Investment Funds – Admin Evolution

One of the most common expressions I hear from candidates is “nothing stays the same for five minutes these days”.  I can always understand their point of view when a business change has affected someone’s working life, but when we look at the transformation of the investment funds sector over recent decades it has actually been a process of stepped evolution in terms how products are administered, regulated and delivered.

Here’s what happened:

Automation – it seems incredible that only a few decades ago funds were administered using pen and paper.  Investor registration details were held on cards stored in metal cabinets; fund accounting ledgers were handwritten.  The potential for NAV errors was huge, with the daily fund price often dependent on the administrator’s calculator skills.  We now have systems to do the work more accurately and efficiently, overlaid with independent systems to validate output.

Third Party Administration – the bulk of fund administration is now carried out by specialist TPA’s, Transfer Agents etc.  As recently as 20-30 years ago a big chunk of the funds industry was still self-administered and many of the larger management companies had their own TA and Fund Accounting departments.  We gradually adopted the kind of outsourced model already common at that point in the US and Luxembourg and the TPA market expanded rapidly.  In-house fund administration specialists adapted to become overseers or joined the third party market themselves.

Offshoring – back office operations needed critical mass to become cost effective, but were still heavily dependent on experienced and what were seen to be expensive UK based staff.  Technology was the solution; not only could systems provide operational efficiencies, but the dawn of the internet meant that location was no longer an issue – back office is back office wherever it sits behind the scenes.  Offshore locations were soon queuing to offer highly educated resource at much lower cost.

Platforms – one of the major TPA’s invested in the concept of a unit trust exchange back in the early 90’s.  The initiative, to bring together buyers and sellers of unit trusts in a single exchange, never took off in the proposed format but it was way ahead of its time.  The concept eventually became reality in the form of the fund supermarket, then the wrap and what we now call a platform.  The effective loss of dealing business by Transfer Agents led to some of them investing heavily in platform infrastructure and working more closely with wealth managers to recapture volume.

ACDs – the introduction of OEICs as the open ended investment vehicle of choice for most of the UK industry provided a corporate rather than trust based structure to our funds, bringing with it the role of authorised corporate director.  As independent ACD service providers hit the market there was effectively another level of outsource – the ACD could do the management company’s job on a third party basis.  It is a sector that has seen some publicity recently, with the lines between ACD and TPA seemingly blurred at times.

Regulation & Governance – the economic crash of 2008 focused regulators’ attentions more rigidly on not just the existence of adequate safeguarding rules, but also on ensuring that proper governance regimes existed within management companies to ensure adherence and reduce risk.  The trend towards outsourced and offshore operations continued, but with the addition of an extra layer of oversight.  The regulators reinforced the adage that administration can be outsourced, responsibility cannot be abrogated.

Blockchain & Robotics – are these the final leg in the process to fully automate fund administration and render people useless?  The simple answer is no.  Even in the most prominent and cutting edge technology operations, people are key.  Sure, we’ll need less administrators, but client facing operations need technicians and relationship builders who are empathetic to customers’ needs and will go the extra mile.  So the message for fund industry specialists is a simple one – adapt and survive.