28 October 2007
The $60 billion regional mutual funds industry is undergoing a revolution, but many may have walked past it without a second look. That is because it's not happening at the front-end of the industry, but in the deep caverns of the industry's back-office.
It's a revolution in the funds administration industry, which is compelling fund managers to become more transparent and open.
Internationally it is a multi-billion industry, spearheaded by places like Luxembourg and Dublin that have transformed into centres of fund administration excellence.
And now Dubai, Bahrain and Qatar want to become hubs of fund administration. But what exactly is fund administration? It is the kind of thing that nobody cares about until things go wrong, says one bank official.
Arindam Das, senior vice-president, HSBC Securities Services, Middle East, points to three key administration areas.
"One is being a global custodian, meaning a safe-keeper of investments; the second is accounting and valuation, such as net asset value calculations and producing other financial reports; and the third is being a registrar and transfer agent, which involves maintaining a database of investors and processing subscription and redemption requests."
Due to its coverage in 10 regional countries, HSBC Middle East appears to hold sway in the industry - for now.
But HSBC is far from alone in this race. Deutsche Bank has also begun its fund administration service recently, offering solutions which are not restricted to mutual funds.
"The administration services are essential to the effective operation of any type of fund, including private equity funds, infrastructure funds, property/real estate funds, mutual funds and fund of funds," says Rafiq Al Gailani, vice-president of fund services MENA at Deutsche Bank.
There also appears to be room for independent specialist firms such as Gulf Custody Company, Gulf Clearing House, Investment Data Services (IDS) Group and Apex. Gulf Custody had 60 funds worth $5.5 billion in assets under administration by the end of 2006.
Apex Fund Services, another specialist fund administrator, was granted approval by the DFSA in 2006.
Regional funds managers have been administering their own funds, and have set up large structures to process these functions, but these are increasingly being outsourced even by some of the larger institutions.
External forces are also driving change, led by the arrival of institutional money which is demanding far more transparency. In fact, new asset managers tend to make the inclusion of an independent fund administration a key component of their offering.
- The writer is managing editor, Zawya.com.
By Yadullah Ijtehadi
Gulf News 2007. All rights reserved.
