There are a number of considerations before deciding where to domicile your private closed-ended fund. Regulations, reputation, experience, geopolitical environment and tax status to name a few.
Nick McHardy, Group Head of Funds for Belasko has written a reference guide that details the key features and regulatory options when considering whether Guernsey is the right domicile for you. You can also contact Nick here: [email protected]
I would imagine that by now, ESG is close to being a better-known acronym than KYC in financial services. This is ultimately because ESG dominates news headlines on a daily basis and as a consequence, buyers of goods and services now differentiating where they allocate capital – seeking out businesses pushing to make a difference.
This means ESG or sustainable finance is becoming more than just ‘buzzwords’. Capital inflow into ESG-related funds more than doubled in 2021 compared to the previous year and analysts expect ESG AUM to reach c20% of Global AUM or $33.9trn by 2026 ($18.4trn 2021) according to PwC.
Ross Youngs, Chief Commercial Officer at Belasko, identifies how to navigate the rising waters, the impact on our clients and the business’ proactive approach to lead the way.
How are our clients impacted?
Our fund clients are impacted to varying degrees depending on their size and marketing plans. Many share our proactive approach and have, generally speaking, adopted two different routes depending on the level of regulation required. This includes:
The Sustainable Finance Disclosure Regulation (SFDR).
The Principles for Responsible Investing (PRI) : – Where SFDR has not been relevant, our clients have chosen voluntary compliance with the PRI. (The PRI is a set of ESG principles developed by investors to have a positive sustainable impact in the global financial system.)
Unpacking the SFDR
There are three levels of regulation applicable to funds marketed in Europe under the SFDR:
Article 9 covers funds that have a sustainable objective /outcome. They have strict requirements on how they achieve their goals. There has been a great deal of focus on this category of fund and as such, the burden of evidential reporting is very high. This has led to c40% or $175bn of article 9 funds reclassifying to article 8.
Article 8 is for funds that promote positive environment, social and governance characteristics but do not have those as their overarching objectives.
Meanwhile, article 6 is for funds that do not integrate any kind of sustainability into their investment.
These three levels of regulation can be considered stepping stones depending on where the business or fund is on its ESG journey.
How has ESG impacted Belasko?
The team and I at Belasko recognise that ESG has several positive impacts when successfully incorporated into business strategy. We are not required by regulation to report on sustainability however, we have chosen to partner with Terra Instinct to create a Responsible Business Policy.
We have dedicated resources to steward the implementation of our policy which requires a group-wide committee, the definition of sustainable metrics relevant to Belasko, measurement and target setting. This resource also includes an annual report for clients and investors on our sustainable journey.
I envisage that businesses like ours will soon have mandatory reporting on ESG areas in years to come. We deem it essential to be a leader in this area and will continue taking proactive efforts to stay ahead of the curve.
How can we help you?
No matter the complexity of compliance with the PRI or SFDR, there are common challenges with which we can assist.
The first challenge is defining a policy of responsible investment. The policy must consider the fund’s impact on ESG factors and then set appropriate data points with which to measure and track positive impact according to the goals set.
Data collection sounds easy, but it is not standardised across markets and countries so the sophistication and resource availability of portfolio companies to stream up the data sets can vary considerably. This is a major hurdle for our clients.
Regulation and investor demand are evolving at pace. Our clients do not usually have internal resources to dedicate to ESG and therefore rely on Belasko to keep them advised as to what’s next and how to remain compliant.
Belasko has developed an end-to-end solution in partnership with Terra Instinct to power auditable data collection. It is helpful to have a specialist like Terra Instinct to define policy and collect, validate and where data is not available provide reasonable industry estimates. The benefit of having an advisory expert is of critical importance to ensure data quality, meaning it is auditable and reporting to investors (on which decisions are made) is accurate and reliable.
It should be clear by now that ESG is not going anywhere and there is a market expectation to consider sustainability in our personal and business lives. We must adopt positive impacting principles going forward.
If you would like to get ahead of the curve and prepare yourself for the ESG future, get in touch with Ross at [email protected].
Belasko has appointed Tom Lambrechts as Client Services Director to support the continued growth of the business and lead the Guernsey funds team.
Prior to joining Belasko, Tom held the position of Client Director at a global fund administrator. He has extensive experience in corporate governance and establishing high-performing teams servicing a varied portfolio of private capital clients. Tom graduated from the University of Bath with a BSc (Hons) in Business and is a qualified chartered accountant (ICAEW).
Greg McKenzie, Managing Director in Guernsey, said: ‘Belasko continues to grow our fund services offering with Tom’s appointment. He brings a wealth of experience to the role and is passionate about delivering exceptional client service. We welcome Tom to the Guernsey team.’
In his new role, Tom will oversee client delivery and ensure operational excellence across all aspects of the Guernsey funds team.
The Private Capital market has grown to a booming $10trn of assets and Prequin predict it shall hit $16trn by 2026. Goldman Sachs goes further to say that with the right economic conditions, that figure could be as high as $30trn!
Keeping up with growth of this nature creates many challenges however advancements in technology and processes have enabled administrators to keep pace on a global scale however, the entrepreneurial nature of the Private Capital market continues to challenge business models as it matures.
Complexity exists in every corner. International structuring, a la carte investor terms, co-invest, multi-currency offerings are just a few of the areas that can quickly break the model. If we combine this with the global growth in fund administrator operating models and a necessity to standardise service delivery and technology to enable that growth, it’s hardly surprising to see a divergence in client requirements and the service received. Still, Private Capital Managers are reluctant to change administrative providers fearing the grass is not greener and the process of transfer too complex and risky.
We set out some of the considerations to provide comfort that there is a playbook to navigate through these short-term challenges and to create a long term partnership that enables your organisation to keep pace with the fast moving requirements of the private capital market.
Be honest about your requirements
Cultural and operational alignment is critical. Private Capital Managers who need to close new investors, make capital calls, or make new investments frequently, at the last minute, late at night, will stress operating models that do not have the capacity to be flexible and apply adaptive governance. By making your expectations clear, you can expect less friction in your day-to-day operating model once the resourcing and operating model is designed properly. Cost considerations should be secondary to defining the right operating model to deliver on your requirements upfront.
Where a tailored service arrangement is required, be sure to test that your administrator can customise delivery to the extent it is needed.
Great partnerships require operational stability yet the ability to grow. A service provider with an aggressive acquisition strategy will have multiple challenges across HR, Technology, and rigid operations risk management. When managed well, the outcome can create genuine client and shareholder value but as with all projects, there can be waves. Conversely a partner that does not grow cannot invest and your service may suffer in the long term. Growth needs to be measured and sustainable to enable a positive client and shareholder dynamic but not at the cost of operational flexibility. Be clear about the direction of travel of your administrator and seek a partner whose strategy has a positive enduring impact on your operating model.
Planning, communication, and handling complexity
Effective communication between organisations is often overlooked in the planning stage of a fund migration to a new provider. Expectations are set during the administrator selection process without either party really understanding the requisite level of planning to unpack all the detailed requirements of the Client. This often leads to a delivery that falls short of the brief and immediately places the relationship under water from a quality and economic standpoint.
Skilled communicators can bridge this gap by ensuring a clear scope of deliverables are properly understood by both parties allowing subject matter experts to provide the technical analysis upfront so that expectations are realistic, can be detailed in a Service level Agreement and costed properly.
Plan for challenges in the short term. Consider that terminating your incumbent administrator will need delicate management and will likely have a cost to exit. Your new administrator will be able to balance the equation with a reasonable set of requirements to ensure your data, records and operational knowledge land in good order.
A fund in its mid life will have a considerable data legacy. Mapping that historic data to a new accounting system is time consuming and will also require cleansing of underlying data to ensure a consistent accounting history. Experience with data enrichment and transfer tools is critical to ensure that advanced features of the operating model, like a GP or LP portal, may be used reliably from the get go. Ensure your administrator has a clear understanding of how to achieve a good data transfer and the resources to enable it.
Be clear about your pricing objectives and whether they align to your requirements. Sustainable tailored service solutions do not lend themselves to a low-cost functionalised operating model.
An experienced administration partner will be able to introduce master services agreements that create contractual and pricing simplicity for the inevitable add-ons that are required throughout a funds life. This will reduce the frequency with which you have to negotiate a fee schedule enabling your teams to focus on delivery.
Working with a provider that values good market conduct ensures that termly pricing review will identify areas of both saving and incremental resourcing that should be met to enable the service model to be resourced properly. Understand how this review will take place and the information systems that support it. Strong transparent data will reduce unnecessary negotiation and discontent.
Is it about technology, process, or people?
It’s about delivery… Technology advancement has been rapid in Private Capital and self-service tools such as GP/LP Portals, system integrated workflows, electronic investor onboarding have enabled a reduction of human interference in processing.
However, to my earlier point, if your funds structure and terms are complex, varied and fast moving, then Technology is only part of the solution. We believe that fund administration remains a people business so retaining, recruiting and developing those people is essential. But realistically, staff changes happen so it’s imperative to embed knowledge into robust processes to protect your service.
Work with a provider that can help you identify these challenges early in the sales process and can resource accurately around it.
Our firm view is that through effective planning and with the right expertise, complexity and risk can be managed for a successful transfer. Finding an administration provider that has a sustainable growth plan without the distractions of wider corporate actions is essential in striking a long-term successful partnership. In our experience, every Private Capital structure requires a tailored service and technology solution and only a successful combination of the 2 supported by a strong team will deliver to your needs and fully support your strategic objectives.
The Belasko Group –on point tailored service solutions.
Ross joined Belasko in 2021 to lead the Groups commercial growth strategy in Private Capital Fund Administration, Corporate Administration and Fiduciary services.
He has over 20 years’ experience in the Offshore Fund and Fiduciary markets holding leadership roles in Alternative Assets, Sales, Relationship Management and Client Service for a global provider.
Working with managers across the UK, US, Europe and Middle East, Ross has helped clients launch fund and investment structures in the Private and Public markets focusing on Private Capital and Real Assets.
Belasko is delighted to announce the next phase of its international fund servicing growth programme having received approval from the Commission de Surveillance du Secteur Financier (“CSSF”) to become a professional of the financial sector (“PSF”).
The new status will enable Belasko to expand its delivery of next generation funds services to Private Capital funds structures and related corporate vehicles utilizing Luxembourg. Belasko’s offer leverages the Group’s core strengths supporting Real Estate, Private Equity and Private Debt managers with leading technology and a tailored service. Belasko Luxembourg is led by Graham Parry-Dew and John Russell, who successfully completed the application process and have recruited a team of experienced transfer agency specialists, company secretarial professionals and accountants for our existing and growing client base
Speaking about the granting of the licence, Graham Parry-Dew said “this is a key milestone in the growth of Belasko Luxembourg and enables us to continue to support our Group clients with their Luxembourg structures. We have a built a great team of hard-working individuals with a clear focus on client service, ably supported by our Group technology platform and processes.”
Paul Lawrence, CEO of Belasko, added “Luxembourg is a key strategic focus for us, and this news cements our commitment to be in the right locations for our clients to meet their requirements for a reliable, next generation partner to support them with complex fund and corporate administration. Graham and John have hand-picked a team that understand the importance of client service delivery and we look forward to building our presence in this key European financial centre”.
The Belasko Group operates across 4 strategic locations servicing over $7bn of assets with approximately 85 staff.
We are delighted to announce the appointment of Greg McKenzie as Managing Director of our Guernsey office and Andy Bailey as Head of Fiduciary.
Greg brings over 16 years’ experience within global servicing businesses covering the funds, fiduciary and banking sectors. Specialising in alternatives, Greg brings a wealth of leadership and corporate governance experience to the business. He will oversee all aspects of the business in Guernsey including relationship management, client service delivery and corporate governance.
Andy has over 20 years’ financial services experience with leading independent trust companies and has extensive experience in complex private client and corporate structures that spans a broad spectrum of asset classes. Andy commences a growth role and his remit will oversee fiduciary service delivery across all Group locations, which will include business development, technical fiduciary matters and product development.
Paul Lawrence, CEO, commented: “Greg and Andy have come into the business at a very exciting stage in our journey. They bring energy and enthusiasm to the business and I am confident that their complementary skill sets will ensure smooth delivery of client service whilst supporting our ambitious growth plans for both Guernsey and the broader Group.”
Greg joined Belasko during 2020 and is responsible for fund, corporate and private wealth service delivery in Guernsey.
Greg has more 18 years’ of experience within the financial services industry covering the investment, fiduciary and banking sectors. Through this period, he has led and participated in a number of strategic initiatives which include business development, product establishment, regulatory change, operating model refinement and on boarding complex new business across global servicing businesses. Greg holds the Corporate Governance Diploma from the Chartered Governance Institute, the Diploma in Company Direction from the Institute of Directors and maintains a number of directorship appointments for group and client entities. This covers investment management companies, regulated funds and private asset holding vehicles covering a spectrum of asset classes but specialising in alternatives.
Graham joined Belasko in 2020. He is a British national and has been resident in Luxembourg since 1991.
Graham has over 30 years’ experience in banking and the funds industry, predominantly with funds investing in alternative asset classes, with a major focus on AIFMD regulation, preparation, and subsequent service delivery.
He has worked for respected institutions within this time and in the last ten years has held senior management or authorised manager positions with global banks and specialist fiduciary and fund administration businesses. Graham acts as M.D, – Country Head leading the Belasko Luxembourg operation.”
Nick joined Belasko during 2020, is based in London and leads our Fund Administration service offering.
Nick has over 15 years’ experience working with private equity, credit and real estate fund structures and is passionate about delivering excellent client service through the deployment of efficient processes and the effective use of technology. He has led on the transfer of complex fund administration and accounting mandates and in the implementation of ISAE 3402 compliant fund administration operating models.
Nick qualified with PwC and has held a number of board positions for regulated and unregulated fund structures (General Partners & Managers).
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