Choosing fund admin? Let your Aegon and M&G colleagues share this insight

DEEP LOOK | While fund administration service providers, too, face their share of the asset management industry’s fierce cost pressure, their innovation in technology and processes helps them pack a compelling service proposition and they are destined to grow healthily in the coming years. So how should fund managers source them? Get into the minds of Aegon Asset Management’s Mike Tumilty and M&G Investments’ Dorothy Hamilton, each having more than a quarter century’s experience in the business. Meet also Ismail Ekmekci of fund administrator Trident Trust.

Bullish predictions of strong growth in the fund management industry (a new report from TechSci Research estimates the US market alone will expand by an average of 17% per year over the next five years) should always be tempered by consideration of the impact of management costs.

Research into the relative performance of equity funds published in January 2025 by Detlef Glow, head of EMEA research at fund performance data vendor LSEG Lipper, suggests that the overall underperformance of actively managed funds versus their fund manager benchmarks needs to be seen in the context of the fees and expenses paid by these funds.

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He observes that the overall total expense ratio for all equity funds covered within the study is 1.47%, which means that roughly 45% of the average underperformance of the funds compared to the fund manager benchmarks can be attributed to fees and expenses.

Choose carefully

This highlights the importance of selecting the right fund administration strategy at a time when competition for new fund administration business has never been greater and increases the pressure on providers to deliver better outcomes and a wider range of services.

Yet when we asked the world’s leading managers for their perspective on the evolution of fund administration, they almost exclusively declined to comment or failed to respond to our requests for interviews. So what did those who were willing to discuss this important topic have to say?

Mike Tumilty, global chief operating officer at 360-billion-dollar Aegon Asset Management outlines a number of key criteria when selecting a fund administrator, starting with clarity on the nature of the services required. In other words, do the asset manager and the service provider have the same view of what needs to be delivered?

“The next consideration is whether the service provider is providing similar services to other companies of similar size and scale,” he says. “In the aftermath of the global financial crisis, a lot more emphasis has been placed on the financial status of the firm.”

Managers also want to know about the provider’s ESG credentials and whether they align with their stance.

“As services will largely be provided by leveraging technology, you need to be confident in cybersecurity and business continuity planning arrangements as well as knowing there is an ongoing commitment to invest in the platform,” adds Tumilty.

In addition to the obvious commercial consideration of whether the service will deliver value for money, managers will also want to interrogate the relationship management/service delivery model to determine how the services are provided, for example in which locations.

“Transparency into the provider’s operating model in terms of key performance and risk indicators, service review meetings and ISAE 3402 – an international standard that assesses the controls of a service organisation – is required so we can fulfil our regulatory obligations and also put in place an effective oversight regime,” says Tumilty.

A 2024 survey of general partners by alternative investment software developer Allvue Systems found that increased regulatory scrutiny was a key concern. In addition, more than 40% of the firms surveyed did not have a regular review process in place for assessing the effectiveness of their fund reporting platforms.

Changing landscape

The landscape of fund administration has evolved significantly in recent years. Fund administrators who can differentiate themselves in areas that align with business priorities are where discussions will begin. Selecting a fund administrator requires a holistic approach, considering both current and future needs to establish a robust and sustainable relationship.

That is the view of Dorothy Hamilton, director of supplier management at M&G Investments, a firm with 400 billion dollars under management across the globe (and an edge in private and alternative assets, making up a quarter). She says that while it is assumed that most fund administrators possess a strong reputation, track record, comprehensive understanding of regulatory requirements and transparent and fair commercials, other key criteria must also be considered.

“These range from advanced technology – which is crucial for efficient data management and real time reporting – to comprehensive services, including reporting, compliance and investor relations,” says Hamilton. 

“Effective communication and dedicated support teams are vital (especially as operations globalise) while the ability to scale services as the manager grows is a key differentiator. Cultural alignment also ensures a successful and enduring partnership.”

Anecdotally, administrators refer to managers demanding extremely competitive pricing, although it should also be noted that managers are often loath to switch provider even when they feel they could be paying lower fees elsewhere due to the effort required to change administrator.

Consolidation in the fund management space is another consideration. Changes of ownership almost always lead to a review of service providers, which can lead funds to ask whether they should be outsourcing their administration or bringing this function in-house.

Sourcing success

Ismail Ekmekci is head of US private equity solutions at Trident Trust, a corporate, trust and fund administration services provider. He sees fund managers increasingly looking to fund administration “co-sourcing”, to enable them to leverage specialised skills and advanced technology while retaining control over core functions.

“With the co-sourcing model, fund managers can stay on top of their data and processes without needing to build out entire teams for every function,” he says. “The right service partner can not only manage day-to-day administration but can also suggest process improvements, which is a big advantage.”

Alternative fund services providers can leverage co-sourcing partnerships to enhance client data accessibility, accelerate decision-making processes and ensure rapid responsiveness to market and investor needs. This approach allows these managers to shift focus from administrative tasks to higher value activities, such as portfolio management and investor relations.

Aegon’s Mike Tumilty and M&G’s Dorothy Hamilton agree that there is sufficient choice available to managers looking to outsource fund administration.

“The competitive nature of the fund administration market benefits fund managers by driving innovation and enhancing service quality,” suggests Hamilton. “There is a wide range of providers, including large global firms and specialised boutique administrators. This diversity allows managers to select an administrator that aligns with their specific requirements and strategic goals. Additionally, the growth of fintech companies offers modern and efficient alternatives to legacy systems.”

There are many large global custodians and fund administrators who provide these services, adds Tumilty. “The key is selecting the right one for your business.”

A 2024 survey of fund administrators published by asset management fintech DwellFi found that 80% of respondents planned to use generative AI over the next 12 months with 40% already doing so. More than half described the technology as being ‘important to stay competitive” and 50% described it as ‘essential for future growth’.

The two most popular use cases were investor onboarding – such as leveraging AI and blockchain to process unstructured data into a digital investor workflow at scale – and using AI tools to derive actionable insights from fragmented data sources.

Intelligent approach

The majority of the firms surveyed had already considered, designed or implemented governance controls around use of AI.

“Many of the large global fund administrators are looking to leverage AI to automate basic processes which historically have been labour intensive, such as cash and stock reconciliation and monitoring the status of trades in terms of settlement, client reporting and data management activities,” says Tumilty. “We are very supportive of this as it drives up quality and frees up people for more value-add activity so in effect we should get a consistently better level of service.”

Hamilton agrees that AI is already widely used to improve fund administration and observes that it significantly enhances efficiency, accuracy and overall effectiveness in fund administration.

“AI-powered chatbots and virtual assistants improve client interactions by providing instant responses and facilitating seamless communication,” she says.

“AI automates routine tasks like data entry and reconciliation, increasing efficiency and minimising errors. It can provide advanced data insights and recommendations – empowering fund managers to make strategic decisions based on real time information – and also has the ability to identify and mitigate risks by analysing vast amounts of data to detect patterns and anomalies, enabling proactive risk management strategies,” concludes Hamilton.