Koger
AST speaks to Philip Dempsey of software solutions company Koger about replicating a business model, transfer agency systems and growing
diversity in complex legal structures
What is Koger’s NTAS?
NTAS is a shareholder register and transfer agency system. NTAS offers sophisticated incentive fee calculation methods, as well as a multitude of customisable modules, such as anti-money laundering, compliance monitoring, cash flow management, dividend processing, document tracking, fee management and processing, taxation, SWIFT processing and much more.
NTAS also supports a broad range of fund structures including master-feeder, fund of funds, series of shares, equalisation funds, limited partnerships, private equity, money market and side pockets. Reports are customisable and worldwide data replication is available. We also have GRID, which is a middleware product that enables seamless NTAS integration with most third-party systems such as fund or partnership accounting applications. ETAS is the front-end web portal of NTAS for investors, fund managers and other interested parties to provide real-time access to shareholder information reporting and balances.
How do you customise your offerings for hedge funds, private equity and the like, and which would you consider to be the most complex to service?
Koger has a multitude of offerings for hedge funds, private equity, funds of funds and pension funds. We have spent many years developing and enhancing our product offerings. To that end, we have created a sophisticated rule-based engine to support and give each client the ability to customise the systems for their individual needs. This rules-based engine within NTAS enables total control over the day-to-day functions such as the investor record keeping and shareholder registration processes. This provides the user full flexibility of rule definition at the fund, investor, related-party, account, and transaction levels. Rules-based processes include but are not limited to robust AML, KYC, PEP and CFT compliance, trade capture, dividend, commission, tax and fee processing, and a four-eyes/maker-checker functionality, along with a complete audit trail.
In terms of complexity, we are seeing greater diversity in terms of complex legal structures for funds. Traditionally, these have created issues for clients in terms of cash flows between the various entity levels within the investment structure. This has led administrators having to implement cumbersome and time consuming workarounds. We have designed and developed a new rule-based investment structure that not only automates this manual process, but can also take third-party ledger balances and import them into our systems to allocate profit and loss balances without any manual intervention.
How would you say levels of automation across transfer agency differ depending on location, with particular reference to Asia?
Automation levels will always vary across geographical locations. Europe, the US and other offshore locations have traditionally been the main centres where transfer agency administrators have based their operations. Over time, each of these centres have grown up and matured, not only in terms of the expertise of the industry professionals, but also with regards to technology. As a result, technology, innovation, automation and STP rates are ahead of those in up-and-coming regions. But this is changing, especially where Asia is concerned.
In terms of Asia, this region is experiencing very significant growth in its fund administration industry, specifically in the transfer agency space. Financial centres such as Hong Kong and Singapore have a significant role to play in the automation stakes. Investor reassurance, risk mitigation, cost and operational efficiencies will play a central role as to how far Asia goes down the automation route.
Technologies such as the SWIFT platform are already seeing both their presence and importance in this region growing. There are still many areas where transfer agents in this region will need to develop their offerings to keep pace with the competition and satisfy client demands. This change and innovation has gained significant momentum in recent years. There is a client demand for increasingly sophisticated fund administration services. As a result, technology needs to keep pace with this demand. Big ideas, technology and innovation are the key to automation. The end result of automation will mean that the range of service providers will be better positioned to service their clients. This will enhance the overall client experience, and the ability to adapt and grow their business operations.
How will Asia increase automation?
Asia is already investing in technology such as SWIFT. This is a huge growing market in Asia and the desire to attract new business has seen significant appetite to embrace technology and automation. The aim is to achieve critical mass. A structure such as SWIFT will provide fund managers with ready-made access to a significant investor base. But access to a network such as SWIFT will have outlay costs that could prove to be an entry barrier at the initial stages of an operation’s lifecycle. At present, service providers are dealing with a whole raft of legislation coming into force at the moment, such as the Foreign Account Tax Compliance Act (FATCA), for example. These regulatory obligations, especially from a technological point of view, will consume a significant proportion of their budgets. Despite wanting to embrace networks such as SWIFT, this may prove to be beyond them at this moment, so they may delay their participation.
Is lack of incentive for distributors a challenge?
Distributors will always look at ways to enhance their product offerings, and automation is one such area that can provide significant efficiencies. Distributors will look at areas such as the error rate for order automation, the risk levels that are associated with manual processes, and how much it will cost to maintain multiple processing standards, both manual and automatic, with their clients and other service providers. In addition to the benefits of automation for distributors manifesting themselves on the client side, internal operations, through commission management, price reporting and cash-flow forecasting can all be improved through automation. But local market conditions will normally dictate the level of automation, as well as quality processes, regulatory compliance, trade volumes and desired business growth. These factors can be applied both to Europe and Asia, the difference being that automation will, for the most part, depend on the maturity of each market location.
Has variation among clients made it more difficult to achieve higher levels of automation around transfer agency?
In our experience, I would say that the goal of many of our clients is to achieve higher levels of automation. There may be differing objectives among our clients, but automation is seen very much as a key driver for achieving a better business model. Any improvements that can create efficiencies, mitigate risk, and allow clients to engage in additional areas of business, are extremely desirable.
As a result of the financial crisis over the past number of years, there has been a whole range of new legislation to tighten the controls governing the industry and to try to eliminate undesirable practices. One such example that springs to mind is FATCA. As a result of this proposal, we have engaged heavily with all of our clients to design new functionality that will streamline and automate the entire FATCA compliance piece. In addition, it will also be powerful enough to fully automate future pending regulatory changes. Our clients no longer need to worry about manually monitoring these requirements for future activity. The system will do this automatically. As a result, reporting and monitoring becomes very easy and most importantly, cost effective.
Moving away from compliance, the whole question around efficient trade processing and STP rates arises. Naturally, automation, although desired, is very much dependent on a number of factors. These include local market conditions, the infrastructure that is in place in these locations, the efficiency gains of implementing new technologies and the desire to move away from the traditional, more manual methods. Each client in each location is different.
But for some of our larger clients, we are seeing a move to a more global business model. This involves replication of the business model across multiple geographies and centralising their local practices. The expectation is that this will lead to greater efficiency across the entire business operating model.
