Have you ever considered how the solutions serving the European transfer agency (TA) market differ against the solutions offered in America and Asia, and the unique characteristics that make up these markets?
Taking Europe first, the funds market has traditionally been separated into national silos. It was distinguished by different currencies, regulations, tax laws, customs and practices, meaning transfer agents and third-party administrators in multiple European countries had to develop different systems and TA process models for each domicile. The EU, with some degree of success, has made significant strides to try and consolidate this fragmented market. The introduction of the single currency swept away foreign exchange issues for the Eurozone bloc and the various UCITS directives have provided an EU- wide funds regulatory regime.
Across the Atlantic, the United States enjoys a large, wealthy, and homogenous market with a single currency, a single regulatory regime and an integrated banking and payments system. U.S. TA providers have leveraged the scale of that single market to invest earlier and more heavily in technology than their European counterparts. The market has amortised that investment over a much larger investor base leading to lower administration costs and typically lower fund annual management costs. The massive investment made by early entrants represented a significant barrier to entry to other players and the market is now concentrated in the hands of a few large TA providers.
In Asia, the funds market is totally fragmented along national lines and despite a few fledgling initiatives, has no realistic chance of moving towards a homogenised single market in the foreseeable future. Markets are characterised by protectionist barriers to entry and overly bureaucratic local regulatory requirements make it difficult to operate TA efficiently. Despite this, the potential size of some of these individual national Asian markets and the rapid emergence of huge wealthy middle classes within them are making the region an attractive target both for western fund promoters and for new domestic providers.
Switching our attention back to Europe, how close are we to a level playing field for the cross-border management and marketing of funds? The UCITS IV directive in particular, provides many of the enabling regulations that will permit a single central fund range across Europe. However it is likely to take several years for fund management groups to make the huge structural changes required.
Until then, the EU TA market will continue to be more fragmented and more expensive to operate compared with its U.S. counterpart.