Today IIS is issuing and managing funds for 7 investment groups evidencing that the fund hosting business is well understood by many global investment managers. This model is widely used within the Australian industry, where it is called ‘third party responsible entity services’.
Instead, in New Zealand most investment managers have opted to become licenced with the FMA, and rely on issuing and managing funds in-house. We think that as the market evolves in future, local managers will naturally consider the case for outsourcing this activity.
A key benefit to outsourcing the functions relating to issuing and managing funds is it enables investment managers to put greater focus on the ‘front office functions’ like investment management and distribution activities. In addition, outsourcing can deliver further benefits like:
- Cost savings. Leveraging IIS’s economies of scale. Costs include licensing, insurance, in-fund costs, custody, supervisory, fund administration, legal costs, people and overheads.
- Risk management. Ensures compliance with the business-critical responsibilities of issuing and managing funds. Directors are personally accountable for ensuring compliance with the FMC Act. Under fund hosting IIS takes on responsibility for this.
- Opportunity cost. Managing directors, chief investment officers, portfolio managers, and sales and distribution people often get caught up doing tasks relating to issuing and managing funds, instead of focusing on factors driving investment performance or growing their business. We think this is the most significant “cost” that is often overlooked by businesses and key stakeholders.
- Specialist expertise. Understanding the current licensing requirements, keeping up with new requirements and then executing on time, with the right content, whilst maintaining all the right relationships is a specialist skill-set.