According to Oliver Weber, Tax Partner, Asset and Wealth Management Leader at PwC
Luxembourg “one of the biggest challenges for ManCos will be managing their profitability.”
Let’s discuss some key reasons for this fact and the secret ingredient that is being overlooked by most ManCos to turn it around.
Pressure to reduce fees
Over the last number of years there has been a lot of market pressure to reduce fees, yet the cost of servicing a fund is increasing due to operating costs. With the shift to alternative strategy assets and regulated to unregulated assets, ManCos need to have robust frameworks in place to handle these layers of complexity without becoming too expensive.
Additional costs driven by regulation
A hot topic right now is “employee substance” which has recently come under the CSSF microscope. In short, a ManCo needs to ensure that it has enough employees with fund expertise to run its operations, which translates to increased operational costs that are unavoidable. To attract top talent ManCos need to demonstrate operational excellence and an agile mindset at management level.
ManCos are still feeling the pain of the CSSF Circular 18/698. With its implementation, ManCos need to have a robust oversight and reporting framework that not only meets the regulatory requirements but the specific needs of their clients. From speaking with several industry experts, we understand that a lot of ManCos are still struggling with the CSSF Circular 18/698, especially section 6.3 Organisation of the portfolio management function.
Most companies try to address these areas under the banner “Digital Transformation” – however their strict procurement processes can make it difficult to implement real changes. What I mean here is the length of time it takes to search, identify, select, build and implement a new solution is a huge problem.
When the solution finally gets implemented, it’s normally out of date leading operational teams to create workarounds or offline processes using email, excel, word etc. Most people say to solve this problem we can use a vendor that is already approved but this is also a huge problem.
Most applications are built to solve a specific problem and when you start bolting on additional problems to solve, you end up creating a lot of unnecessary issues for your organisation and employees. Most good employees move on due to bad managers as well as frustrating operational models.
A digital overhaul is what is really needed to get with the times. And it needs to be done fast and to be value for money to have a meaningful impact on the profits.
According to PWCs Observatory for Management Companies 2020 Barometer report, it listed “Process optimisation with 74%” as the number 1 most important topic for a ManCos transformation agenda.
Whichever way you look at it the cost of Digital transformation remains extremely high when you factor in the true cost to the organisation. We always hear about SaaS pricing and how cheap it is, but is it truly cheap?
What about the hidden costs? We all know about them, but nobody ever highlights them publicly but they are a serious revenue drain!
Partner with an innovative ManCoTech company “Modus3” (www.modus3.lu).
Lower digital transformation cost
Innovative start-ups understand a budget, they live and die by it. They strive to offer the best service as they are working to establish a reputation for themselves and tend to be experts in their field, solving client problems with real passion and creativity. Established and static vendors often add you to the list, a startup provides you with their undivided attention, from start to finish.
Teaming up with an eager innovative start-up creates a key differentiator and will lead to lower costs, while enabling you to utilise the latest technology the market has to offer and to create a win/win situation for both parties. Implementing real digitalisation using our M3 platform will increase profitability.
ManCos integrate the investment oversight and daily oversight procedures with processes and tasks to track compliance with investment restrictions, monitoring outsourced activities and automate reports for regulators or managers.
All employees are prone to human error regardless of how dedicated they are. No employee wants to spend their working day doing the same task over and over again. Enabling and empowering them to reduce their workload by letting them automate mundane tasks will drastically improve employee satisfaction and reduce their stress.
Process automation is based on code to ensure maximum accuracy that minimises errors. Processes are automated, controlled and all tasks are recorded in line with audit and regulatory compliance. Employees can then turn their attention to higher value activities that are focused on improving business metrics, and above all profitability.
This is a unique opportunity to supercharge your drive towards digital transformation and help lead the way and contribute to changing the industry for the better. There are huge growth opportunities and potential for those ManCos that embrace digital transformation early and efficiently, rather than shy away from it. Digital transformation is inevitable within the industry and those that embrace an agile transformation mindset earliest, will be the first to reap the rewards.
Join the Modus3 ManCoTech revolution. Limited offer for new clients, reach out to us to find out more.