island servicing many of the leading managers globally and with whom we have long standing relationships.  

We have twenty-five years of expertise of servicing offshore and Irish-regulated funds from two centers in Ireland.  Importantly, we are not an investment bank or prime broker, so we do not have the inherent internal conflicts like those seen in administrators within global banking groups. 


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