Agefi Luxembourg - février 2025

Février 2025 35 AGEFI Luxembourg Fonds d’investissement ByPascalHERNALSTEEN,Strategicconsultant, GoJuSan&Stuart TAIT, Sales Director EMEA, Accelex T he fund administration indus- try is navigating a rapidly evol- ving environment, shapedby complex regulatory demands, rapid market expansion, and increasing client expectations. To un- derstandhow leading firms are adapting, we in- terviewed senior execu- tives at 16 prominent companies in the private ca- pital asset servicing space, responsible for over $13 tril- lion in assets and employing a combinedworkforce ofmore than 53,000 worldwide. The findings reveal regulatory demands, market trends, and client priorities that are reshaping the landscape and howAI-driven data transformation is emerging as a pivotal solution to enhance both oper- ational efficiency and client satisfaction. Increasing pressure on fund administrators The fund administration industry faces pressures fromboth clients and regulators, creating a dynamic, fast-evolvingenvironment.Ourresearchrevealedthat anumber of factors are collectively challenging tradi- tional fund administrationmodels. Regulatory pressures : Increasingly stringent frameworks, such as AIFMD II and ELTIF II, re- quire fund administrators to provide frequent, comprehensive reports to multiple stakeholders. Our survey found that 78% of respondents face growing pressure for timely, accurate reports to multiple participants including regulators, general partners (GPs), limitedpartners (LPs) and auditors. This trend is only set to intensify as global regula- tory demands continue to rise. Increasing demand for real-time reporting :As the globalmarket forprivate funds continues toexpand, so too does the complexity of fund structures. De- spite this, nearly two-thirds (64%) of investment managers expect fund administrators to provide near real-time access to data and reports. Above all else, clients prioritize timeliness and accuracy in re- porting, expecting reports that are error-free andde- livered on time. While some service providers may opt for standardizedofferings, clients are requesting more bespoke and customized reporting. Market growth, especially for private debt and private eq- uity in theUS andEurope, presents huge scalability challenges for service providers. Rising churn rates : up to 20% of investment man- agers change service providers annually, with 67% switching due to quality issues, while only 33% changeduetopricingconcerns.Thiskeepssomeasset servicersupatnight,asitunderscorestheimportance of addressing these critical quality gaps or risking a growing churn rate. In this challenging landscape, fund administrators must adapt quickly and prioritize quality, accuracy, and responsiveness to meet rising expectations—or risk falling behind. Data and talent are fund administrators’ biggest operational challenges Our survey found that data governance is the most significant operational challenge for fund adminis- trators. Specifically, 55% of respondents cited data acquisition from unstructured sources like PDFs, Excel files, and emails as their biggest hurdle.Manuallyextractingcritical data from these documents is time-consuming, error- prone, and often delayed—directly impact- ing the accuracy of reporting and client satisfaction. Additionally, talent retention remains a pressing issue formanyfirms.As fund administrators compete for the samespecializedtalent,high turnover rates impact service consistency and quality, fur- ther compounding these op- erational challenges. High employee churn, especially in skilledpositions,limitscompa- nies’ ability to deliver the level ofserviceclientsexpect,contribut- ing to their frustration. For example, one riskmanager expressed: “I spend 80%of my time on data collection, and only 20%on actualanalysis.”Thishighlightsthefrustrationmany skilled professionals face when time-consuming tasks limit their ability to focus onhigh-value, strate- gic activities. The disconnect: addressing challenges through strategic initiatives Despite these challenges, the initiatives fund admin- istrators are pursuing do not fully alignwith the crit- ical issues they face. For instance, while 55% of administrators cited data acquisition as their biggest challenge,only9%ofstrategicinitiativesfocusonthis issue, and just 5%aredirectedat improving talent re- tention. Instead, 35%of initiatives target automation, which,whilebeneficial,doesnotsolvethedataquality andtalentretentionissuesessentialtodeliveringcon- sistent,high-qualityservice.Thisgapbetweenstrategy and execution, evident among some service providers, underscores the need for amore compre- hensive approach to operational improvements that tackle these critical areas. AI as a strategic lever for transformation AI offers a powerful solution to close the gap be- tweenchallengesandinitiatives.Byautomatingdata extraction fromunstructured sources,AI candrasti- cally reducemanual workloadwhile improving ac- curacy. For instance, one company reduced data extraction time by a factor of five, achieving 99%ac- curacy usingAI solutions. AI allows companies to scale operations and boost service quality, ensuring that employees can focus on high-value tasks such as client relationshipman- agement and strategic decision-making. By effectively blendingAI with a skilledworkforce, both onshore and offshore, fund administrators can bridge thegapbetween the challenges they face and the initiatives they are implementing. In doing so, they can enhance operational efficiency, improve data accuracy, andprovide the level of service qual- ity that today’s clients demand. In a market where scalability and accuracy are essential, those who master this balance will be best positioned for long- termsuccess. Achieving excellence with a balanced approach WhileAI offers a powerful lever to improve opera- tionalefficiency,itwillnotreplacehumancapital.In- stead, the optimal approach involves balancing AI with onshore and offshore human talent. The most successful companies will be those that integrateAI into their processes to handle routine and repetitive tasks. Client relationship management will remain essential to capture evolving client requirements through closer relationships, ensuring that the AI- driven processes alignwith client expectations. Historically,offshoringprovidedscalabilityforcom- panies dealingwith talent shortages in high-cost re- gions.However,AI nowcomplements these efforts, enablingfirms toprocessdata faster,withhigher ac- curacy, andat a fractionof the cost. Thosewhomas- ter the balance between AI innovation and skilled humanoversightwill bepoisednot only tomeet ris- ing demands but to lead the industry. By blending technologywith talent, forward-think- ing fund administrators can deliver exceptional value, earning client loyalty and gaining a powerful competitive edge. Report:https://lnkd.in/eFbvhY9n Meeting the demand for precision: AI-powered data transformation in fund administration New record for gold By Peter KINSELLA, Global Head of Forex Strategy, UBP G old can continue to rise above levels of USD 3,000 per oz this year, as supported by several factors Central bankdemand Central bank purchases of phy- sical gold have more than dou- bled since 2022.Western authori- ties’ decision to sanction the reserve assets of the Russian cen- tral bank crossed the Rubicon, implying that in the future, any country with a significant politi- cal disagreement with the West is running an implicit asset confiscation risk. Consequently, central banks around the world have allocated an increasing share of their reserve assets to theyellowmetal, and we think that this trend will continue in 2025. Even if the war in Ukraine moves towards a negotiated settlement, the wider geopolitical outlook should remain constrained, meaning that gold will benefit from a strong underlying bid from cen- tral banks around theworld. The WorldGoldCouncil believes that central bankgoldpurchases have added around 15% to pricing. We note that central bank hol- dings of gold remain at compa- ratively low levels of their FX reserves, and a 1% increase in gold’s share in central bank FX reserves would come to more than 1,000 tonnes; this gives an idea of the overall demand out- look from this sector alone. Rising consumer demand Additionally, gold may benefit from the rise in long-end bond yields. Normally, rising yields tendtodepressgoldprices;howe- ver, there has been a significant correlation breakdown between gold and real rate expectations since 2022. Causality is key in this respect, as the rise in long-end yieldsalsoreflectsareturnofposi- tive termpremia inbondmarkets. Term premia are the extra com- pensation that bond investors demand tocompensate forhigher levels of risk (e.g. inflation or default).Withgovernments enga- ging in significant fiscal deficit spending, this is likely to result in higher debt-to-GDP ratios, and gold may turn out to be a superb hedge in such a situation. The ongoing robustness of Asian consumer demand is set to conti- nue in 2025. India’s decision to reduce import taxes on gold and silverhasbeenaboonfordemand. Chineseretaildemandwillremain solid,andlocalgoldfuturesaretra- ding at a premium to global benchmarks, which likely implies that local consumers are using gold as a hedge on their domestic currency savings (CNY). Chinese retail demand will remain solid this year, with consumers increa- singly using gold as a preferential savings and investment vehicle. To roundoff the picture,Western retail investors have started to increase their investments in gold-focussed exchange traded funds (ETFs). The prospect of lower interest rates inmanyof the major economies reduces the opportunity cost of holding gold, and consequently Western retail demand should push gold towards higher levels. Correlationbreakdown The above-mentioned correlation breakdownishighlyimportantfor the longer-term gold outlook. Normally, higher nominal bond yieldswouldbe anonerous deve- lopment for gold. However, we can see that it has traded robustly, despite significantly higher yields in bothdeveloped and emerging market economies. The implica- tion of this is that gold is now trading for reasons other than the wider monetary policy out- look, and the correlation break- down makes gold more attrac- tive to institutional investors who are looking for uncorrela- ted return streams. It also implies that we may even seegoldmateriallyoutperforming if central banks move to cut rates in the coming quarters. Institutionalinvestorshaveincrea- sed their long gold positioning, and we note that both CFTC (Commodity Futures Trading Commission)andCOMEX(Com- modity Exchange) futures data show that investors have decent long gold exposures; however, it isnotatall-timehighlevels,giving scope for further institutional allo- cations in the comingmonths. We note that nominal GDP growth in most of the developed markets is materially higher than in the pre-pandemic period. Rising nominal GDP growth is a function of deficit spending, and of generally higher inflationary pressures. Such an environment requires real assets as an anchor of overall portfolio performance, andthisislikelytoresultinincrea- sing allocations to gold by both retail and institutional investors. Trade and tariff tensions The prospect of further tariff increases under the new Trump administration is likely to spur gold towards even higher levels. Higher tariffs will result in modest inflation increases, which over the longer term is constructive for gold prices. There are also important second- order effects to consider.We note that the currencies of tariffedeco- nomies have weakened by around 4–8% since President Trump was elected in November. The prospect of a newuniversal or global tariff sys- tem implies that we may see competitive devaluation pres- sures emerging in both G10 and emerging market currencies. Such an environment is typically conducive to gold price increases, and we think that this time will be no different. The underlying causality this time around means that gold is likely to react quickly,meaning thatwe can easily envisage a situation of higher prices in the short term. Geopolitical tensions Theriseingeopoliticaltensionsfol- lowingtheoutbreakoftheRussia- Ukrainewarwillbethenormover the coming years. US-China rivalry is most evident in the sec- tors of trade and technology, and wethinkthatitwillbecomeincrea- singly evident in other spheres over the coming years. Despite President Trump’s pledge to end wars, we believe that the US and China will have an increasingly fraught relationship. This means that gold will continue to offer non-linear appreciation potential if tensions continue to boil over. Investors shouldnotmistake any ceasefire or negotiation in the Ukraine war as the beginning of a détente. We believe that we have entered a fundamentally challenged security regime in Europe, and, in the context of higher inflation, suchanenviron- ment is highly conducive to continued gold rises. Changingmonetary regimes We note that the USD exchange rate is trading at multi-decade highs. This is true in both trade- weighted and real effective exchange rate terms. President Trump’s administration believes that the USD is grossly overva- lued, and this is indeed consistent withmost fundamental valuation models. The scale of the USD’s overvaluationmeansthatUStrade deficitsarewiderthantheyshould otherwise be, and the US could engineeracorrectioninthisset-up either by undertaking a unilateral intervention (which we think is unlikely)orthroughacoordinated approach similar to the Plaza Accordof themid-1980s. Suchanaccordwouldseethecur- rencies of the US’s main trading partners appreciate against the USD.Wethinkthatsuchanaccord is unlikely in the short term, because the Chinese and Euro- pean authorities will be reluctant tohave stronger exchange rates. In the past, when the USD has approached multi-decade-high valuations, thishasbeenaprecur- sor towardsgoldoutperformance in the following years. The shift towards a new monetary order, or even a simple reordering of currency valuations is conducive to gold outperformance. We believe that gold is around half- way through a secular bull mar- ket,whichbegan in2017, andhis- toryshows that goldbullmarkets typically show returns of bet- ween200–400%. Thisgives ample scope for further outperformance in the coming years, and again, it is one of the many reasons that we believe that gold has further room to run. ©Freepik