September 9, 2010  Print Email | Fund servicers face further year of squeeze
This could mean longer to build up seed money
Posted by Agencies at 12:18 PM GMT on Mar 17, 2009 | LUXEMBOURG (Reuters): Fund services companies will feel the painful effects of last year's financial crisis throughout 2009, given a typical 12-month lag, according to the head of a leading sector player.
Thomas Seale, chief executive of Europe's largest independent fund services provider EFA, told the Reuters Fund Summit that funds had been merged in order to build critical mass and some new projects had been postponed.
"If there's another rout or if it continues in 2009, we would be in an even more defensive position a year from now. If things turn around, things would be about the same as now. We typically feel a 12-month lag," Seale said ahead of the summit.
Seale, whose company handles around 102 billion euros ($131.8 billion) for over 190 fund management companies, said the service side of the industry would feel the effects of the 2008 market turmoil this year.
That could mean longer to build up seed money for fund launches.
Funds of hedge funds had clearly gone out of favour, while demand for private equity and real estate funds was continuing, although with much lower leverage.
One area of promise for the industry was the creation of special investment funds (SIFs) designed for more sophisticated investors and with less strict requirements than standard UCITS, which make up some 75 per cent of the market.
Indeed, while assets under management in Luxembourg declined by 24 per cent to 1.56 trillion euros last year, the number of structures launched in Luxembourg increased by some 10 per cent, boosted by the newer SIF products.
"We've seen strong volumes in SIFs, partly due to the novelty of the SIF structure. There was a lot of pent up demand for them," Seale said.
Service specialists such as EFA and larger Luxembourg players could also gain business during troubled times from smaller players.
"Within my own company we have seen since the last quarter of 2008 a strong increase in business volume from medium-sized banks who wish to outsource fund administration."
Risk management reporting, such as on counterparty risk, could provide an area of growth.
"In the last 10 years we have seen a steady increase in the number of fund structures and a decrease in the number of service companies," Seale said.
Factors such as cost and specialised staff of the bigger players were increasingly making a difference.
Such specialism, believes Seale, will enable Luxembourg to remain the pre-eminent cross-border funds centre even in the face of changes to EU-wide fund rules that could allow centralisation of fund management and administration elsewhere.
Currently, the servicing of any fund domiciled in Luxembourg must be carried out in Luxembourg, where some 13,000 people are employed in the sector.
"Luxembourg will be a net winner... Where do you have flexibility today? It's Luxembourg," said Seale.
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