Recently, more than 200 alternative fund managers, directors, administrators, lawyers and regulators gathered to discuss these and related issues at EY’s 11th Annual Global Alternative Fund Symposium in the Cayman Islands.
Attendees observed lively panel discussions on the current state of the industry, the disruptive forces affecting it and new opportunities in emerging markets.
Here we highlight the top five trends that surfaced during the panels.
1. New approaches to regulatory compliance
Regulations are nothing new but navigating today’s increasing compliance requests requires us to change how we work. “There is a rise in outsourcing in the private equity space,” said David Sherwin, Of Counsel at Maples Group. “A recent SEC report suggests approximately 50% of private equity managers are now appointing external administrators; just 18 months ago, it was 36% — and I think this trend will continue. Administrators have the technology and the resources to assist managers with this,” he said.
New regulatory guidance has also shifted the burden for outsourcing prior to the onboarding stage. What has been made clearer is that if you’re going to outsource, you’ll want to understand the full capabilities of the providers, including their specialist knowledge, global capabilities, technological solutions, and their policies and procedures.
2. Outsourcing becoming a viable solution
Outsourcing expertise — from technological and operational support to regulatory compliance — is quickly accelerating in the alternative fund industry. A flash poll revealed that a majority of audience members are looking outside their companies to address regulations.
How are investment managers addressing or coping with the evolving regulatory changes?
- 83% By outsourcing to administrators and other compliance firms
- 10% By increasing the compliance function headcount dedicated to reporting
- 7% By investing in compliance-related technology and data management to facilitate reporting
When it comes to outsourcing, operators will still need to ensure they understand their obligations when they’re selecting the appropriate outsourcing options. While some anticipate pushback from regulators, one panelist noted they will work with you if you use reputable contractors.
3. Essential considerations for your strategic priorities
Finding the right innovative technology should be a key part of your strategic planning, but investing in the expertise and culture of your people should also be top of mind, our panelists advised. Trevor Hunt, CIO of MUFG Investor Services, offered a strategic tip for managers: if you’re running a global operation, use culture training for your talent.
“When you get somebody who’s in Singapore talking to someone who’s in Halifax, the whole belief culture — and the work practices of where they’re from — are very, very different.” Hunt said his investment in cross-cultural training tools made a major impact on helping his team understand one another.
4. RPA and AI accelerating in the alternative fund industry
In another flash poll, attendees indicated where they believed tech solutions would work best.
Where do you expect to see investment in technology to be most impactful?
- 38% Trade analysis and execution
- 30% Trade confirmations/position reconciliations
- 17% Regulatory reporting
- 8% Fund accounting
- 7% Investor relations
EY Partner and Emerging Manager Platform Lead Tiffany Norris-Pilcher provided eye-opening statistics from EY’s 2018 Global Alternative Fund Survey. “In the past year, we saw 200% growth in the use of AI in front-office models among hedge fund managers and almost 100% growth in a proportion that expects to use AI in the near future,” she said.
The panelists agreed that fund managers should be looking to leverage technology as a solution. “We have over 1,000 robotics solutions across 200 processes in place today so that we can leverage our talent for higher-valued tasks,” said McGibbon. He added that by 2020, 40% of large organizations will be using RPA.
5. China: the awakening of the dragon?
A panel on China discussed the many opportunities in this emerging market, while acknowledging there were certain considerations to bear in mind. The market is also growing very quickly. The total assets under management (AUM) of the China asset management industry has reached US$15 trillion, with a 38% compound annual growth rate in the past three years.
What makes China’s market so distinct? “It is only 28 years old, but it’s the world’s thirdlargest market by market cap, behind the US and Japan — so it’s highly liquid and it’s huge,” said Hyacinth Chu of Yulan Capital. Challenges remain in working in this market, but that may be changing. In 2016, there were 25,000 private fund managers registered in China, but the number dropped slightly to 22,000 in 2017, mainly because of the registration requirement in China, according to So.
“But recently China has opened up its market,” she said. “So we’re seeing more and more fund managers heading up their own portfolios in China, depending on the type of investors and the type of asset they want to manage.”
A major theme seems clear: reliance on innovative technology, whether in-house or outsourced, has moved from being optional to a necessity — to protect, operationally optimize and evolve your business to succeed in the future. Managers are facing a new set of challenges, but we’re also seeing a number of firms respond with agility. They’re integrating technology to manage complex regulations and improve investment decisions, and they’re sourcing and developing talent globally to include diverse skill sets. By innovating and sharing knowledge, alternative managers are continuing to help the industry to evolve and adapt in this new era.
Learn more highlights from the symposium (PDF)