Fund administrators see reduction in revenue in 2008, says Deloitte

Date: Wednesday, December 10, 2008
Author: Hedgeweek.com

Nearly 30 per cent of fund administrators in Europe will experience a reduction in revenue in 2008, according to a survey by Deloitte.

The outlook for 2009 is slightly better, with 24 per cent of respondents predicting a further reduction in revenue next year.

The survey, compiled by Deloitte's European asset management practice, which targeted third party fund administrators in their primary jurisdictions in Europe (Ireland, Luxembourg and the Channel Islands), shows that 44 per cent of respondents are pessimistic about the short term outlook for the industry.

A further 31 per cent are optimistic with 25 per cent neutral. However, when looking at a two year timeframe 85 per cent are optimistic on the outlook for the industry.

When asked how the credit crunch has affected the industry, the prime impact identified by respondents was the reduction in assets under administration - which impacts directly on administration fees earned. 

The credit crunch was identified as the number one issue facing the industry. 

Deloitte says the reduction in income along with a high fixed cost base is creating significant pressure on margins. Cost containment was identified as the second most important issue facing the industry.

Maintaining service quality in the face of reducing costs and the subsequent need to improve productivity were identified as the third and fourth most significant issues facing the industry.

Brian Forrester, financial services partner at Deloitte Ireland and author of the report, says: 'Fund administrators are now facing a completely different set of challenges - the likes of which have not been experienced in recent times. Previous Deloitte research has indicated that the main challenges facing administrators have primarily been concerned with managing growth. That is no longer the case with the credit crunch being keenly felt by all administrators across Europe. 

'As markets stabilise, investor preference is likely to shift to more conservative investment products that have been prevalent in recent times, which will require fund administrators who have invested heavily in the people and processes to support alternative asset classes to review how best to align their capabilities to this new, more conservative landscape.'  

The increased pressure to reduce costs and create efficiencies has led to an increased focus on offshoring and outsourcing with administrators moving elements of their operations either out of their home state or to specialist providers. 

Notwithstanding regulatory requirements to undertake certain activities in administrator's home state, significant moves have already been made in this area. However 50 per cent of respondents believe that offshoring will continue to increase in the future, with 55 per cent expecting an increase in outsourcing.