Fund administrators must make a special effort to prove their value in a market where many asset managers can legally do administration themselves. ValÃ©rie Mantot, regional head for Sanne Group, tells George Mitton how it works.
In the clean and pleasant surroundings of the Dubai International Financial Centre (DIFC), one is surrounded by smartly dressed and busy-looking financial types from around the globe. In such an environment, it is easy to forget the Gulf region still straddles the line between an emerging and frontier market. The DIFC has all the facilities of a sleek western business centre, but underneath its polish lies a financial industry that is still adapting to international norms.
This is never truer than in the world of fund administration. In the United States and Europe, it is standard practice for asset managers to appoint a third-party administrator. Yet, in the UAE, at least 60% of asset managers still do fund admin themselves, according to an estimate from Valérie Mantot, head of the MENA region for Sanne Group, an independent fund administrator.
Those asset managers that do appoint fund administrators often expect more from their providers than their peers in the West, she adds. With vehicles such as real estate funds, administrators may be asked to provide services for non-fund entities such as special purpose vehicles, which they would not do in Europe or the US. The reason is this: fund administration is still a new industry in the Middle East, and the administrators must prove their worth.
“We need to create more awareness in the market,” says Mantot, who met Funds Global in Sanne Group’s office in the DIFC. “In some MENA countries, the need for fund admin doesn’t come from the law, it comes from the market participant themselves. For them, they have to understand the added value.”
Mantot moved to Dubai six years ago, as a funds lawyer for Loyens & Loeff, where she helped local asset managers, such as Al Masah Capital and Gulfmena set up Luxembourg funds. She joined Sanne Group in 2013, essentially crossing the boundary from the advisory to the operational side of the industry.
Prior to coming to the Middle East, she practised law in Luxembourg and Paris and, although her grasp of English is excellent, she occasionally displays her French-speaking roots by prefacing an answer with a Gallic “oui”.
She keeps her links with Luxembourg alive by chairing the Middle East chapter of the Association of the Luxembourg Funds Industry, the trade group that promotes the domicile.
Although it is currently legal for asset managers in the Gulf to do their own administration, this might change in future. The Securities and Commodities Authority, the UAE regulator, now requires newly launched funds to appoint a third-party custodian.
If the regulator goes a step further and says funds must appoint a third-party administrator too, Mantot’s client base could increase by about a third, she thinks.
Changes at the DIFC’s own regulator, the Dubai Financial Services Authority (DFSA), might also lead to more business for administrators. Currently, the DFSA’s rules say that only open-ended funds need to appoint a third-party administrator, but in future this requirement could be extended to closed-ended funds as well – real estate and private equity vehicles, for instance.
Perhaps the biggest regulatory boon would come if the Saudi Arabian regulator, the Capital Market Authority, included rules about third-party fund administration in its forthcoming regulations about investment funds. Although a draft of the Saudi regulations does not mention fund administration, service providers in the country say the regulator has held meetings on the subject and is considering including fund admin alongside custody in the rules.
“No one can afford to ignore Saudi Arabia,” says Mantot, who sees the Saudi market as a promising area.
“With its demography and wealth, it’s logical that it will be the market where service providers should expect growth. In future, you will have to have a presence in Saudi. Because it’s a big market, the investment is worth it, which isn’t the case in, say, a smaller market such as Oman,” she adds.
Sanne Group cannot currently provide administration for Saudi-domiciled funds but the firm does have Saudi clients with Cayman Islands or Luxembourg-domiciled funds. In future, Mantot would like to establish a presence on the ground in Saudi Arabia, though she would like to see more certainty about the law concerning fund administration, and would like to see a softening of rules on foreign ownership and cross-border transactions first.
Sanne Group’s direct competitors are the likes of Maples Fund Services and Apex Fund Services. These are the smaller, independent, niche players, which provide a select set of services, often with a specific focus on certain alternative fund types such as real estate or private equity. In contrast, the international players – the likes of HSBC, Citi and so on – provide a more extensive range of services to their asset manager clients, typically offering fund administration as part of a bigger package that includes custody and depositary services.
Large international asset managers generally go to the international banks, but the smaller, regional ones are fair game for Sanne and the niche players. Mantot says her firm can offer advantages the big players cannot. For instance, global firms may have different teams spread across different countries. With a smaller niche player, there are fewer teams involved and communication between them may be easier. She also says being independent makes her business more flexible and easier to adapt to clients’ needs.
“A global firm has a template,” she says. “But if you work for a smaller player, we put more energy in the human skills, so we are capable of adapting the system. The relationship you have is more personal.”
In addition, she claims that a specialist fund administrator has no incentive to sell its clients other services beyond fund admin, because it doesn’t have any. She says Sanne Group is a good judge about which custodians offer the best ancillary services because it is independent and therefore remains objective.
These qualities ought to stand Sanne Group in good stead if more regional asset managers decide to appoint independent administrators in future, a trend that could happen as regional regulators adapt to international practices.
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