26 Nov 2010, Custody Risk, Risk magazine
Malta has seen the value of funds administered on the island move from €1 billion to €7.5 billion since 2004.
Custom House Group was one of the first to establish itself in the region – starting up in 2004. It was an external operator until 2009 when it set up a domestic office. It now has 45 people and is the third largest provider in the country after HSBC and the Bank of Valletta. However, it is the island’s largest provider of hedge fund services. Custom House chairman Dermot Butler says that this has been a clear advantage.
It has established relationships both with clients and regulatory authorities, and has shared in and contributed to Malta’s astonishing growth as an offshore fund centre. Part of this growth has been due to the relative weakness of Dublin during the year as groups expressed concern about the country’s wider economic problems.
Custom House has been instrumental in building Malta’s reputation. Butler says that Malta is still less known internationally, but the group has been working to highlight its advantages – it is less expensive than Dublin or Luxembourg, it is in the European Union and it has a strong infrastructure.
With asset managers increasingly focused on costs and regulatory credibility, Malta is being used more as a base for pan-European distribution.
More providers have now moved to Malta to capture this trend. But, far from seeing this as a problem, Butler welcomes more competition because it opens up the market. The group has seen a 7.54% increase in assets under administration during the last 12 months.
The group differentiates itself on service, which has been demonstrated by the two client service awards it has won in the last year. Where they have won new clients, it has consistently been the strength of service, or ‘going the extra mile’, that has impressed. For example, one client had required special reports and systems modification to accommodate its complex incentive fee arrangements – Custom House was easily able to adapt.
Custom House has also generated new business from the integrity of its processes and systems. Another potential new client had required an extremely high standard of administration. As a result, it undertook an extensive due-diligence process on Custom House and other potential providers, reviewing all operational management, including systems processes and controls, reporting and general efficiency. Custom House won the business at the end of the process. These kinds of wins have led the group to a near 25% increase in clients during the last 12 months.
As well as growth within the country, the group has also seen some significant developments during the year. It has introduced its Chariot secure web-dealing platform, which was developed with Comada. The new platform will enable qualified investors to place both subscription and redemption orders via a secure web process. Transactions can also be executed much faster, which not only adds to overall efficiency, but will also go a long way to eliminating errors. These problems can be endemic in manually processed orders.
The group has also seen the final implementation of the Pacific Fund Systems Paxus in its Luxembourg, Malta and Netherlands offices, which has allowed all Custom House offices to talk to each other on a daily basis. This has been an ongoing project following the merger of Equity Trust’s fund servicing business in 2008.
Custom House has relied on its expertise to accommodate the increasing move of hedge funds to Malta. It can administer all hedge fund strategies, including commodity trading adviser funds, funds of funds, managed accounts, managed account platforms, private equity and real estate. The recent preference of using institutional managers for separately managed accounts has, therefore, enhanced its business.
In August, it showed its commitment to developing the market with the launch of a Société d’Investissement à Capital Variable (Sicav) umbrella fund platform for start-up or emerging managers. The nascent fund will enable managers with assets under management between $5 million and $10 million to establish funds without many of the costs associated with a stand-alone fund.
At the time of the Sicav launch, Butler said that managers would be charged €8,000 to set up a sub-fund and would then be offered a discounted rate of 20 basis points for auditing services, plus administrative fees to cover operational expenses. Custom House will market the service globally, and it hopes that the initiative will have long-term benefits. Butler says a significant number of clients are expected to be European, as Malta represents an attractive and cost-effective domicile. The only condition for joining the platform is that the manager must be regulated by a respected authority.
Butler says Malta still faces challenges, but that many of these are being addressed, such as the lack of domestic custodians.
He comments: “You only have to look at what has happened in Dublin over the past five years to see what the opportunities are for Malta. It has a very good infrastructure and professional services provision.”
The judges were particularly impressed with Custom House’s commitment to the domicile – taking note of the volume of work done on the island by the company and the administrator’s continued growth. This was enough to give it the lead over other domestic competitors.
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