GC Friday Interview: David Morrissey of SEI Investment on AIFMD

The Alternative Investment Fund Managers (AIFMD) came into force on Monday, yet compliance still remains a thorny issue. A survey of 70 alternative investment fund managers with $5 trillion in assets finds that a third of respondents fear not complying on time and negative financial implications. David Morrissey, New Business Development & Client Services Group, Investment Manager Services Division at SEI Investments says a thorny issue is how fund managers are going to meet the increased reporting requirements and transparency requirements under the directive.

How is AIFMD affecting your business? Is the industry ready for the regulation?
It’s way too early to see our peers and the industry have adapted. Certainly I think everybody is talking a good show but it will be interesting to see over the coming months how that actually materializes. The big issue that we’re looking at when we talk about AIFMD is how an investment manager is going to manage to meet the increased reporting requirements and transparency requirements under the directive. There is going to be more focus and pressure on their own internal operations and we expect our client’s to look to SEI to see how we can help meet this challenge. That is what SEI, as a leading global middle- and back-office administrator, has been working towards while providing this solution over the last few years. For instance, we will be leveraging off what we have already done in the U.S in relation to Form PF, which, as you know, is the SEC reporting requirement for professional funds. We would envisage that this solution will assist SEI and our clients in meeting the reporting requirements of AIFMD although the final terms or specification of the reporting requirements will not be made available until later this year since the first deadline for reporting is not until January 2014.

When you take a look at SEI and how we designed our business going back to our origins as a technology company, all things start with the data and the insight derived from its reporting. That has been key. Long before AIFMD came along, we had been seeing a lot of pressure coming from institutional investors and large allocators looking for increased reporting. As part of our efforts to deliver meaningful transparency to our clients, we built an online reporting solution that we call the “manager dashboard”. This is quite a comprehensive tool that is a significant differentiator to a lot of our peers. Regardless of the jurisdiction and the domicile of the fund, and regardless of the strategy or product structure, this platform offers complete transparency to the portfolio manager on a day-by-day week-by-week basis. Oftentimes if a manager is dealing with some of the global banks, they’re talking to an office in Luxembourg, an office in Dublin or in the States; in our case, for any of our clients that go onto the platform, they have an immediate aggregated view of the entire book of business that SEI is servicing regardless of the jurisdiction. In doing so that has already given us a significant advantage when it comes to the transparency reporting requirements under the new regulations.

In relation to the depositary function under AIFMD, that is something that SEI will leveraging off of our Irish trustee and custodial company. Under AIFMD, we see the requirements under depositary and the depositary light regime as an extension of that service.

According to the AIFMD, the depositary has three primary functions when appointed by an AIF: cash flow monitoring, safe-keeping and record keeping of assets, and oversight of certain operational functions. Through our Dublin Depositary Company, we are AIFMD ready.

To what extent has your business been driven by the regulation—have you had to adapt much?
Regulation certainly is critical to our business but I don’t believe we have had to adapt too much—that’s why I started off by making the point that data management is really something that as an organization SEI has done from day one. It’s always been about the data and how you make that available to your clients in an intelligent and useful manner. The increased regulatory reporting requirements is something that has been coming along in a faster pace over the last few years and all we have been doing is tailoring and enhancing our existing solutions to meet those requirements.

One item we want to make quite clear—I don’t think anyone is against increased regulation, per se, as long as it’s meaningful and logical good because at the end of the day, funds and fund managers are there for a reason. They’re trying to achieve returns in their particular asset classes and strategies on behalf of their investors and allowing them to do that in as an efficient manner as possible is a difficult but necessary part of our industry. What we want to ensure is that SEI is best positioned in order to meet these requirements, whether it is investor-driven or whether it is driven by regulators around the world.

Given the amount of regulation, are you a consolidator or an acquirer?
Since SEI was founded in 1968, we have grown organically and never looked at acquisitions as a means to purely grow assets. As good business people, if there were opportunities to acquire certain technologies or it made good business sense in giving us expansion in our global business, we would certainly look at what was out there but to date we have found organic growth to be preferable. From SEI’s perspective, I do believe you will see additional consolidation happening in the market. There are increased pressures on organizations that have predominantly been banking providers who have been offering fund administration services as a value add or ancillary offering and I do think you will certainly see some of those groups re-evaluating the business they want to be in and whether it makes sense for them or not.

At the other end of the scale, this business is very costly in terms of running it and keeping developing it and so the kind of money we spend on annual basis is quite significant. A lot of smaller providers, dare I say, may find it very difficult today to keep abreast of the ever-changing regulatory environment and deciding whether or not they need to focus on those developments or look elsewhere in the market to pick up some revenue. So at both ends of the spectrum I to think you will see consolidation over the next 12-18 months.

Are you having discussions to this effect?
To the best of my knowledge, we are not having acquisition discussions at the moment but we are always evaluating what is available in the market. In order to stay ahead in this market as an industry leader you need to be constantly monitoring your competitive position and part of that is seeing if an acquisition, whether it is of key personnel, technology or jurisdictional footprint, makes sense for your business and for your clients.