Highlights from EY’s 11th Annual Global Alternative Fund ...€¦ · Many startups don’t have...
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Highlights from EY’s 11th Annual Global Alternative Fund Symposium Cayman Islands Accelerated disruption. Evolving talent. Artificial intelligence and robotic process automation. Emerging markets. The industry is at a major tipping point, with unprecedented change bringing both new challenges and new strategic opportunities. In just the past 12 months, the alternative fund industry has faced incredible change. “We’ve entered a perfect storm of disruption comprising of technological, economic and talent transformation, evolving at an undeniably rapid pace,” said David Racich, EY Global Hedge Fund Co-Leader. In this new environment, managers are being challenged on a number of fronts: to navigate the new regulatory and technological landscape, to reposition themselves for the future and to mitigate growing risk at the same time. Recently, more than 200 alternative fund managers, directors, administrators, lawyers and regulators gathered to discuss these and related issues at EY’s 11th Annual Global Alternative Fund Symposium in the Cayman Islands. Attendees observed lively panel discussions on the current state of the industry, the disruptive forces affecting it and new opportunities in emerging markets. Here we highlight the top five trends that surfaced during the panels. 1 New approaches to regulatory compliance Regulations are nothing new, but navigating today’s increasing compliance requests requires us to change how we work. “This is the way of the world now,” said EY Audit Partner and AML Solutions Lead LaNishka Farrington-McSweeney. “It requires a mental shift in our industry in terms of how we approach regulation and how we ensure that we are compliant, including with outsourcing and technology.” With expanding regulatory processes and ever-growing volumes of data, many investment managers are turning to outsourcing for the first time. “There is a rise in outsourcing in the private equity space,” said David Sherwin, Of Counsel at Maples Group. “A recent SEC report suggests approximately 50% of private equity managers are now appointing external administrators; just 18 months ago, it was 36% — and I think this trend will continue. Administrators have the technology and the resources to assist managers with this,” he said. New regulatory guidance has also shifted the burden for outsourcing prior to the onboarding stage. What has been made clearer is that if you’re going to outsource, you’ll want to understand the full capabilities of the providers, including their specialist knowledge, global capabilities, technological solutions, and their policies and procedures. 1 | www.ey.com/cayman
Transcript of Highlights from EY’s 11th Annual Global Alternative Fund ...€¦ · Many startups don’t have...
Highlights from EY’s 11th Annual Global Alternative Fund Symposium
Cayman Islands
Accelerated disruption. Evolving talent. Artificial intelligence and robotic process automation. Emerging markets.
The industry is at a major tipping point, with unprecedented change bringing both new challenges and new strategic opportunities.In just the past 12 months, the alternative fund industry has faced incredible change. “We’ve entered a perfect storm of disruption comprising of technological, economic and talent transformation, evolving at an undeniably rapid pace,” said David Racich, EY Global Hedge Fund Co-Leader. In this new environment, managers are being challenged on a number of fronts: to navigate the new regulatory and technological landscape, to reposition themselves for the future and to mitigate growing risk at the same time.
Recently, more than 200 alternative fund managers, directors, administrators, lawyers
and regulators gathered to discuss these and related issues at EY’s 11th Annual Global Alternative Fund Symposium in the Cayman Islands. Attendees observed lively panel discussions on the current state of the industry, the disruptive forces affecting it and new opportunities in emerging markets. Here we highlight the top five trends that surfaced during the panels.
1 New approaches to regulatory compliance
Regulations are nothing new, but navigating today’s increasing compliance requests requires us to change how we work. “This is the way of the world now,” said EY Audit Partner and AML Solutions Lead LaNishka Farrington-McSweeney. “It requires a mental shift in our industry in terms of how we approach regulation and how we ensure that we are compliant, including with outsourcing and technology.”
With expanding regulatory processes and ever-growing volumes of data, many investment managers are turning to outsourcing for the first time. “There is a rise in outsourcing in the private equity space,” said David Sherwin, Of Counsel at
Maples Group. “A recent SEC report suggests approximately 50% of private equity managers are now appointing external administrators; just 18 months ago, it was 36% — and I think this trend will continue. Administrators have the technology and the resources to assist managers with this,” he said.
New regulatory guidance has also shifted the burden for outsourcing prior to the onboarding stage. What has been made clearer is that if you’re going to outsource, you’ll want to understand the full capabilities of the providers, including their specialist knowledge, global capabilities, technological solutions, and their policies and procedures.
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2 Outsourcing becoming a viable solution
Outsourcing expertise — from technological and operational support to regulatory compliance — is quickly accelerating in the alternative fund industry.
A flash poll revealed that a majority of audience members are looking outside their companies to address regulations.
When it comes to outsourcing, operators will still need to ensure they understand their obligations when they’re selecting the appropriate outsourcing options. While some anticipate pushback from regulators, one panelist noted they will work with you if you use reputable contractors.
Many startups don’t have the luxury of programmers or other technology when they begin, so outsourcing is essential. “With the growth and quality of technology today, especially with the cloud, companies can do a lot more by relying on outside people, which you couldn’t do in the past,” said Shoals Capital Management CFO and COO Ray Waterhouse.
3 Essential considerations for your strategic priorities
Finding the right innovative technology should be a key part of your strategic planning, but investing in the expertise and culture of your people should also be top of mind, our panelists advised.
Trevor Hunt, CIO of MUFG Investor Services, offered a strategic tip for managers: if you’re running a global operation, use culture training for your talent. “When you get somebody who’s in Singapore talking to someone who’s in Halifax, the whole belief culture — and the work practices of where they’re from — are very, very different.” Hunt said his investment in cross-cultural training tools made a major impact on helping his team understand one another.
“We’re in a bit of a different situation than other firms, but the recruiting of talent, the retention of talent, is really important,” said Steve Mace, President of ACR Alpine Capital Research. “Strategically, asset growth is the number-one priority, but talent is a huge part of that.”
EY Advisory Partner David McGibbon emphasized that technology training and upskilling your people should be an essential part of your strategy. “As clients become more digitally savvy, your employees should be too.”
4 RPA and AI accelerating in the alternative fund industry
In another flash poll, attendees indicated where they believed tech solutions would work best.
“The rise of quantitative strategies is really no surprise,” said EY Partner and Regional Leader of Wealth and Asset Management Jeffrey Short. Robotic process automation (RPA) can free up fund managers by automating highly repetitive manual tasks; artificial intelligence (AI) allows them to harness volumes of data to target investment opportunities and improve decision-making.
Managers will want to find a way of delivering more in terms of automation, and RPA can certainly help. But they should be very careful with process design, some panelists cautioned, especially when mixing manual and robotic — not all processes can be suddenly automated.
EY Partner and Emerging Manager Platform Lead Tiffany Norris-Pilcher provided eye-opening statistics from EY’s 2018 Global Alternative Fund Survey. “In the past year, we saw 200% growth in the use of AI in front-office models among hedge fund managers and almost 100% growth in a proportion that expects to use AI in the near future,” she said.
The panelists agreed that fund managers should be looking to leverage technology as a solution. “We have over 1,000 robotics solutions across 200 processes in place today so that we can leverage our talent for higher-valued tasks,” said McGibbon. He added that by 2020, 40% of large organizations will be using RPA.
“Perform an assessment of your workflow and processes to identify where the application of technology, such as AI, robotics or simple macros, will offer an opportunity to eliminate steps and create efficiencies,” said David Fritz, Managing Director of Citco Fund Services. “Collaboration between the service provider and investment managers is requisite to align and make data more consistent. Obtaining a thorough understanding of the processes of collecting, refining, calculating and reviewing data provides the basis for the design and implementation of technology solutions,” he said.
How are investment managers addressing or coping with the evolving regulatory changes? 83% By outsourcing to administrators
and other compliance firms
10% By increasing the compliance function headcount dedicated to reporting
7% By investing in compliance-related technology and data management to facilitate reporting
Where do you expect to see investment in technology to be most impactful? 38% Trade analysis and execution
30% Trade confirmations/position reconciliations
17% Regulatory reporting
8% Fund accounting
7% Investor relations
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5 China: the awakening of the dragon?
A panel on China discussed the many opportunities in this emerging market, while acknowledging there were certain considerations to bear in mind. The market is also growing very quickly. The total assets under management (AUM) of the China asset management industry has reached US$15 trillion, with a 38% compound annual growth rate in the past three years.
China’s growth is largely driven by retail investors. “They have money, but they’re not buying property or putting money into the bank; they are looking at asset management products, and they’re interested in money market funds,” said EY Tax Partner Loretta So. China is also home to a large number of high-net-worth individuals who are interested in private equity and venture capital opportunities.
What makes China’s market so distinct? “It is only 28 years old, but it’s the world’s third-largest market by market cap, behind the US and Japan — so it’s highly liquid and it’s huge,” said Hyacinth Chu of Yulan Capital.
Challenges remain in working in this market, but that may be changing. In 2016, there were 25,000 private fund managers registered in China, but the number dropped slightly to 22,000 in 2017, mainly because of the registration requirement in China, according to So. “But recently China has opened up its market,” she said. “So we’re seeing more and more fund managers heading up their own portfolios in China, depending on the type of investors and the type of asset they want to manage.”
A flash poll indicated the Cayman audience felt there was much more to be tapped in this emerging market.
Considering what we have heard about opportunities in China, how well do you think Cayman is positioned for this opportunity? 61% Just scratching the surface, much
more investment needed
29% Getting there, but still more can be done
10% Cayman is well-positioned and taking advantage of all available opportunities
Final thoughts A major theme seems clear: reliance on innovative technology, whether in-house or outsourced, has moved from being optional to a necessity — to protect, operationally optimize and evolve your business to succeed in the future. Managers are facing a new set of challenges, but we’re also seeing a number of firms respond with agility. They’re integrating technology to manage complex regulations and improve investment decisions, and they’re sourcing and developing talent globally to include diverse skill sets. By innovating and sharing knowledge, alternative managers are continuing to help the industry to evolve and adapt in this new era.
The EY Global Alternative Fund Symposium Series is hosted in 18 financial centers worldwide, and it is attended by more than 5,000 senior executives from some of the world’s largest asset managers and leading service providers. Thought leaders from the organization and industry across the globe provide in-depth coverage, commentary and insights around key industry issues, including the tax landscape the global macroeconomic environment and innovation in the asset management industry.www.ey.com/afsymposium
EY Global Alternative Fund Symposium Series
Access the most recent EY Global Alternative Fund Survey results at www.ey.com/AltsSurvey
Save the dateEY’s 12th Annual Global Alternative Fund Symposium — Cayman Islands12 December 2019Kimpton Seafire Resort Grand Cayman
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Jeffrey ShortRegional Wealth & Asset Management LeaderPartnerEY Cayman [email protected]
Marco CallejaWealth & Asset ManagementPartnerEY Cayman [email protected]
Mike MannistoRegional Banking & Capital Markets LeaderPartnerEY Cayman [email protected]
Tiffany Norris-PilcherWealth & Asset ManagementPartnerErnst & [email protected]
Jessel MendesRegional Growth Markets LeaderPartnerEY Bermuda [email protected]
David M. RacichGlobal Hedge Fund Practice Co-LeaderPartnerErnst & Young LLP, New [email protected]
LaNishka Farrington-McSweeneyBanking & Capital MarketsPartnerEY Cayman [email protected]
Loretta SoFinancial ServicesPartnerErnst & Young (China) Advisory [email protected]
David McGibbonBanking & Capital MarketsPartnerEY Cayman [email protected]
