The popularity of third party management companies – also called ‘manco’s – increases all the time. For fund managers they make economic sense, delivering substance and oversight in favoured fund jurisdictions. While we have seen a proliferation of mancos in the last decade, regulators and investors are kicking the tyres harder these days.
Regulators are re-defining the landscape for mancos, with new tax-driven policies (‘economic substance’) and emphasis on the level of risk and oversight actually being carried out by the manco. This is raising the barrier to entry while at the same time requiring the existing mancos to invest more in their infrastructure.
Why technology matters
It comes as no surprise to see the flurry of mergers and acquisitions occurring in the sector. This is partly being driven by the need for scale, to support the costs of new infrastructure. A big part of this is technology, and it is something both regulators and manco management teams are having to revisit.
Technology is going to become a competitive edge for mancos and it will also determine the degree to which they can scale easily and cost effectively. While we have seen some mancos manage their growth by throwing bodies at the issue, often at great cost, there is another way forward that can divorce the organisation from reliance on the vast and cumbersome back offices that fund managers are already divesting themselves of.
Mancos by definition have to cope with a wide variety of different operating systems, models, risk management systems and investment strategies. While some third party mancos have sought to specialise to a degree, others will accept most types of funds that are seeking distribution in the European Union and further afield.
This means that internal operational teams at third party mancos have to cope with data streams from a panoply of different providers, as well as the need to monitor a diverse array of funds, investments and pricing models. As a technological and infrastructural challenge, it is a considerable one.
Mancos are turning to technology firms for answers
We have found mancos are seeking the expertise and capabilities of software firms. It is our experience at Truss Edge that these firms need us to normalize the source information from disparate managers to consolidate the reporting of compliance and risk.
The benefits are significant and numerous – incorporating the data from all of a manco’s clients creates efficiencies as the firm’s compliance resources become stretched ; a single system ensures that reviews are applied with consistency ; further, as oversight of risk expands in scope and frequency, having access to the source information will allow the manco to meet these increasing demands in a timely fashion as they have greater control.
This is an important year for mancos in all fund jurisdictions as both investors and regulators begin asking for more evidence of the standards and scale of technology that supports these structures. Reliance on spreadsheets is unlikely to remain sufficient, especially during periods of intense market stress as we have seen in 2020.
Proper risk oversight is an important criterion for third party mancos and there is a scalability issue here for mancos which are responsible for hundreds of funds and multiple billions in AuM.
To discuss the technology requirements of your manco operation, please contact Truss Edge at sales@trussedge.com