Dublin / New York, January 11, 2024

Karen Malone, Global Product Head – Waystone Administration Solutions outlines six predictions that are expected to impact on the industry in 2024 and beyond.

In 2023, the asset management sector faced a multitude of external challenges. These ranged from escalating inflation and interest rates to geopolitical instability, increased regulatory demand, an intensified focus on sustainable finance, the integration of artificial intelligence, and increased cyber risks. Karen Malone shares six insights that are expected to impact the industry in 2024 and beyond:

1. CLIENT SERVICE IS STILL ABOUT THE PEOPLE

   The importance of client service in fund administration continues to hinge on personal interactions and relationships, despite the growing role of technology. As the fund management industry evolves, the emphasis on exceptional client experiences remains a critical differentiator.

   2024 is about enriching the investor experience. Personalisation and clear communication will be paramount in meeting investor expectations. While technology forms a critical component of client service - offering immediacy, personalisation and transparency - it is the person-based client service that remains the cornerstone of successful administrators.

   Fund managers are expected to prioritise personalised services and effective communication strategies to respond to the evolving demands of investors. In 2024, Waystone Administration Solutions will not only be utilising the right technology but also harnessing the industry's most experienced team to operate it. This dual approach, blending technological advancement with human insight enables us to offer a standardised approach across our global client base which sets us apart from competitors who lack a consistent service model.

2. DEEPENING FOCUS ON SUSTAINABLE FINANCE

   The concept of ESG is no longer a side consideration; it's becoming central to investment strategies. According to a recent McKinsey survey, investors want to hear from companies about the value of sustainability with about 85% of the chief investment officers surveyed stating that ESG is an important factor in their investment decisions.

   In 2024, we anticipate a deeper commitment from fund managers to incorporate ESG factors, not just for compliance but as a cornerstone of their investment philosophy. This shift, spurred by investor calls for responsible practices, is transforming landscapes such as diversity and inclusion policies within the industry. We also believe that sponsors promoting ESG content in their funds will be able to access deeper pools of investment in the coming years.

   However, despite rising ESG interest, challenges persist in defining and measuring ESG impacts, with data subjectivity leading to ambiguity in ESG assessments. Regulatory frameworks like Europe’s Sustainable Finance Disclosure Regulation (SFDR) represent positive steps, but the sector continues to evolve, seeking more clarity in ESG standards.

   A major challenge in 2024 is supporting claims that ESG portfolios yield higher investment returns. Portfolios with a strong ESG inclination, typically heavy in tech stocks, have faced challenges in recent years, whereas sectors less aligned with environmental sustainability, like oil and commodities, have maintained robust performance.

3. ENHANCED DIGITAL TRANSFORMATION

   With advancements in technologies like artificial intelligence (AI) and machine intelligence (MI), fund management processes are becoming more streamlined, resulting in remarkable efficiency and improved investor experiences.

   This year, we foresee a significant leap in how technology, especially AI and MI, is leveraged to optimise fund management and administration. A prime example is with next-gen reporting tools: By leveraging the capabilities of these technologies, data analysis becomes exponentially more insightful. Patterns that might have been overlooked by manual methods are readily identified, predictive analytics gain a sharper edge, and data-driven decision-making allows for increasing levels of sophistication.

   As fund managers aim to optimise operations and meet growing investor demands, technology will increasingly play a critical role in streamlining processes and providing real-time insights. The advantages are many, ranging from the efficient management of vast data volumes, to bolstered security measures, to advanced compliance monitoring. These technological advancements are set to transform the landscape of fund management, enabling more precise, agile and secure operations across the industry.

4. THE EVOLVING REGULATORY LANDSCAPE

   Regulatory and compliance issues emerged as a foremost challenge for fund managers in 2023. We anticipate that 2024 will be no different. As new regulations come into play, the scrutiny of supervisory authorities will intensify, requiring fund managers to be more responsive and adaptable than ever before.

   As the demand for transparency grows, fund managers face the complexities of navigating new and amended fiduciary and regulatory requirements in regimes such as AML/MLRO, AIFMD, FATCA and CRS. This dynamic regulatory environment is not limited to sectoral changes but extends to national and international levels, increasingly impacting hedge funds and other investment vehicles.

   As the regulatory framework expands, fund structures become more complex, necessitating specialised knowledge and the ability to manage intricate fund structures across multiple jurisdictions. This complexity makes the role of third-party fund administrators crucial, as they are equipped to manage the demands of complex structures and fulfil growing reporting requirements with a standardised approach, thereby reducing operational risk and allowing funds to concentrate on their core competencies.

5. RISING DEMAND FOR CROSS-DOMICILE SERVICES

   As the global investment industry evolves, we will see fund managers increasingly pursuing opportunities for expansion in 2024. This move requires a deep understanding of varied regional regulations and market conditions, driven by the goal of accessing diverse markets and accessing opportunities.

   It's not just about responding to multi-jurisdictional challenges; it’s about anticipating them. Operating across various regulatory, legal and cultural environments demands expertise and flexibility, especially in areas like regulatory compliance across borders, understanding legal structure complexity, grappling with tax implications, and adapting to cultural and operational variances. These challenges extend into the realms of investor reporting and transparency, where meeting the diverse expectations and standards of different jurisdictions adds layers of complexity.

   Waystone's consistent service model across our global operations allows us to effectively address these unique challenges of cross-domicile services.

   Moreover, maintaining robust technological infrastructure is crucial for managing the data-intensive processes involved in multi-jurisdictional fund administration. This includes secure data handling, the use of advanced analytics for risk management and rigorous compliance monitoring.

6. SURGE IN ALTERNATIVE INVESTMENTS AND OUTSOURCING MODELS

   In 2024, it’s anticipated that alternative assets will comprise a greater portion of client portfolios. A recent CAIS-Mercer survey found that more than half (62%) of financial advisors currently allocate between 6% and 25% of clients’ portfolios to alternative asset classes, with (85%) of them expecting to increase allocations to one or more alternative asset classes in 2024. Fund managers will have to contend with a range of products that are more complicated in terms of taxes and reporting.

   We are also witnessing an evolution in outsourcing models, from traditional methods to innovative, technology-driven approaches. The co-sourcing model is gaining traction, blending internal data and technology frameworks with external expertise. This approach allows fund managers to retain control and real-time access to data while leveraging the resources of fund administrators.

   Additionally, we are seeing a rise in hybrid funds, combining elements of open-ended hedge funds and closed-ended private equity funds. This presents its own set of advantages and challenges. These funds demand specialised expertise and sophisticated infrastructure to manage effectively.

   This increase in alternative investments and outsourcing models will require fund managers and administrators to adapt to new challenges and opportunities, ensuring growth and sustainability in an ever-changing financial landscape.

2024 stands as a pivotal year for the fund management industry, marked by significant developments and shifts. As fund managers navigate these changes, staying ahead will require flexibility, innovation, and a deep understanding of both market trends and investor needs.

At Waystone Administration Solutions, we're committed to leading the way, embracing these changes to provide unparalleled service and expertise to our clients.