10 January 2017
Brexit. Cyber Threats. The growth of Private Equity. These factors shaped the fund administration industry in 2016. Centaur presents five important developments that are expected to impact the industry in 2017.
- PRIVATE EQUITY PHENOMENAL GROWTH SET TO CONTINUE
Private Equity assets have risen from $30 billion to $4 trillion in the past two decades. Increasing regulatory pressures and technology demands mean that private equity firms are turning to Fund Administrators to provide independent administration services. Estimates are that penetration by Fund Administrators of Private Equity & Real Estate funds' AUM is only 30% today, and is projected to increase to 45% by 2018*.Three key reasons for this anticipated growth are: Investor demands for greater independence and transparency; increased regulatory pressures; and technology requirements.“Private Equity firms are quickly realizing that going it alone without the help of Fund Administrators will only bring lost growth opportunities. 2016 saw extraordinary growth in this sector and all indications are that growth will continue to be steep,” says Karen Malone, Founding Partner of Centaur Fund Services.
- CONTINUED STRESS ON MANAGERS WILL MEAN THEY WILL NEED MORE ASSISTANCE THAN EVER FROM ADMINISTRATORS AND OTHER SERVICE PROVIDERS
The challenges in 2017 for managers will be multi-faceted: From a regulatory point of view, AIFMD, FATCA, MIFID II and Dodd Frank are just some examples of highly complex regulations that funds must now adhere to. Added to this is the pressure from tax authorities that fund managers face as they seek to go global. There is also mounting pressure from investors who are demanding further transparency, customization and lower fees. As a result, in 2017 managers will seek more assistance than ever from their service providers to streamline their operations. Smart administrators are responding to these challenges by offering a greatly expanded role that actively adds value to the client’s proposition.“Our clients are operating in a landscape that would have been unrecognizable five years ago. Regulation places different demands on different industries and we pride ourselves on having specialist knowledge for every client,” says Karen. She continues, “Responding to increasing investor demands, we enable managers to offer solutions that are cost efficient, comprehensive and multi-jurisdictional. We remain fully informed of the technical and ever-changing nature of the market and jurisdictional differences. We pass this information onto our clients and guide them through the regulatory minefield that exists.”
- BREXIT AND OTHER POLITICAL SHOCKS TO CONTINUE TO CAUSE UNCERTAINTY
2016 was the year of the Brexit vote and the Trump election. In 2017 we will see Trump take office and will start to see the ramifications of Brexit as the UK will most likely trigger Article 50 to begin the exit process.There is likely to be continued uncertainty in financial markets in the short term and regulation as we know it is likely to be reshaped over the longer term. While some market participants are predicting a reduction in regulation in the United States with the incoming administration, we believe that this is less likely to occur and the current regulatory landscape will remain.“Events such as Brexit and Donald Trump’s election were clear indications that the political landscape in Europe and North America is suffering a seismic event that will have repercussions for years to come. Markets hate uncertainty and until the political landscape reaches some form of equilibrium, we expect volatility and large market moves caused by single events to continue”, says Karen.
- CYBER SECURITY REMAINS A BIG THREAT TO THE INDUSTRY
Cyber Security will continue to be a huge issue in 2017. The rate of incidents continues to escalate, alongside ever-increasing media coverage. Several Fund Administrators are reeling from the negative fallout from recent SEC fines and pending law suits in relation to breaches of their cyber security. The failure to report incidents is playing into the hackers’ hands as they get better and more sophisticated at stealing.“ Never before has it been so important to protect our systems – cyber threats are growing and are evolving in sophistication. We will continue to see the impact of these threats to the industry into next year and beyond,” says Karen. “At Centaur, we constantly invest in innovative technology, review our procedures and partner with the best technology partners to ensure we provide a 100% safe and secure environment for clients and employees.”
- START-UP MARKET WILL BE STRONG IN THE US WHILE UNCERTAIN IN EUROPE
The start-up market for hedge funds and private equity funds will continue to be strong in the US, but the outlook in Europe is uncertain, especially for hedge fund start-ups.The growing cost of regulation in Europe combined with continued pressure on fees has seen many of the region’s smaller managers close up in the last 12 months. We expect to see more closures of smaller firms in 2017 in Europe as investors move to larger managers where economies of scale can reduce fees.
In the US, a Republican led White House, Congress and Senate is seen as being market positive despite the uncertainty around a Trump presidency. Some commentators are expecting a reduction in regulation. We don’t expect this but the potential for large capital spending and individual tax breaks makes the landscape positive for hedge funds in the US.Karen concludes, “This is the third year Centaur has published its predictions. Throughout this period, we have seen major changes in our industry. These changes have brought both challenges and opportunities for growth. 2017 will be an exciting year for Centaur and we look forward to partnering with our clients in a market which offer tremendous opportunities for growth.” *Fintech weekly, Dec 16