Innovation, entrepreneurial spirit, and, a belief that financial services offers Ireland a bright future are all behind the start up of Centaur Fund Services Ltd. in Dublin's Dawson street by three of the Irish funds industry's brightest, reports Kennedy O'Brien
The year started badly for the Irish funds industry in 2008. Post Lehman’s, according to Lipper Fitzrovia, assets under administration fell by 30 per cent, causing a fall in revenue for fund service providers who earn their fees on the value of the funds they administer. Following falling revenues, cost cutting became necessary and Ireland lost business with some of the large multinational companies choosing ‘offshoring’ thus creating unfortunate redundancies in the IFSC.
The trend of falling revenues, lost business and job cuts, thankfully, began to change later in the year and through 2009 and now midway into 2010 the mood is very different. For instance, some of the larger Irish based fund companies are hiring and there are many reasons Ireland remains a ‘buy’ as a funds jurisdiction.
The turn in fortunes in 2009 plus optimism about the growth of the international hedge fund industry, AIFMD aside, creates an opportunity not just for established players in the Irish industry but for new entrants to the market. Centaur Fund Services began servicing clients in January 2010 having spent the best part of a year researching the market and planning their new business.
It is odd calling the Centaur Team new entrants to the Irish market as the company is run by people well known to the Irish industry. Centaur’s three founding partners are Ronan Daly, Karen Malone and Eric Bertrand. All three founding partners share the equity of the firm. The three have extensive experience of working in the industry, in Ireland and internationally.
The three know each other well and have worked together across borders, Bermuda and Ireland, for periods over the past twenty years in Hemisphere, BISYS, and Citi Alternative Fund Services. Coming into the competitive hedge fund servicing market, Bertrand and Malone say they bring a good mix of experience with a deep understanding of the industry, yet despite their experience they have a youthful hunger and a desire to build a business that will be a significant player in the sector. In addition to the comfort that an experienced team gives to potential clients, all three believe the market is looking for someone to provide a high quality of service.
Due to the success of many niche administration companies, the fund administration industry has seen quite a lot of acquisitions. Integration of those businesses inevitably leads to changes in services to the end client. Clients are looking closely at these service changes to ensure they are for the better. Malone believes that this will lead to fall out where clients may not be happy with the look and feel of the integrated company, presenting Centaur with opportunities.
Bertrand says for smaller hedge fund managers it is ‘much more of a match’ to have an administrator like Centaur. Malone says that ‘a lot of hedge fund clients originally subscribed to a niche service provider’ and while ‘the hedge fund clients look the same’ their service provider changed leaving ‘a mismatch from what they originally subscribed to’. What the hedge fund client needed was ‘someone at the end of the phone’ and a service that is more ‘client facing.’ And given that there are now ‘fewer independent niche providers available’ as Malone says, it has opened a gap in the market for a start up like Centaur.
Centaur is primarily targeting the UK hedge fund industry - where roughly 80 per cent of Europe’s hedge funds are managed. Next steps for them include opening a Business Development office in London. This expansion comes because ‘interest levels are high’ and ‘quicker’ than they expected. The ‘pipeline is strong’ in the UK market and they are also having ‘detailed conversations’ with a ‘couple of groups in the US and Asia.’
While the sales effort is focused internationally, the administrative business is based on Dawson Street, Dublin 2 - an address that the present commercial letting market has made all the more possible than say four years ago. Centaur is regulated by the Financial Regulator and has been operational since October 2009 and currently employs ten people. They plan to grow the business in Ireland rather than opening offices around the world. They say they are in Ireland for the long haul and hope to employ 130 people in five years time. They point out that Ireland was the obvious choice given the expertise of the labour market.
The fact that they are ‘the new kid on the block’ has made attracting potential employees to the business easy with Bertrand noting that they have received over 50 CVs, the majority being from staff who are currently employed in financial services companies in Ireland. He says the excitement of working for a start up was a major reason for the interest. Prospective employees understand that in Centaur they can be part of the growth story and can help shape the company. The company operates a ‘real open door management’ style and employees can expect good career prospects. The entire team work on one floor over looking Dawson Street and as Bertrand says, ‘the guys continually voice new ideas for the business.
Given the economic backdrop, it could be described as ‘opportunistic’ to set up in a down market. Malone and Bertrand are quick to highlight the risks of leaving greater security in their previous employers and also the costs of setting up their business.
For instance, their IT infrastructure is cutting edge and was the winner of the ICT Excellence Award ‘IT Project of the Year 2010’ for the delivery of an outstanding application of business technology in the small/medium enterprise sector. Centaur worked with Trilogy Technologies (formerly IT Focus) as its ICT services partner, implementing a process with an initial investment in technology and services in the region of €150,000. Trilogy Technologies implemented a state-of-the-art, high availability, fully virtualised server and desktop which allowed for optimum efficiency, flexibility and responsiveness whilst also meeting Centaur’s critical business needs.
Lower labour costs are a boon for a start up like Centaur and while Bertrand and Malone say they are not undercutting their competitors they are able to get staff at a level lower than say 2006. The wage costs of the IFSC pre-crisis is something Malone has an opinion on. ‘We have given away work. The solution to cost cutting was to move to another country.’ She says ‘we could, should protect more jobs by working together.’ She believes that a greater effort should have been made to make a pay reduction first. ‘Unlike housing and construction there was not less work’ but fees were reduced due to a fall in asset values. She says there needs to be a more sensible approach to salaries, people’s expectations need to change.
The Alternative Investment Fund Directive would raise doubts for anyone working in the hedge fund industry. However Centaur say they are keeping up to date with the latest developments and are in touch with AIMA. They say they will be ready to respond to any major changes. ‘We are a new company and are a little bit more nimble’ said Malone. Bertrand says, ‘The majority of funds are still setting up offshore’ and says that ‘Cayman has been dominant for 15 years’ a position he believes will not change overnight. The team also say that regulation will not be as much a consideration for administrators as the big changes will be with the manager as Bertrand says, ‘The manager is where the regulation should be.’