Eduard von Kymmel (VP Fund Solutions) :
Helping asset managers compete with ETF challengers
Eduard von Kymmel, head of VP Fund Solutions, says a broadening of the group's fund services offering has proved particularly timely as investors increasingly turn to illiquid assets such as real estate and private equity funds.
How has Luxembourg's fund services market evolved over the past 10 years?
Things are often different from what people initially thought. A decade ago, the industry
expected consolidation to lead to a reduction in the number of service providers. In fact,
the number of dedicated service providers has increased here, in contrast to the market in
Ireland. The main reason was the implementation of the AIFMD and asset managers’need for tailor-made services and niche specialists. We are still seeing acquisitions by private equity firms, and several banks are outsourcing their fund administration business to big US players, but 10 years down the line, the number of service providers has increased. Asset managers simply do not have their specific needs and requirements met if they work exclusively with big players.
Which challenges are small and mid size asset managers facing today?
They face three main problems, starting with regulatory challenges. Compliance, corporate governance and distribution rules are not their core activities, but markets and asset classes. This is where specialised management companies can help, enabling them to focus on their core business by delegating regulatory matters, risk and even
distribution. They could set up their own boutique operation, but that would raise questions about critical mass, focus and cost. By delegating, they reduce their costs, which ultimately is critical to remaining competitive today. Secondly, performance and the total expense ratio (TER) are critical today for everyone, even the biggest managers and funds. Equity funds are in competition with ETFs that are simply replicating anindex, an alternative that is cheaper, transparent and easy to sell. Finally, the market is
risky – which is why TER is critical. When the bond market or money markets are not providing good returns, billions of euros of pension fund assets are available to be invested in other asset classes. This creates huge demand for private equity and real estate funds that provide ongoing steady returns. Last year saw the launch of many funds
investing in illiquid asset classes.
« Asset managers do not have their specific requirements met if they work exclusively with big players. »
How is VP Fund Solutions adapting to this environment?
Three years ago, with a satisfied client base, we decided to invest heavily in people and systems. We have given asset managers the opportunity to
delegate their regulatory risks and duties – even legal risk - across the full range of funds, from
UCITS to AIFs, which was a great move because demand for illiquid funds has surged. This strategy has been rewarded by many new mandates every year. We are even helping a major Swiss bank
keep its TER low by servicing one of its funds. We are also achieving substantial economies of scales across the international network of our group.