The administration of investment funds' portfolios is provoking an in-creasingly competitive spirit in the fund industry, particular in Europe's fund centre of Luxembourg.
Key service providers, which include the larger custodian banks, seem split on the right path to take to maintain an efficient and up-to-date business. And while some are consolidating their administration and transfer agent functions, others see the future in outsourcing.
Behind this lies the increasing de-mands of fund managers, to which the administrator must either respond or lose business. For some custodians who view this side more as a commodity, as opposed to a stand-alone service, the obvious move is often to outsource the administrative function either to a subsidiary or to a third party provider, while the custodian concentrates on its core business.
The administration sector covers the basic services of the valuation process on whatever frequency the fund or trust is being valued; and the production of semi-annual financial statements. More specialised services on offer in-clude coordination and liaison with ex-ternal auditors and regulators to en-sure the fund meets the jurisdiction's requirements; domicilary arrangements; and corporate secretarial functions, as well as the key area of registrar and transfer agency and participant record-keeping.
The administration services do not differ greatly be it fund or trust. The key difference is whether a fund is retail or in-stitutional. Institutional funds will not have an onerous relationship on the shareholding, dealing or registration functions, whereas a retail fund will be volume-sensitive and volume-driven with a far greater number of shareholder transactions and usually a more regular dealing frequency requiring fundamental accuracy in preparing valuations.
While some of the bigger custodians either do not handle registrar and tran-sfer agency or have delegated that side out to a subsidiary, certain players, such as Bank of Bermuda in Luxembourg are providing these services on a bundled basis", effectively giving clients one-stop shopping with the ability to coordinate the whole administrative relationship through one financial institution.
One of the key areas of the bank's service is to be present from the fund's conception. It is important to be there at the beginning to avoid frustration, keep legal costs to a minimum and ensure the in-corporation process runs smoothly.
Wayne Chapman is managing director of Bank of Bermuda in Luxembourg"