Renewed growth in the asset management business combined with new regulations will give a boost to the fund administration business in 2011, Confluence predicts.
“Fund administrators will be faced with the dual challenge of scaling operations while providing more complex and more frequent reports for regulators,” said Kirk Botula, executive vice president and chief operating officer at Confluence. “Meeting these demands will render brittle, error-prone manual processes obsolete. Technology will become a prerequisite for success.”
In particular, Confluence pointed out for the Dodd-Frank Wall Street Reform and Consume Protection Act will require hedge funds with more than $150 million in assets to register with the SEC as of July 21.
U.S. mutual funds have had to comply with the accounting and reporting requirements of the Financial Accounting Standards Board’s FAS 157 in 2008, which relates to fair value. In 2009, they were hit with FAS 161, which requires enhanced disclosures about derivatives contracts and hedging activities so investors can better understand their effects on an entity’s financial position. And last year, money market funds were required to disclose their holdings each month and to hold more conservative and shorter-duration securities under the Money Market Mutual Fund Reform Rule in 2010. In 2011, it is still possible that the SEC could impose a floating net asset value on money market funds.
In a recent Confluence survey, 60% of fund administrators said that replacing manual processes with technology was their most important back-office goal, and nearly 72% worried that manual processes could prevent them from meeting reporting deadlines.
Thus, Confluence believes fund companies will turn to their service providers for help. As they do so, competition among fund service providers will intensify in 2011, Botula said. “Fund service providers will differentiate themselves through their service pricing and ability to scale down while mitigating risk. Data consolidation and process automation will be key to making this happen,” Botula said.