fund administration - Ogier
IV Focus report: fund administrationSeptember5, 2011Sharing theregulatoryburden: fundadministrationoptions in 2011In a sponsored Q&A session, Jane Pearce,a Jersey-based partner at Ogier FundServices, discusses Madoff, AIFMD andwhat the future holds for offshoringWhat are the biggest challenges facingthe fund administration industry?Legal, regulatory and risk management arekey points of focus and have been challengingdynamics over the past two years. Thenuances of the Alternative Investment FundManagers Directive and Dodd Frank havebeen debated and well-documented. However,once precedents for legal and regulatory issueshave been established, the direct resultwill be the ongoing cost of compliance andwho will pay. The cost of ensuring compliance[with regulation] has been a hot topic and willcontinue to be until we know the full extent ofthe provisions and we have practical experienceof their impact day to day and over thelife of a fund.What stage is Ogier at in preparing and researchingincoming European regulation?Despite the well-argued and documented responsesby the private equity industry to theEU, regulation is here to stay and we will allhave to adapt to a tougher environment. Regulatorychanges will have a significant impact onthe funds that Ogier advises and administers.Being a combined administration and legal offering,Ogier is well-placed to understand thetechnical aspects of new regulation, such asAIFMD and Solvency II, while being able tooffer a practice insight into compliance in theback-office. While Ogier has the resource tobe able to tackle the issue of increased regulatoryburden, this may not be the case for otherservice providers.Are investors and GPs now demandingmore from their fund administrators?Yes, investors and GPs are sending throughmore requests than ever and, more significantly,their requirements are changing. GPsare creating a consistent reporting frameworkacross their funds and seeking standardisationof reporting requirements. Frequency ofreporting has increased, as has the level andgranularity of reported information. There is adrive towards best working practise that deliversreal value for money and keeps costs downfor investors. However, each investor will inevitablyhave their own demands and reportingcriteria and these needs have to be met.The outcome is that customisation can generatea substantial amount of work for both theGP and their administrator.Is outsourcing becoming more popular?Madoff has had an effect on the private equityindustry and investors are questioning inhouseadministrative functions. It is possiblethat outsourcing will become the industry’schoice; however, there is also a higher expectationand sophistication of requirements thanever before. A robust and scalable infrastructure,combined with multi-disciplinary localexpertise are required to deliver the supportto the GP and investors, in every situation,and for the life of the fund.Where will the most popular outsourcingdestination be and why?The Channel Islands, and the administrators
September 5, 2011Focus report: fund administration Vwho operate in them, will continue to be apopular choice. Outsourcing will become moreprecise with services becoming more specialistand focusing on the needs of that GP. We haveseen some high-profile managers establishing aphysical presence in Jersey and Guernsey andwhile they have their own offices, they alsoseek services from local service providers. Itmay also be expected that a Cayman fund with aThose offshore locationsthat want to survive andthrive will need to adapt…it remains to be seenwhich jurisdictions willbe able to achieve thenecessary standards,both in the shorter termand to keep up the paceover the next 10 yearsJane PearceJersey/Guernsey GP will become a more commonstructure given compelling tax, regulatoryas well as AIFMD considerations before 2018.Establishing an investment vehicle offshore– is this something we are likely tosee more of?There are many reasons why you mightchoose to establish your investment vehicleoffshore. The significant factors are location ofyour investors and the manager, as well as thegeographical and sector focus of the vehicle.There are still compelling reason to use offshorejurisdictions and to have confidence inthose jurisdictions. Favourable reports on Jerseyand Guernsey by supra-national standardsetters such as the OECD and the IMF shouldprovide investors with confidence over the administrationand management of their assetsin these jurisdictions.Will the AIFMD create an uneven playingfield between onshore and offshore managedfunds?The process of administration is materially thesame onshore or offshore. Around 20% of whatthe administrator does will be determined bylocal regulatory and legal requirements. Irrespectiveof location, all administrators shouldunderstand why their funds have been structuredin the way they have and to ensure thatthey have systems in place to cope with regulatoryand operational compliance throughoutthe life of the fund.The real distinction between offshore andonshore administration is the speed, complexityand volume of regulatory developments.Uncertainty over scope, timing and the detailof new regulation make it difficult to anticipatethe required adjustment to your systems andoperational controls.The implementation of the AIFMD into lawfrom 2013 means that it is generally anticipatedthat EU managers will need to be authorisedfrom that date. Non-EU managers [ChannelIslands, Cayman and Delaware GPs]willnot be required to be authorised while theyrely on the private placement regime, whichwill continue until 2018. Non-authorised managerswill be subject to fewer restrictions andrequirements than authorised managers.Which offshore locations are likely tochange most within the next five years?The difficulty is not necessarily the volume ofchange but the speed with which you have tochange to ensure compliance and to meet theexpectations of your clients. Those offshorelocations that want to survive and thrive willneed to adapt to this tougher environment. Itremains to be seen which jurisdictions will beable to achieve the necessary standards, bothin the shorter term and to keep up the paceover the next 10 years.To what extent is the chief information officerbecoming an important role withinprivate equity companies?Senior executives in private equity funds dohave new roles and responsibilities. In additionto the CEO, COO and CFO we now also havethe CRO (chief revenue officer responsible forsales and marketing) but also the CIO [chiefinformation officer]. Twenty years ago it wasthe responsibility of the CEO to ensure efficiencywithin his company.This responsibility would have extended tosystems, re-engineering and processes as wellas running a lean and mean operation. Todaythe complexities of global operations requirespecialist skills for each of those disciplines.Disclosure and transparency are key and wecan expect the role of the CIO in the developmentof core infrastructure and systems tocontinue to grow.How difficult will 2012 be for privateequity?In today’s environment we are seeing someencouraging activity in the mid-market andan increased role for the secondaries market.This has given improved liquidity options forthe investors and allowed investors to buildsome new GP relationships. The challengeswill continue to be the availability of capitalto be invested in new funds and the managementof costs that ultimately will drive downprofitability.On a more optimistic note, we believe thatprivate equity will remain an attractive assetclass and face increased regulation [as otherindustries have done in the past] and showthat it can adapt and flourish.