GC Interview: Ken McCarney, CEO, Mitsubishi UFJ

Last week, bank-owned fund administrator Mitsubishi UFJ Fund Services appointed Ken McCarney as CEO. Following his appointment, Global Custodian speaks to McCarney about the key challenges facing both hedge funds and the fund administration industry, and how his firm looks to overcome these hurdles.

GC: What collateral challenges alternative fund managers are facing and how are fund administrators meeting that?

KM: There is certainly a desire for high quality assets, which is putting constraint in the prime brokerage environment in serving hedge funds because they might not have enough high quality assets. This is partial driver for a lot of bank-owned fund administrators investing in their administrative units for that reason.

More and more clients are looking to us to take over the collateral management function, and the rise in utilities will help us do that. They want to be more proactive with their collateral, and ensuring proper margin calls are made so the Treasuries and triple A securities they use as collateral is used more efficiently.

GC: How will hedge fund managers deal with Basel III capital rules?

KM: There will be a lot less leverage for hedge funds, so this could mean a move back to more traditional hedge fund strategies. That’s a trend we are seeing with our own client base.

GC: With the rules on collateral and capital levels, how will the fund administrator evolve?

KM: Fund administrators have evolved over the past 10 years, and are now more data aggregators than just calculation agents. The changing to a stricter environment on capital adequacy and the knock on effects on collateral quality, combined with the ever increasing regulatory reporting environment is having a seismic impact on the fund administration industry.

While fund administrators will always be appraised on their net asset value abilities, the services they are now required to provide are so much more than that. Fund administrators are evolving into business partners and facilitators with their clients as opposed to service providers. That is why you will see firms such as MFS being early movers into the realm of Big Data, and the data gathering and management tools that that entails.

Other than collateral, with all the regulatory reporting requirements such as AIFMD and FATCA, hedge funds are becoming more and more reliant on the fund administrator, which requires more personnel.

GC: Will there be new roles fund administrators will have to take on as a result of regulation?

KM: Absolutely. If you compare what we were doing five years ago to what we are doing now, there are vast differences. The revenue that comes from our regulatory reporting line is almost up to 30% of our overall revenues.

GC: Mitsubishi UFJ has recently expanded their middle-office services, is this reflection of the growing role of the middle and back-office amongst clients?

KM: Absolutely. Nearly all our mandates are looking for middle-office services, whether that be reporting or collateral management. For managers, the cost of running the fund is getting quite severe at the moment, so they just want to focus on trading rather than all the middle and back-office functions. There is a huge trend towards this fund management model.