If ever there was a time for fund administrators to ramp up automation of their end-to-end operations, this is surely it.
Firms’ cost bases have been under concerted pressure for years as the global fund administration industry wrestles with ever tightening margins. Resurgent inflation though is upping the ante.
Inflation outpaces wage rises … for now
Ireland, the home of many fund administrators, saw annual inflation hit 9.2% in October (up from 8.2% the month before). That’s the highest level in over 38 years. Inflation in the Euro area is at 10.6%, versus 9.9% a month earlier. In the UK, inflation is running at over 11%.
Wage growth has been muted so far but is on the rise, with wages in Ireland increasing 2.4% in June, compared to 2.3% in March. Earnings in the private sector are climbing even faster than the headline rate. And the Financial, Insurance & Real Estate industry has the country’s second highest labour costs, only behind the Information & Communication sector.
Across the rest of the EU, wage growth has reached 4.5%, compared to 4.1% the previous quarter. UK wage growth is now at 6%. In the United States it is over 8%. If inflation expectations become more deeply embedded, expect these wage growth figures to accelerate, exacerbating firms’ already pronounced cost tensions.
Unaffordable housing a growing problem
Another factor is feeding into the equation as well: housing costs.
The latest figures from Ireland’s Central Statistics Office reveal the national Residential Property Price Index (RPPI) climbed 10.8% in the 12 months to September 2022. The index is now 2.6% above its highest level at the peak of the property boom in April 2007.
Rents are also surging amid a chronic lack of housing supply, with the average jumping 14% in the third quarter from a year earlier. In some areas they soared as much as 24%.
Runaway housing costs are making those parts of Ireland where fund administrators have located their operations unaffordable for many people. Employees will need a bump in salaries if they are to be able to live anywhere close to their work. Others may be forced to move, threatening shortages of qualified staff.
Manual processing no longer works
Whatever transpires, fund administrators will need to streamline their operating models. Throwing bodies at processes to cope with volume growth, diversification into new markets, regulatory complexity or new client demands is no longer viable. Manual involvement must be limited to exceptions processing and high-value client support tasks, not data input, compiling reports or similar mundane activities.
The solution, as everyone in the fund administration industry knows, rests with technology-driven automation. A wealth of systems now exist to deliver that automation. And undoubted progress has been made. Yet automation too often remains ad hoc and fragmented. Systems and processes don’t interlink. Data is siloed. Duplication proliferates. Manual workarounds creep in and become entrenched. That is a big problem.
The answer lies in minimising fund administrators’ technology footprints: consolidating their transfer agency, reporting, client servicing and regulatory compliance on an integrated infrastructure that has the functionality breadth and scalability to meet each firm’s processing needs.
Licensing and system support expenses can be slashed. Headcount can be redirected. Data integrity and consistency improve. Client service delivery becomes smoother and faster.
The operational reengineering involved takes some effort. After all, disrupting existing processes can be a challenge. But the benefits are transformative.
Wage inflation will be painful for all businesses. For fund administrators facing already compressed margins, rising client service demands and tight labour markets, it poses a massive threat. A profitable, sustainable business model will depend on optimising output per head. Training can boost productivity at the margins. Real efficiencies though can only be achieved by focusing on true, seamless, end-to-end automation.
It’s not a new argument. But it’s one that has become ever more imperative. As costs bite and recession looms, there really is no alternative.
ABOUT DEEP POOL
Deep Pool is the #1 investor servicing and compliance solutions supplier, providing cutting-edge software and consulting services to the world’s leading fund administrators and asset managers. Our flexible solution suite, developed by an experienced team of accountants, business analysts and software engineers, supports offshore and onshore hedge funds, partnerships, private equity vehicles, retail funds and regulated financial firms. Deep Pool is a global organisation with offices in Dublin, Ireland, the United States, the Cayman Islands and Slovakia. For more information, visit: www.deep-pool.com.