Leading business advisors
Fund
administration
in Ireland
survey 2012
Managing
uncertainty
Fund administration is one of the great success stories of the Irish economy. From humble
beginnings in the early 1990s, the Irish funds industry has become a global player, servicing
assets in excess of US $2.4 trillion and employing 11,000 people.
1
These assets are held in both
Irish and non-Irish investment funds across the traditional and alternative asset classes. Ireland
continues to benefit from the trend towards onshore, regulated funds and the jurisdiction has
attracted a whole new wave of fund administrators in recent years.
Yet fund administrators globally are facing increasing challenges related to market uncertainty,
regulatory change, cost and fee pressures, operations and service levels. These trends were
confirmed by our recent Fourth Annual Global Fund Administration Survey.
2

In our Fund Administration in Ireland Survey we aim to drill down into these findings and gain
further insights on strategy and operations as well as views on specific regulatory changes
such as the Alternative Investment Fund Managers Directive (AIFMD), Foreign Account Tax
Compliance Act (FATCA) and corporate governance.
The findings reveal the extent of the uncertainty and challenges facing fund administrators in the
current environment, when fees may be falling due to asset volatility but client and regulatory
demands on administrators are increasing. How do administrators future proof their business
models, enhance their profitability and provide more value added services?
In the following pages we set out the key industry issues, views and priorities as articulated by
Irish fund administration CEOs. We hope you find the survey report an insightful barometer of
industry trends.

Regards,
Foreword
Brian Forrester
Partner, Investment Management Advisory
1.
Based on statistics from the Central Bank of Ireland and the Irish Funds Industry Association.
2.
Available at
2
Contents
Executive summary 4
Strategy and operations 7
- Overview 7
- Costs and market uncertainty 7
- Service levels 7
- Revenue growth 8
- Product growth 9
- Fee models 10
- Human resources 10
- IT systems 11
- Process and productivity initiatives 11
- Looking to the future 12
Regulatory change 13
- Overview 13
- AIFMD 13
- FATCA 16
- Fitness and Probity regime 18
- Voluntary corporate governance code for fund service providers 18
- Central Bank outsourcing regime 19
- The regulatory horizon 19

Conclusion – it’s a balancing act 20
Appendix – respondent profile 21
The survey was carried out in December 2011/
January 2012 and all companies providing fund
administration services in Ireland were invited to
participate. We received responses from 17 fund
administrators, accounting for 80% of assets
serviced in Ireland.
3
Respondents service a mix of
both traditional and alternative investment funds
and include both large scale and smaller fund
administrators.
Finding a balance
In addition to regulatory change, the survey
found that Irish fund administrators face
challenges in relation to cost and fee pressures,
market uncertainty, increasing client demands
and pressure on service levels. The pressure on
costs and fees is closely related to the ongoing
market uncertainty. Administration fees, typically
calculated as a proportion relative to net assets,
are negatively impacted by the current asset
volatility and smaller fund launches.
On the upside, administrators are buoyed by
new business and additional volume from
existing clients. New entrants to the Irish fund
administration market in recent years confirm
the strength of Ireland’s service offering as
a centre of excellence for regulated funds.

Administrators continue to invest in their business
to drive efficiencies through technology and the
development of talent while low staff turnover has
also enhanced productivity. Add in the increased
business levels associated with a move of product
onshore and it is clear that opportunities exist for
fund administrators, even in this uncertain market.
Cost and fee pressure
The imperative to drive down costs has resulted
in ongoing efficiency initiatives and consolidation,
which in turn leads to further fee competition.
Fund administrators are being asked to do
more by their clients since the financial crisis, as
investors demand more frequent and detailed
reporting. Over time administrators can find
themselves taking on ancillary activities for
which they are not necessarily remunerated.
Administrators are also concerned about service
levels as they balance cost efficiency programmes
with increasing client demands and business
growth.
In response to these challenges, some fund
administrators expect changes to fee models, such
as charging individual fees for non-core services.
However, in light of competitive fee pressure the
scope for charging higher fees may be severely
restricted.
Strong revenue growth
Irish fund administrators are bullish on revenue
growth with almost 40% of respondents

projecting increased revenues of over 20% for the
financial year 2011. This revenue growth is mainly
attributed to new client take-ons and additional
volumes from existing clients. The roll-out of
new services plays a role but to a lesser extent.
The fund administration business model is clearly
focussed on continued expansion but challenges
around cost containment and fee pressure
indicate that a greater focus on client profitability
may be required.
Executive summary
3.
Based on the analysis of data from the Lipper Ireland Fund Encyclopaedia 2011-2012.
The fund
administration
business model is
clearly focussed on
continued expansion
but challenges around
cost containment and
fee pressure indicate
that a greater focus on
client protability may
be required.
4
Low staff turnover
According to responses staff turnover is at an
all-time low of 6% which helps service levels,
but fund administrators may continue to face
resourcing pressures due to rationalisation.

While the recruitment of general staff is no
longer a significant issue in the Irish labour
market, experienced hire recruitment can prove
challenging.
Efficiency initiatives
Many fund administrators have already
implemented efficiency initiatives and set up
low cost offshore centres. Further efficiency
programmes alone may no longer deliver the
desired level of cost savings in the current
environment and in a more uncertain market, fund
administrators may not be able to rely as much
on continued expansion to ease cost pressures.
Industry consolidation and rationalisation is likely
to continue in response to the cost reduction
imperative. However, fund administrators will also
need to re-focus their business strategies with a
greater emphasis on client profitability, targeting
of key client segments and the provision of value-
added services to achieve a more sustainable
business model over the longer term.
Rebalancing the fund administration model
Assess client profitability vs. cost to service
- Is supporting this client viable?
Target client segments
- Match your service offering to the right clients
New services
Value added, middle office
Strategic initiatives
Mergers, consolidation, alliances

Operational efficiency
Automation, standardisation, work practices,
offshoring, outsourcing, staff development
Managing regulatory change
This survey considered only some of the regulatory
issues that will impact Irish fund administrators
in the years to come. The findings show that
while regulatory change will create an additional
compliance and operational burden, some
regulation may also present opportunities for the
Irish fund administrators. How fund administrators
respond to regulatory change will have a
significant impact not only on their operations
but also on their market positioning and client
perceptions.
AIFMD opportunities but also challenges
AIFMD will have significant strategic, compliance
and cost impacts for the global hedge fund
industry, however a majority of Irish fund
administrators do see potential business
opportunities. These include the setting up of
regulated onshore product in Ireland and the
provision of a new range of services as fund
managers seek to outsource complex data and
reporting requirements. Fund administrators are
highly concerned by the AIFMD’s depositary
liability regime and to a lesser extent by the
valuation rules and operational requirements.
FATCA compliance burden
FATCA is generally viewed as a business threat

due to the onerous reporting and withholding
requirements that will come at significant cost
and risk for funds and their service providers. For
many respondents these implementation and
compliance costs outweigh any potential benefits
of FATCA from a service provider perspective.
Administrators are concerned over the uncertainty
surrounding the regulations and the impact FATCA
will have on asset gathering and the distribution
network. The application of withholding on
investors is viewed as the single greatest challenge
under FATCA.
5
Corporate governance – not a significant
challenge for Irish fund service providers
The majority of administrators did not consider
meeting the Fitness and Probity regime to present
a significant challenge. The aspect of the regime
that causes most concern is the implementation
of new due diligence procedures, which are very
robust when benchmarked internationally.
Respondents were overwhelmingly in favour of
the adoption of a voluntary corporate governance
code for fund administrators. Irish fund
administrators clearly recognise the importance of
corporate governance and embrace the concept
of a voluntary code tailored to the industry.
The ndings show
that while regulatory
change will create an

additional compliance
and operational burden,
some regulation may also
present opportunities
for the Irish fund
administrators.
6
Strategy and operations
Overview
Survey respondents were asked to identify
the key strategic and operational issues facing
fund administration CEOs today. This excludes
regulatory change which is dealt with separately
in the survey. The results can be grouped into
three tiers of concerns weighted by their relative
importance. The top tier of concerns relates to
cost pressures and uncertainty. The second tier
includes issues around service levels. The third tier
encompasses a wide range of other important
issues on the business agenda which are generally
less critical for most Irish fund administrators.
The survey also delves into fund administrators’
views on growth and revenue, human resources
challenges, process and productivity initiatives and
system development budgets.
Strategy and operations
Key issues facing CEOs
Costs and market uncertainty
Cost containment ranks as the strategic and
operational issue of greatest concern, closely

followed by market uncertainty and pressure on
fees. Cost containment has consistently featured
as one of the key issues facing fund service
providers globally in recent years and its number
one position in the current environment comes
as no great surprise. The pressure on costs and
fees is closely related to the ongoing market
uncertainty as asset decline negatively impacts
fee margins. Fee arrangements agreed some time
ago were dependent on an expectation of AuM
growth which may not have materialised.
Smaller fund launches due to market uncertainty
and scarcity of capital also exert pressure
on service provider fees which become very
significant for funds that launch under €100
million and do not achieve scale. With distribution,
operational and compliance fees now typically
accounting for 58% of the TER in Europe
4
, fund
managers face increasing margin pressure as their
costs have risen while investors simultaneously
demand lower fees. Fund administrators have in
turn been feeling pressure from asset managers
to keep fees and subsequently costs down. The
benefits of consolidation, economies of scale
and automation have continued to intensify
competition and exert pressure on costs and fees.
This means that the scope for administrators to
negotiate higher fees at the bid stage may be

extremely limited. Fee models are considered in
more detail on page 10.
The high levels of debt and slow growth in
Western economies, the protracted Euro crisis and
the resulting financial instability mean that global
markets are filled with uncertainty about growth
prospects. Fund administrators are concerned by
these events and are unsure how they will impact
their clients’ business prospects over the medium
to longer term. This uncertainty makes business
planning more difficult and reinforces the need to
keep costs in perspective.
Service levels
A second tier of key challenges facing fund
administrators can be grouped around service
scope creep and maintaining service quality.
Over half of respondents found increasing client
demands and managing the associated service
scope creep to be a key issue for their business in
the current environment.
Since the poor fund performance in 2008 with
associated gatings and suspension of redemptions,
investors have demanded more frequent and
detailed risk reporting. Ad hoc requests from
clients can become permanent and more frequent
without specifically being included in the service
level agreement. Over time administrators can
find themselves taking on ancillary activities which
may require significant additional resources but for
which the administrator is not remunerated.

4.
EFAMA, ‘Fund Fees in Europe’ survey, Oct. 2011.
No. 1 Costs and uncertainty
Cost containment
Market uncertainty
Pressure on fees
No. 2 Service levels
Increasing client demands
Service scope creep
Maintaining service quality
Managing growth
No. 3 Various
Distribution support
Technology/systems
Risk management
Increased competition
Process redesign
7
A third of respondents saw challenges in
maintaining service quality, an issue that was also
highlighted by over 40% of respondents in our
global survey. The sharp reduction in staff turnover
in recent years undoubtedly had a positive
impact on service quality as experienced staff
are retained.
5
Indeed only 13% of respondents
saw resourcing as a key issue. However, recent
years have also seen administrators reduce
staff numbers, become leaner and implement

offshoring and outsourcing programmes in a bid
to reduce cost. This brings additional challenges
on administrators who need to ensure their
outsourced service providers deliver to a high
standard.
Bullish on revenue growth
All survey respondents expected positive growth
for the financial year ending 2011, with 46%
projecting up to 10% growth and a further 15%
projecting between 10 and 20%. Most surprising
was that 39% of Irish fund administrators
predicted that their revenue would grow by over
20% for the financial year 2011. While fund
administrators face strong pressure to contain fees
and costs, the take on of new clients, additional
volumes from existing clients and the provision of
new services continue to drive revenue growth.
Strong revenue growth set against fee pressure
and a drive to contain costs is also comparable
with the findings of the Deloitte Fourth Annual
Global Fund Administration Survey, although
respondents to that survey were significantly less
bullish about their revenue growth prospects in
comparison with their Irish counterparts.
Expected levels of revenue growth for financial
year ending 2011
46%
39%
15%
0% - 10%

>20%
10% -20%
Percentage of respondents
0% 10% 20% 30% 40% 50%
All respondents attribute the growth of their
business to the take on of new clients while
additional volume from existing clients also
represents a major source of revenue growth.
Half of respondents attributed growth to the
rollout of new services, making it a significant but
less important source of revenue growth.
The fund administration business model is clearly
focussed on new wins but set against the key
issues of cost containment and pressure on fees
there may be an increased need for greater focus
on client profitability. A detailed assessment of
client profitability can help to reveal “hidden”
servicing costs and lead to more effective overall
cost management and a subsequent increase in
margin.
Principal drivers of revenue growth
100%
86%
50%
New clients
Additional volume
from existing clients
New services
0% 20% 40% 60% 80% 100%
Percentage of respondents

Furthermore, the survey suggests that fund
administrators may not be fully maximising the
opportunities to provide additional, value-added
services to investment managers. With both
investors and regulatory authorities requiring
additional oversight, controls and reporting, there
clearly is scope for fund administrators to provide
more middle office services. With the correct
technology investment, middle office services
can attract higher margins than back office
administration.
5.
See the human resources section on page 10.
39% of Irish fund
administrators
predicted that their
revenue would grow
by over 20% for the
nancial year 2011.
8
Hedge funds and UCITS will both drive
product growth
Fund administrators expect hedge funds to be the
fastest growing product over the next 12 months.
This undoubtedly reflects Ireland’s position as the
leading centre for hedge fund administration and
the general trend towards regulated products.
UCITS will also drive product growth. In light
of strong demand for sophisticated UCITS in
recent years, it is perhaps surprising that fund

administrators now expect traditional UCITS to
contribute more to growth.
Could the findings mark a shift for some hedge
fund managers away from sophisticated UCITS
towards more flexible regulated products such as
the Qualifying Investor Fund (QIF)? Statistics from
the Central Bank of Ireland confirm that the QIF is
the fastest growing product in Ireland, with assets
now exceeding €181 billion.
6
The uncertainty
surrounding the Alternative Investment Fund
Managers Directive (AIFMD) that pushed many
fund managers towards UCITS may now be
dissipating. Or perhaps managers may now have
concerns about the potential impact of UCITS
V and the ongoing discussions about complex
UCITS.
Fastest growing products over the next 12
months
20%
11%
17%
23%
29%
0% 5% 10% 15% 20% 25% 30%
Other
ETFs
Sophisticated UCITS
Traditional UCITS

Hedge funds
Percentage of total responses
Respondents were asked to explain what their
business is doing to capture this growth. The
results revealed an increased focus on marketing
and business development, building new service
offerings and investing in new technology. Several
respondents planned to recruit additional
relationship management staff and to focus on
profile and brand building. Traditional marketing
and business development activities such as
conferences, face-to-face meetings and targeting
gatekeepers were mentioned, as well as more
innovative techniques such as social media.
6.
The net assets of QIFs grew by over 20% between January and December 2011. Source: Central Bank of Ireland.
Front office Back officeMiddle office
Trade support
Risk management
Cash management
Trading systems
Fund (in-house)
Fund administrators
Custodians
Activity can be performed completely or in-part by the party
Value added services - untapped growth potential?
9
Are fee models set to change?
With pressure on fees highlighted as one of the
key issues facing the industry, it is somewhat

surprising that 43% of respondents foresee no
change in fee models. However, this implies that
57% of respondents do in fact foresee some
change in the way fees are charged. With the
level of competition in the market it may be
difficult to introduce an innovative fee model,
but de-coupling the administration fee from the
level of assets has to be the way forward for fund
administration.
Respondents who anticipated change to fee
models most frequently cited the charging of
individual fees for “non-core” services. This
reflects the concern fund administrators have over
service scope creep and if value added services are
provided these can be billed separately.
Do you expect to see a different fee model for
fund administration in the future?
7%
7%
14%
29%
43%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Transaction
based fees
Other
Higher minimum
fees
Individual fees for
"non core" services

No change
Percentage of respondents
Human resources
Staff turnover has reached an all-time low of 6%,
based on the average of survey responses. Staff
turnover has fallen dramatically in recent years
from a peak of 29% in January 2007
7
before
the Irish economy entered recession. The sharp
reduction in staff turnover has positive impacts
not only on recruitment and training costs but also
in terms of minimising disruption and building
experience within the client service teams.
While recruitment of staff is no longer the
challenge it once was, recruiting suitably qualified
specialist staff can be difficult. In fact, experienced
hire recruitment is the key HR issue for the
industry, with 69% of respondents identifying
this as their main challenge. The need to service
increasingly complex client requirements and
manage regulatory and business change are also
factors driving demand for experienced, senior
hires.
One of the main responses to this challenge is to
focus on the provision of training and upskilling
staff internally to meet the requirements of more
senior or specialist roles. Encouraging internal
mobility, recruitment within the group and
advance hiring are frequently used to address the

challenge in finding experienced and skilled staff.
Just over half of respondents identified
compensation as a key challenge, making it
the second most frequently mentioned HR
issue. There are undoubtedly two stands to the
compensation challenge. Firstly, as companies
continually seek to reduce costs it becomes harder
to maintain, let alone raise salaries. Staff are
effectively being asked to do more for the same
or less salary. This has led companies to focus on
wider benefits packages, work/life balance policies
and leadership programmes to incentivise, develop
and maintain the right employees.
Secondly, the challenge of recruiting experienced
specialist staff means that certain employees
can use industry wide competition for their skills
to request higher salaries. Salaries for hard-
to-fill positions requiring experienced people
with the right skills (e.g. business analysts, risk
and compliance specialists, project and change
managers, senior fund accounting and TA roles)
could be prone to increases as a result of demand.
7.
IFIA Investment Fund Industry Employment & Staffing Survey 2011.
57% of respondents foresee
some change in fund
administration fee models.
10
Key HR challenges
23%

31%
31%
38%
38%
46%
69%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Entry level recruitment
Retention
Skills shortage
Training and development
Perceived lack of upward
career opportunities
Compensation
Experienced hire
recruitment
Percentage of respondents
IT systems
A majority of fund administrators expect their IT
development budget to increase during 2012.
‘IT development budget’ relates to allocations
for system development changes and does not
include regular IT maintenance costs.
13%
27%
60%
0% 10% 20% 30% 40% 50% 60% 70%
Decrease
Stay the same
Increase

IT system development budget for 2012
Percentage of respondents
System development spends are primarily
allocated to efficiency initiatives, significant new
system rollouts and changes to meet new
regulatory requirements such as FATCA and other
local market reporting regimes. ‘Other’ system
developments include client driven change.
IT development budget allocation
Efficiency initiatives
32%
27%
25%
13%
Significant new
system rollout
Changes to meet new
regulatory requirements
Other
0% 5% 10% 15% 20% 25% 30% 35%
Percentage of respondents
Process and productivity initiatives
A majority of fund administrators have already
implemented or plan to implement various
business process re-engineering activities.
Workflow stands out as the key area of focus,
where 100% of respondents have implemented
or intend to implement automation processes.
The vast majority of fund administrators
have also focussed on business process re-

engineering initiatives related to staff training
and process standardisation, while over 60%
have implemented (or plan to implement)
improved work practices. In the context of a
global operating model, a smaller majority of
respondents have offshored or plan to offshore
activities to other jurisdictions. With the trend
towards regulated products and centres of
excellence, several fund administrators have
opened operations in Ireland or relocated more
activities to Ireland.
Business process re-engineering initiatives
Percentage of respondents that have implemented or intend to implement
business process re-engineering initiatives
implemented
intend to implement
in the next 12 monhs
Process standardisation
57%
14%
64%
improved work practices
Offshoring
Relocation onshore
Other
0% 20% 40% 60% 80% 100%
57%
Staff training and
development
93%

Workflow / automation
of manual tasks
100%
86%
Percentage of respondents
Fund administrators anticipate significant cost
savings from these initiatives:
•46% are seeking to reduce their cost base by 6
to 10%
•23% hope to save 11 to 15%
•15% hope to reduce costs by more than 20%
11
As cost pressures
increase, is the Irish
funds industry set
for a new wave of
consolidation?
Looking to the future
Given the extent of efficiency initiatives already
underway and with ongoing margin pressures,
administrators may look to consolidation as a way
to build scale, further reduce costs and increase
margin. A series of scale-driven mergers has
taken place across the Irish funds industry since
the mid 2000’s, with 71% of assets serviced in
Ireland now concentrated in the five largest fund
administrators.
8
Economies of scale are a key competitive
factor in fund administration yet the number of

administrators operating in Ireland has remained
static over the past number of years. This is
because any reductions in the overall number of
administrators due to mergers are offset by new
market entrants following the trend towards
onshore, regulated funds.
9
As cost pressures
increase, is the Irish funds industry set for a new
wave of consolidation?
8.
Source: Lipper Ireland Fund Encyclopaedia 2011.
9.
Between 2009 and 2011 there were 10 new entrants to the Irish fund administration market and 6 mergers, based on analysis from the Lipper Ireland Fund Encyclopaedias
2008-2011.
12
Overview
This survey focuses on selected regulatory changes
affecting fund administrators in Ireland, including
the Alternative Investment Fund Managers
Directive (AIFMD), the Foreign Account Tax
Compliance Act (FATCA) and various corporate
governance changes. AIFMD and FATCA are
undoubtedly the two key pieces of regulation
nearing implementation that will have the greatest
impact on the Irish funds industry in the next few
years. AIFMD and FATCA merit a more detailed
focus in order to fully gauge what these complex
regulatory regimes mean for the industry.
The timing of the survey also coincided with

corporate governance changes such as the
Central Bank’s new Fitness and Probity regime
and the release of the IFIA voluntary corporate
governance code for funds and management
companies. It was therefore opportune to ask
fund administrators for their views in relation to
these matters.
AIFMD
The Alternative Investment Fund Managers
Directive will have wide-ranging strategic,
distribution, operational and compliance impacts
on hedge fund managers selling their products
in Europe. By regulating the activities of the
manager, AIFMD will also indirectly regulate
fund service providers and impact on the services
they will need to provide. Does this represent an
opportunity, a threat or both for the Irish funds
industry? This survey focuses on the areas of
most concern to fund administration – valuations,
operational requirements and the scope to provide
additional services. The impact on trustees/
custodians of depositary liability and its associated
costs are also a key area of focus.
Business opportunity
Business threat
Do you see AIFMD as a business opportunity or threat?
36%
64%
Percentage of respondents
AIFMD – a business opportunity?

The majority of Irish fund administrators see the
Alternative Investment Fund Managers Directive
(AIFMD) as a business opportunity. This positive
view of AIFMD is undoubtedly rooted in Ireland’s
position as an EU regulated fund administration
centre and the global leader in the servicing of
alternative investments. Ireland has a strong track
record in regulating hedge funds through the
Qualifying Investor Fund (QIF) and is considered
by many as the natural location for setting up and
servicing AIFMD compliant funds.
Furthermore, respondents are looking to the
opportunity presented by AIFMD’s detailed
reporting and compliance requirements in areas
such as risk management, liquidity and leverage.
Investment managers will seek to outsource
certain complex, operationally intensive processes
which will enable fund administrators to provide
more value-added services to their clients. The
valuation governance requirements including
valuation independence should encourage hedge
fund managers to use third party administrators.
New controls in relation to the valuation of
complex or illiquid assets could present an
opportunity for fund administrators to provide
complex valuation validation services.
AIFMD – a business threat?
On the other hand, a sizeable minority of fund
administrators view AIFMD as a business threat.
These include several of the specialist hedge

fund administrators servicing Cayman product
who may view AIFMD as a significant disruption
to their clients and their business model. Some
administrators take the view that the AIFMD’s
onerous compliance requirements will impact
on performance. They also consider that its
protectionist nature, through the Third Country
provisions, will drive business away from the
EU. While there will be opportunities for the EU
onshore sector, these administrators take the view
that AIFMD will adversely impact the European
hedge fund industry as whole and diminish their
business prospects. The additional liability the
Directive imposes for the provision of depositary
(and valuation services) is a foremost consideration
for fund service providers and helps to account for
the sizeable minority who view AIFMD as business
threat.
Regulatory change
13
AIFMD key challenges
8%
8%
8%
15%
15%
38%
46%
46%
85%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Risk management
Investor disclosure
Third Country provisions
Erosion of private placement
Calculating leverage
Regulatory reporting
Operational requirements
Valuation rules
Depositary liability
Percentage of respondents
Depositary liability – the key concern
The cost of strict depositary liability stands out
as the greatest challenge AIFMD presents for
fund service providers, particularly for those
providing custodian services within their group.
The Directive imposes a new standard of strict
liability by requiring that assets held in custody
must be replaced by the depositary without undue
delay in the event of loss. ESMA’s advice has
clarified which financial instruments must be held
in custody but this is subject to change under the
European Commission’s implementing measures.
This adds additional uncertainty about final costs.
Under ESMA’s advice, liability for assets held
in custody can only be removed under strict
conditions. This means that depositaries are
potentially liable for sub custodian actions and a
sub-custodian failure. These are very significant
changes to the current business model for

trustees and custodians and will have far-reaching
implications for fee models and sub custody
networks.
Half of the survey respondents also provide
depositary services. Of this group, 80% foresaw
their fees rising by up to 10% as a result of
the additional liability, while the remaining
20% estimated that depositary fees would rise
by between 10 and 30%. The relatively low
estimated increase in depositary fees is perhaps
surprising given the overall level of concern
about depositary liability. The reality may be that
trustees and custodians do not yet have a clear
picture of the additional costs of the depositary
liability, particularly as this area is still subject to
change. The level of fees may also vary for clients
depending on various risk factors such as exposure
to assets held in emerging markets.
Estimated fee rise as a result of additional
depositary liability under AIFMD
20%
80%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
10% - 30%
0% - 10%
Percentage of respondents
Valuations
Fund administrators remain concerned about the
valuation rules under AIFMD. ESMA’ s advice takes
a principals based approach to valuation policies

and procedures. While the new rules will represent
a tightening of existing controls, the approach
is largely consistent with industry practice in
Ireland. However, concerns persist over changes
in contractual responsibilities for valuation and
the associated liability and costs that might be
incurred, as well as any additional scrutiny that
fund administrators might be subjected to.
The valuation provisions in the Directive point
to changes in responsibilities between fund
boards and AIFMs. Fund administrators appear
concerned about the implications of possible
contractual changes. The concept of the “external
valuer” has been the subject of much discussion
due to the level of liability associated with this
function. ESMA’s final advice has clarified that
a third party administrator incorporating values
obtained from the AIFM or other sources is not
the “external valuer” by virtue of this activity
alone. This clarification was welcomed by many
third party fund administrators who did not
consider themselves to be an external valuer
and were concerned about taking on additional
responsibility and liability for a function they were
not contracted to perform. Our survey revealed
that 71% of respondents would not consider
themselves the “external valuer” under the
definition in ESMA’s advice.
14
Yes

No
Are you currently appointed as an “external valuer” as defined in
ESMA’s Level 2 advice?
71%
29%
Percentage of respondents
Yes
No
If you answered no, would you be willing to contract as the
“external valuer”?
56%
44%
Percentage of respondents
Of those fund administrators that are not acting as
external valuer, a slight majority would not be
willing to take on this role. Certain fund
administrators are clearly concerned about the
business implications of moving into an external
valuer role and the additional liability and costs
involved, even if additional fees can be charged
for this service. On the other hand, 44% of
respondents potentially see a business opportunity
in valuations and would be willing to contract as
an external valuer. The majority of this group see
their fees rising by between 0-10% for this service
while some foresee significantly more substantial
increases, perhaps for complex and illiquid asset
valuation. As with depositary liability for trustees/
custodians, fund administrators may not yet fully
know by how much fees would rise across their

book of business if they were to contract as
external valuer.
Estimated fee rise if you were to contract
as the "external valuer"
0%
50% - 100% 20%
>100%
20%
0% - 10% 60%
10% 20% 30% 40% 50% 60% 70%
Percentage of respondents
Operational requirements and other
concerns
Operational changes are a foremost concern
for fund administrators. Procedural and system
changes will be required to implement the
Directive’s various requirements, particularly in
relation to regulatory reporting, leverage, liquidity
and risk management. For depositaries, additional
operational changes will be required in relation
to cash monitoring and subscription verification.
The Third Country provisions and the associated
phasing out of private placement are issues that
will be addressed and decided by investment
managers. Although of serious concern for the
industry in general, fund administrators possibly
consider these issues out of their immediate
concern and as service providers, they are
focussing efforts on the operational issues.
Middle office services

The provision of middle office services (see chart
on page 9) has long been considered a means
for fund administrators to enhance revenue
and add value to their business. The complexity
surrounding the compliance and reporting
requirements points towards an outsourcing
decision for investment managers. Could AIFMD
provide impetus for a new era of middle office
outsourcing? Half of respondents agree, and
plan to proactively offer additional middle office
services.
15
A further 21% will offer additional services
if requested by the client while only 7% of
respondents did not intend to offer additional
middle office services. The results indicate that
many fund administrators are eager to expand
into middle office but a significant grouping have
yet to fully consider their service offering and
positioning under AIFMD. This hesitation may be
linked to the significant investment in resources
and expertise that will be required in order to
provide these additional services. Investment
managers seeking outsourced solutions will also
need to be assured that their service providers
have the necessary additional expertise. Many
fund administrators clearly see an opportunity to
win further business by actively marketing middle
office services under AIFMD.
Yes

No
If required by client
Not sure yet
Do you plan to offer additional middle office services as a
result of AIFMD?
7%
50%
21%
21%
Percentage of respondents
FATCA
The Foreign Account Tax Compliance Act is the
most far-reaching piece of national tax legislation
to have ever been conceived. Foreign Financial
Institutions (FFIs), including investment funds,
must either enter into an agreement with the IRS
to report on US account holders or suffer 30%
withholding tax on all US source income and
sales proceeds. The scope of FATCA is so broad
that it will affect not only those funds with US
investments or investors but also those funds that
trade with US or with other FATCA compliant
counterparties. The development of FATCA
solutions to ensure FATCA compliance will be a
complex challenge for fund administrators and
custodians. Could FACTA also offer opportunities
for some service providers to gain competitive
advantage? What are the key challenges for
FATCA implementation and how much will it cost?
FATCA – opportunity or threat?

Over 70% of respondents see FATCA as a
business threat due to the onerous reporting
and withholding requirements that will come
at significant cost and risk for funds and their
service providers. For many respondents these
implementation and compliance costs outweigh
any potential benefits of FATCA from a service
provider perspective. Administrators were
concerned over the uncertainty surrounding the
regulations and the impact FATCA will have on
asset gathering and the distribution network.
One respondent commented that it is unclear
how distributors, particularly in Asia and South
America, will react to FATCA. Another respondent
raised the issue of cost for funds that have no US
investments or investors but will still be required
to complete the analysis work. Yet almost a
third of fund service providers do see a business
opportunity in FATCA and these will undoubtedly
seek to differentiate themselves as bespoke FATCA
solution service providers.
Business opportunity
Business threat
Do you see FATCA as a business opportunity or threat?
71%
29%
Percentage of respondents
Most serious concern over withholding on
payments
Respondents are highly concerned about

withholding on payments to “recalcitrant account
holders” who do not provide the necessary
information to verify their status. Withholding
payments to investors is obviously a sensitive
issue from a client relations perspective with the
associated risk of deducting incorrect amounts or
withholding on the wrong investor. Developing
systems and procedures to isolate US source
payments and calculate the appropriate level of
withholding is a highly complex challenge.
Payments of “fixed, determinable, annual,
periodical (FDAP) income”, such as interest
payments from US Treasury Bills, will be somewhat
easier to identify and withhold on. The real
challenge relates to mixed source payments
16
which may contain US source income – so
called “passthru” payments. The US Treasury has
outlined a system based on the determination of
the aggregate level of investment in US assets,
which each financial entity will publish. This
“passthru payment percentage” would then be
used to calculate and withhold tax from various
sources where required. However, the industry
does not yet have clarity on how passthru
payment withholding might work in practice. It
comes as no surprise that this ranks as the next
greatest FATCA challenge. Notice 2011-34 granted
the industry some additional time to comply
with the withholding provisions. Withholding on

passthru payments will not apply until at least 1
January 2015 but this timeframe may still be tight
given the complexities involved and the number of
entities concerned.
Investor reporting
Also among the key challenges is the
identification and verification of US investors.
This documentation and due diligence process
will be particularly onerous for larger, retail funds
involving potentially thousands of investors and
intermediaries. The requirement to ‘look through’
to the beneficial owner does not take into account
the heavily intermediated nature of investment
funds or the fact that this information may simply
not be available at fund level. As noted by some
respondents, the reaction of distributors to the
FATCA requirements is not fully known and could
lead to the severance of distribution links or
the classification of numerous non-US accounts
as “recalcitrant”. At a practical level, transfer
agents will be required to invest significant time
and resources in system developments and due
diligence procedures as well as the follow up on
individual investor identification.
FATCA key challenges
Which aspect of FATCA causes you the greatest concern?
0%
Reporting of gross receipts
and gross withdrawals
Identification/verification

of US investors
Calculation of the “passthru
payment percentage”
Withholding on payments
to investors
0%
23%
23%
54%
10% 20% 30% 40% 50% 60%
Percentage of respondents
Relatively well prepared for FATCA?
The survey revealed that Irish fund administrators
have made significant preparations for FATCA,
with 64% at the advanced planning stage and
the remaining 36% at the early planning stage.
Clearly FATCA is firmly on the planning agenda
with an average of 25% of IT development
budget allocated to system development arising
from such regulatory change. Given that the
final regulations have not yet issued from the US
Treasury and that much of the practical operation
of FATCA is unclear at the moment, it would
be challenging for fund administrators to begin
implementing changes. As the regulations are
not due to be finalised until the summer of 2012
the implementation timeframe is likely to be very
tight. It is therefore reassuring that Irish fund
administrators will have conducted their project
planning and will be well positioned to engage on

the implementation phase.
Level of FATCA preparedness
0%
0%
0%
0%
0%
36%
64%Advanced planning stage
Early planning stage
FATCA ready
Nearing project completion
Currently implementing changes
Not prepared at all
10% 20% 30% 40% 50% 60% 70%
Percentage of respondents
The cost of FATCA
Over half of fund administrators considered that
FATCA implementation would cost their business
less than €50,000. A quarter estimated costs of
between €50,000 and €200,000, while 17%
anticipate costs in excess of €1 million. The results
indicate that while FATCA will present a major
compliance and system development challenge,
many fund administrators are quite conservative
in their estimate of costs. Interestingly, almost
all of those respondents who indicated costs in
excess of €50,000 were at the advanced planning
stage and it may be that further impact analysis is
required. Estimations are also likely to be finalised

once there is further clarity over the regulations.
A further factor could be that multinational fund
administrators will be led by global HQ on FATCA
implementation, with the majority of costs borne
at that level.
17
Estimated FATCA implementation costs
(local budget only)
58%
25%
17%
0%
0%
€200,000 - €500,000
€500,000 - €1 million
> €1 million
€50,000 - €200,000
< €50,000
0% 10% 20% 30% 40% 50% 60% 70%
Percentage of respondents
Fitness and Probity Regime
The Central Bank’s Fitness and Probity regime
introduces new due diligence obligations for
financial service providers with respect to certain
personnel. These include checks to establish that
the person is (1) competent and capable, (2) acts
honestly, ethically and with integrity and (3) is
financially sound. The new regime is applicable
to “Pre-approved Controlled Functions” (PCFs)
or senior managerial positions that require

prior Central Bank approval. Other positions
that involve adjudicating over complaints or
exercising influence can be designated “Controlled
Functions” (CFs).
Increased due diligence and HR burden
The majority of administrators did not consider
meeting the Fitness and Probity regime to present
a significant challenge. The aspect that causes
most concern is the implementation of new due
diligence procedures. The competence criteria
and requirements for PCFs and CFs did not appear
to present major challenges, while the financial
soundness check was somewhat more of a
concern.
We asked respondents how they see the new
requirements impacting on staffing arrangements.
Many respondents commented that the new
regime will add additional strain on HR resources
and possibly delay the recruitment of key staff.
Others did not see any issues due to a stable
and experienced management team or because
similar procedures were already in operation
based on existing UK rules. To summarise, industry
concerns relate in the main to the due diligence
and documentation process around Fitness and
Probity, as fund administrators are confident
regarding the qualifications, experience and
suitability of their key staff.
Yes
No

Do you view meeting the Fitness & Probity requirements as a
significant challenge?
36%
64%
Percentage of respondents
Key Fitness and Probity challenges
Implementing new due
diligence procedures
Financial soundness criteria
Review of existing employees
Competence criteria
Meeting Pre-approval Controlled
Function requirements
Meeting Controlled
Function requirements
46%
23%
15%
8%
8%
0%
0% 5% 10% 15% 20% 25% 30% 35% 40% 50%
Percentage of respondents
The voluntary corporate governance code
for fund service providers
In December 2011 the Irish Funds Industry
Association (IFIA) issued a voluntary corporate
governance code for Irish authorised collective
investment schemes (CIS) and Irish authorised
management companies. This followed an

invitation by the Central Bank for the funds
industry to develop and apply its own corporate
governance code in place of the statutory code
developed for banks and insurance companies.
To that end, the IFIA also plans to introduce
a voluntary corporate governance code for
fund service providers. Respondents were
overwhelmingly in favour of the adoption of a
voluntary corporate governance code for fund
administrators. Irish fund administrators clearly
recognise the importance of corporate governance
and embrace the concept of a voluntary code
tailored to the industry.
18
Yes
No
Should there be a voluntary corporate governance code for fund
service providers?
93%
7%
Percentage of respondents
The Central Bank outsourcing regime
In July 2011 the Central Bank published its new
requirements on outsourcing in relation to the
administration of funds. These new requirements
replace the previous minimum activities regime
and were implemented to reflect changes under
the UCITS IV Directive, which enables funds to be
administered outside their EU member state of
domicile. The outsourcing requirements apply to

the administration of both UCITS and non-UCITS
funds and Irish domiciled and non-Irish domiciled
funds.
Under the regime “core administration activities”
involving oversight and control cannot be
outsourced while the fund administration
company retains ultimate responsibility for any
outsourced activities. A resounding 100% of
respondents indicated that the new outsourcing
regime does not create any significant challenges
for their business. Fund administrators consider
that the outsourcing regime will not introduce
new material requirements over and above those
applicable under the old minimum activities
regime.
Does the Central Bank's new outsourcing regime
create significant challenges for your business?
No 100%
100%0% 20% 40% 60% 80%
Yes
Percentage of respondents
The regulatory horizon
The survey has considered only some of the
regulatory issues that will impact Irish fund
administrators in the years to come – others
include UCITS V, Solvency II, anti-money
laundering rules, client assets, FIN 48, MiFID II and
Dodd Frank.
While regulatory change will create an additional
compliance and operational burden, some

regulation may present opportunities for Irish
fund administrators. As an onshore, EU regulated
domicile with fund servicing scale, expertise and
infrastructure, Ireland has a natural competitive
advantage.
In order to exploit this advantage Irish fund
administrators need to proactively engage with
the regulatory reform agenda. The ways in which
fund administrators respond to all this regulatory
change will ultimately impact their market
positioning and client perceptions.
Map the regulatory
reform agenda
Identify key impacts
and changes
Identify operational
synergies
Identify opportunities
and threats
Decide a course of action
Develop an
implementation plan
Respond effectively to regulatory change
19
Cost base
It’s a balancing act
Fund administration in Ireland is thriving due to
a growing client base and new volumes from
additional business. The move to onshore,
regulated product will continue to drive business

in future, as will increasing demand for new
services. Yet fund administrators also face a range
of challenges in the current environment from cost
and fee pressures to market uncertainty, regulation
and client servicing demands.
The opportunities and the threats for fund
administrators are clearly two sides of the same
coin. Increasing levels of business are welcome
but can create issues if profitability is not managed
and service quality falls. Charging for new and
additional services can enhance profitability
but these services may also require significant
investment in IT, expertise and resources. The
flight to regulation is benefitting Ireland but the
wave of regulation facing administrators adds
to operational and compliance costs. Costs
and fee pressures threaten profitability but
efficiency initiatives and consolidation can provide
competitive advantage.
Responding to these threats and opportunities is a
balancing act. Fund administrators need to strike
the right balance between client profitability and
servicing costs, providing new services and the
investment required, operational efficiency and
service level requirements, consolidation and the
costs of merging. Administrators that strike this
balance will most effectively seize the opportunity
to exploit Ireland’s growing fund administration
market.
Conclusion

Market volatility
Fee pressure
Service levels and scope
Client demands
Regulatory compliance
Competition
Low staff turnover
IT investment
Growth in client base
Product moving onshore
Additional services
Efficiency initiatives
Consolidation
KG
5
20
The survey was carried out in December 2011/
January 2012 and all companies providing fund
administration services in Ireland were invited
to participate. We received responses from 17
fund administrators, accounting for 80% of
assets serviced in Ireland.
10
Respondents service
both traditional and alternative investment funds
and include both large scale and smaller fund
administrators.
<$5bn
>$5bn
Asset under administration in US $bn

75%
25%
Percentage of respondents
<500
>500
Number of sub funds administered
40%
60%
Percentage of respondents
<500
>500
Number of staff employed
40%
60%
Percentage of respondents
Appendix - respondent prole
As an onshore, EU regulated
domicile with fund
servicing scale, expertise and
infrastructure, Ireland has a
natural competitive advantage.
10.
Based on the analysis of data from the Lipper Ireland Fund Encyclopaedia 2011-2012.
21
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Deloitte has the expertise and resources to help
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Whether you wish to explore new business
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assess risks and cost, expert advice is on hand.
Some areas that our Investment Management
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22
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