Funds are maturing. Due to mounting re-
gulatory pressure and increasingly complex
investment strategies, more and more funds
are outsourcing a part of their administration
operations in order to focus on generating re-
turns. This trend is also driven by the market
pressure on firms to deliver operational ex-
cellence, better reporting and tighter accoun-
ting processes with greater transparency.
As their key business partners, fund ser-
vice providers are also under transforma-
tion. Globalization, regulatory change, cost
containment, implementing new technology,
preventing and fighting cyberattacks, main-
taining service quality and pressure on fees
are just some of the key challenges the fund
servicing industry faces today. The recent
Brexit has added more uncertainty: Luxem-
bourg may be well positioned to attract new
funds, but Dublin, Paris, Frankfurt and the
Netherlands will also claim their share.
Historically, the fund servicing market has
lacked homogeneity and service levels vary.
Many fund service providers are owned by
banks (e.g., BNY Mellon, Société Générale
Securities Services and CACEIS) or prime
brokers (e.g., Goldman Sachs Administrative
Services and J.P. Morgan Hedge Fund Ser-
vices), but independent players are gradually
gaining their place by focusing on providing
cost-efficient solutions and quality customer
service. A report issued by Preqin in May
2016 reveals that 30% of surveyed hedge
fund managers changed at least one service
provider in 2015, largely due to dissatis-
faction with the quality of service provided
(40% of the respondents) and the cost of the
service provider (31%).
The increasing maturity of the mar-
ket is leading to the concentration of
players, as witnessed by the chain of
mergers related to fund services provi-
der Amsterdam-based Vistra: acquired
by Barings in late 2015, it announced a
merger with India’s largest independent
corporate trust services provider IL&FS
Trust Company in April 2016 and withGuernsey-based Orangefield Legis just
one month later.Depending on the client needs, service
providers are also trying to differentiate by
either providing a full-spectrum of com-
prehensive services or adopting a “best-
in-breed” approach. Besides incorporation
and domiciliation, fund administration,
administrative management of companies,
depository services, financial reporting and
regulatory services are also common ser-
vices that are proposed.Going forward, fund managers are seeking
out more suitable and specialized service
providers who offer a more collaborative ap-
proach, backed with superior service. Accor-
ding to Serge Krancenblum, CEO of the SGG
Group, a Luxembourg-based fund service
provider, the increasing complexity of regu-
lations, such as FATCA, CRS (Common Re-
porting Standard), AIFMD or BEPS (Base
Erosion and Profit Shifting), has also opened
the doors to an environment of opportunity
for fund service providers.The Changing Face of the Fund Servicing Industry