Fund Brokerage & Administration Services
Just came across this article below discussing the importance of:
- An educated and active board of directors which is looking out for new investors at all times and questioning management decisions, processes and approaches to managing risk
- Independent services including fund administration
- Considering having less services bundled at the prime broker level
When former RBS chairman Sir Tom McKillop told MPs that his bank had dealt in instruments he did not understand, it sounded like another ‘Ratner moment’. However, in 1991, when Gerald Ratner told the world that his firm’s products were ‘total crap’, those words consigned a successful high street name to the waste bin.
In the case of RBS, by the time McKillop made his comment, the damage had already been done. The admission has shocked many people and has now been seized upon as the reason for the failures of RBS. In reality, had he made the comment when the bank was at the top of its game and a stock market darling, the reaction might have been very different. Along the lines of ‘He’s a busy man; he must have loads of clever people worrying about that sort of thing.’
The benefits of hindsight
The problem for all company directors is that the world gets to judge with the benefit of 20/20 hindsight, and commentators are keen to seize on ‘the reason’ and even keener to find someone to blame. As a consequence, it is more important than ever for directors, especially in financial services, to do the right thing, but also to be seen to be doing it. As we lurch from one scandal to another, it is crucial that boards seek to eliminate conflicts wherever possible and to maximise the level of independent scrutiny applied to the businesses for which they are responsible.
In many ways, the investment management industry seems to be ahead of the game. Fund trustees all but duplicate the work of the administrator to root out pricing errors and rule breaches. Investment trusts have led the way with independent boards, which can be the scourge of errant fund managers, and the increased use of outsourced administration provides further third-party scrutiny.
Nonetheless, now is clearly the time for boards to re-examine their relationships with service providers. Administrators, in particular, must be chosen because of the quality of service they offer, not because they are a low-cost part of a broader service offering. As the hedge fund industry grew, the prime brokerage model was the norm. Fund managers received a broad range of services from one provider.
While this was clearly convenient, it could be argued that it did not offer the range of checks and balances that was really necessary. The industry is now rightly questioning whether this bundling of services is appropriate. Boards would be well advised to ensure that they understand the ‘value chain’ of the services they receive, and that they choose the best independent provider for each. read more here.