Mario Mantrisi is KNEIP’s Chief Strategy and Research officer and Executive Board Member and has been with KNEIP for over ten years. He is known in the fund industry for his in-depth knowledge of the asset management value chain and has held positions as AVP, head of custody operations at some of Luxembourg’s most well respected banks. Mantrisi is also a member of the Luxembourgish TA Steering Committee, the Fund Platform Group and represents KNEIP in a number of Fund Associations including ALFI and EFAMA. Amongst other things he is responsible for developing KNEIP’s strategy roadmap, drafting design concepts for new products and analysing market information. As KNEIP recently published the results of their annual Industry Survey we sat down with him to learn what UCITS fund managers are concerned about and why more and more funds want to outsource their back office functions.
Ucitsindex.com: In a study you recently published the number of fund managers who want to outsource back office functions has nearly doubled within the last 12 months. Could you tell us more about the study?
Mario Mantrisi: This year, our annual Industry Survey focuses on the current fund distribution and regulation climate. A sample of industry professionals from across Europe answered questions on a variety of issues, such as their back office outsourcing plans, where they expect investor interest to come from over the next 12 months, and the challenges they envisage for the industry over the next 12 months. The survey provides us with vital insight, allowing us to analyse the key issues, trends and challenges facing the Fund Management industry, as well as fund data distribution in the context of European regulation. And the results are interesting. As you mentioned, the amount of fund managers outsourcing their back-office functions is expected to double over the next 12 months. In addition, 80% of respondents see Europe as the largest source of investor interest over the nest 12 months; with 60% of them stating that they plan to expand into these areas. In terms of the challenges that the industry will face over the next 12 months, there is little surprise that 82% of respondents named the increasingly topical issue of heavy regulation as the number one hurdle to be managed.
Ucitsindex.com: What are the reasons for this development?
Mantrisi: While the reporting requirements of regulations such as UCITS IV and V are helping to ensure greater transparency and build investor confidence in the industry, they are also taking up a large amount of asset managers’ time, and increasing their cost pressures. Asset Managers feel an increased need to concentrate on their core business: managing assets and distributing their products. As a result, they have begun to seek out more efficient processes. They will very often consider professional service providers to assist them in the areas that do not naturally form part of their core business.
Ucitsindex.com: What are the typical back office duties of a UCITS fund and how much work does cross-border distribution create for asset managers?
Mantrisi: Typically a Fund Manager outsources custody and administration functions to specialised service providers. The setup of new products, the related registration, the arranging of distribution agreements, the coordination for the publication and dissemination of fund documentation, as well as the supervision and control of service providers are typically all managed in the back office of the Asset Manager. Cross-border registration can be complex depending on whether or not registration occurs within Europe or outside. Outside Europe, registration still has to be physically completed on paper. However in Europe since the introduction of UCITS IV, the process is carried out electronically. Asset Managers also need to arrange distribution agreements with important players such as banks, Pension and Insurance funds, IFAs and Fund Supermarkets before entering the market.
Ucitsindex.com: Do fund managers underestimate the regulatory demands when setting up a UCITS structure?
Mantrisi: When setting up a UCITS fund, there are two factors that must be considered: the complexity of the instrument in question and it’s related investment policy. Since the time of UCITS III, it has been clear that the directive allows for more complex investment strategies. The other difficulty that should not be underestimated is the various processes related to cross-border registrations. Although in principle UCITS IV should allow for easier and more standardised mechanisms, we see that the maintenance and updates from the fund to the host regulator are not following one unanimous process. I do not believe that asset managers underestimate regulatory demands, rather they understand that the regulation is created for a worthy purpose, to protect the investor. Asset managers are then called to align their interests with the investor’s interests, which brings them into alignment with the regulation that is put into place.
Ucitsindex.com: Do you think small asset managers and boutiques will be able to handle their back-office functions themselves with increasing regulation or will such outsourcing be a must in the future for them?
Mantrisi: Small asset managers and boutiques do indeed face the challenge of having the same requirements placed on them as the larger firms. This places a plethora of challenges and constraints on them, each requiring time and resources. They must deal with managing their portfolio, fund strategy, keeping up with markets, risk management, investor communication, regulatory compliance, information flows and distributors, to name just a few. Obviously small and medium sized Asset Managers need to balance what they can do effectively and efficiently in house versus what they decide to outsource. Due to their limited capacity, the functions they choose to outsource and the partners they choose to work with need to be selected carefully. Making the right choices in both of these areas is crucial. A poor choice could be detrimental, making it increasingly difficult for them to survive.
Ucitsindex.com: Thank you for the interview.