Alternative fund managers have had a myriad of regulatory change to contend with over recent years. In the early stages, many chose to take on the reporting burden themselves. This was very much a learning curve.
However, as the complexity of regulatory compliance has increased, fund managers have looked to consider how much they want to handle internally versus how much they want to outsource.
"We now see a significant amount of fund managers choosing to outsource their regulatory requirements," says Linda Gorman (pictured), CEO of Quintillion Limited, a European-based affiliate of US Bancorp Fund Services. "Essentially everyone has come to the conclusion that this is one set of data used in different ways for different regulatory requirements. In a lot of instances, that process is quite fragmented as managers' businesses have grown and evolved over time."
Gorman explains that at the beginning of 2016, Quintillion decided from a product and strategy perspective to put a dedicated team together to bring a best-in-class solution to the market.
"We are currently working through an RFP process with both established and emerging technology providers to find the best solution to offer the broadest range of regulatory reporting to our clients. As part of that process, we are looking a broad range of providers who have a strong open architecture underpinning their service offering," says Gorman.
Quintillion, and indeed US Bancorp Fund Services as a whole, are talking to technology providers who previously might have been licensed by investment managers to supplement their internal operational resources. What has changed, says Ken Somerville, Head of Business Development at Quintillion is "that rather than managers becoming individual clients of those technology firms, service providers including Quintillion have become the clients to those technology firms on a more wholesale basis.
"We administer approximately 160 alternative funds and deploy technology across all of them, as opposed to a manager who might use the technology for a handful of investment funds. Regardless of whether it is AIFMD, FATCA, CRS or EMIR, our IT infrastructure is designed to take full advantage of the software providers we partner with."
This need to provide comprehensive regulatory reporting support to fund managers has led to an operational shift at Quintillion. It has become more of a centralised database management approach to reporting, says Somerville. "Due to the fact that we are providing comprehensive reporting for a broad range of clients and strategies, we manage all of our output at the database level.
"Having had managers experience first-hand the onerous nature of doing regulatory reporting on a piecemeal basis, the marketplace has taken a 180-degree turn and we are now the licensees of software and have operations staff who are fully dedicated to the role of regulatory reporting," outlines Somerville.
This in turn has helped to forge closer partnerships. "We want to understand what our clients' challenges are currently, and work with them to help ensure we create the right solution(s) based on the fact that we already have so much of their fund data in our systems.
"It's all part of the wider trend to push outsourcing from managers to their service providers. They are feeling the fee compressions and regulatory pressures, so where we can remove some of that burden our clients are receptive to that and we have the tools to do so," concludes Gorman.