We caught up with Pete Townsend recently to chat about life in funds, the future and the founding story of Adminovate.
I started in the back office of Fidelity Investments in 1995, and finished at the executive level in BNP Paribas in 2016. Sandwiched in between was 6 years in Bermuda servicing hedge funds in a number of roles with Hemisphere Management. So, I spent the better part of 21 years in the funds industry, but I came at it from a few different angles – you can see my bio here. With Fidelity being a global asset manager, the client we were serving was the investor. With hedge fund servicing, the hedge fund manager is the client, but the investor’s needs can move mountains.
Working with a global banking giant like BNP Paribas, the needs of the investor and the needs to the asset manager were equally balanced, but my adventures took me across the entire buy side. Although what I learned and the relationships I made along the way are invaluable, my last year since setting up Norio Ventures has been the most exhilarating.
In November of 2016 I launched Norio Ventures, a specialist advisory firm helping fintech startups scale, and established players in financial services innovate and open new markets. Our clients are fintech startups, asset and wealth managers and wider providers of financial services.
In short, we find economic reasons to be helpful. If you’re a fintech startup, we’ll help you get to market. If you’re in the asset management industry and you have a problem, we’ll help you solve it or at least give you some strong options. If you’re in the broader financial services space, we’ll help you to become truly digital. I also work closely with the challenger agency 11:FS, and their motto for wealth and asset management is “Digital investing is 1% finished”. That couldn’t be closer to the truth.
I think in threes, and to me, the three key trends in the funds industry are consolidation, margin compression and the growth of passives. People talk about regulation and technology as well, but those factors are more perpetual in nature.
The best way to achieve meaningful growth in the funds industry is to be the best-financed administrator with an acquisitive ambition, either through pure balance sheet or private equity backing. The financial strength is nothing without a razor-sharp SWAT-team like integration function. Buying a fund administration business without actual cost synergies means you lose money, as the revenue synergies can be fluffy at best. There are far more fund administrators than the world needs right now, so consolidation is a good thing, but it means short-to-medium term impacts for clients.
There are also trickle-down impacts from asset managers themselves: an increasing cost base from regulation and transformation, and a shrinking revenue pot from investor pressure and competition. In turn, asset managers look to their service providers to reduce fees, which chips away at an administrator’s margins. Also, the growth of passives means lower fees for both the managers and the administrator, and a more complex operating model. Asset managers are thinking hard about their B2C strategy through digital channels and this ambition will create new challenges for administrators.
I think that consolidation will continue until we have less than 20 administrators, and that the growth of blockchain and distributed ledger technologies (‘DLT’) will revolutionize the funds industry in the next 5-10 years. I also think that we’ll see the current “barbelling” of investment strategies will continue with passives at one end and alternatives at the other. The middle-ground between the two will keep shrinking, but due to more of Darwinian evolution than an asteroid. I also think the AML/KYC stop-signs for not innovating will fall. Regulated digital banks like N26 and others have already won the war on opening a financial account in less than 10 minutes through a smartphone. There’s no reason why these solutions can’t be used by wealth and asset managers with a B2C strategy.
I’m naturally an optimistic person, so I do think the changes in the next 5-10 years will be for the better. There is such a huge amount of overlap in processing across the industry right now between asset managers, prime brokers, local and global custodians, middle office outsourcing and fund administration. The streamlining of activity across the ecosystem will trigger the conversion of processing roles to analysis roles. The most ambitious people will be the leadership succession plan. The steady-eddies will fill the data analyst roles, and the less skilled will move on. Talk about Darwinism! What I’m concerned about, however, are all of the roles outsourced to Eastern Europe, India, and Asia, as these will be the first to go and we’ll see some real displacement there.
To quote a good friend, “don’t outsource it, tech it”. I think that moving processing to lower cost centers is questionable when the technology is available to automate the human process you want to move. Re-engineering is harder than outsourcing, but a slow-and-steady long-term commitment to invest in technology means you’re investing in your people as well. Trust me, you can finance tech investment through process efficiency and cost avoidance on business growth.
When Alan Meaney and Des O’Donohoe first suggested earlier in 2017 that we take the concept of the FinDig (Funds Industry Dublin Innovation Group) meetup and make a full day out of it, it just seemed like the right thing to do. Having been a part of FinDig since the first meetup in January 2016, I really felt compelled to help turn the vision into a reality. When we decided to give a leg up to those most in need through the charities we’ve selected, while also educating and inspiring the next generation of leaders in the funds industry, it was a no-brainer.
I honestly can’t wait to see the whole thing in action, as we’ve lined up some great leaders and true characters to speak their minds. I could probably point to each panel and speaker and say “I’m really looking forward to that”!
Adminovate is different because we’re purpose-driven by a vision larger than putting money in our own pockets. We also don’t take ourselves too seriously and realize that we need to be entertaining as well as educational and inspiring. The funds industry has come a long way, and is entering a period of significant change – we’d like to have a role in shaping the upcoming journey.
If we’re aggressive enough in Ireland with pursuing those asset managers within reach with win-win propositions rather than a land-grab, I think we’ll come out on top. There are a few hurdles to getting there, but it’s important that we’re all telling the same story on the benefits of Ireland over other fund jurisdictions.