A maturing industry looking to handle growth through technology
The KPMG Luxembourg AIF Asset Servicing Survey focuses on the evolution of the technological landscape of Asset Servicers by looking at the different systems and the services they provide in the Luxembourgish market.
Over the past years, the Alternatives market has witnessed a massive growth while also having to face challenges across Central Administration and Depositary functions, leading to a greater need for, e.g. more flexible systems tailored to the Alternatives universe.
To find out more about this growing industry, around 30 key Administrator and Depositary market players in Luxembourg participated in our survey. Focusing on their technological landscapes as well as their future needs, we were able to identify their current systems, analyze the challenges they face and benchmark them against their competitors.
A message from our lead Partner
The alternatives industry has been growing rapidly throughout the past years, creating a highly competitive market hence pushing market players to rethink their operating models – where technology is a key component – on an on-going basis.
After analyzing the answers of the largest Administrators and Depositaries in our survey, we were able to identify the different systems they used. We have also seen how different systems are used for different purposes and how the system rationales differ depending on the functions and on the asset classes serviced, with the market norm showing that FA and TA systems are mostly integrated and complemented by other dedicated systems.
Across the market, we see different company structures, goals, and needs - leading to differences in the way systems are used across participants.
Go deeper: contact us for more survey insights
- AIF Administrator Survey
- AIF Depositary Survey
Survey participants
19
participants representing 39% of the Luxembourgish AIF market by AuM
140
billion AuM on average across services
45+
technology systems used across all participating companies
60%
of total assets serviced by respondents fall within the asset classes of PE/VC and private debt
Different strategy, different organizational archetypes: from aggregated to integrated
With the technology landscapes of market players being diverse and constantly evolving, we devised two models to show the extremes of the market. We classified them as ‘aggregated’ and ‘integrated’, with most participants falling somewhere between the two.
Companies leaning towards our aggregated model share some similarities in their technological landscape. They tend to use ERP, core banking or UCITS solutions which have been adapted to fit their AIF needs, and to use in-house or highly customized tools per asset class as well as for open-ended funds. Generally, the smaller AIF market players present this type of systems landscape.
Companies leaning towards our integrated model tend to use one core AIF system for both FA and TA, which is often moderately customized. We see a trend of specialized AIF systems being used to focus on specific asset classes, with mostly external solutions dominating the landscape. Larger AIF market players often present this type of systems landscape.
Market players’ individual technology landscapes range across two organization types
Specialist systems are used for FA or TA and per asset class serviced
Typical of smaller AIF players
One core system is used across FA & TA with specialized systems being utilized for asset classes such as private debt or real estate
Typical of larger AIF players
A look into the future
FinTechs, a maturing success
70% of our participants have worked with FinTechs, and mostly with success.
FinTech collaborations include projects on digital processing of fund invoicing, creation of web portals, data management, regulatory reporting, and cash management.
Growing AIF budgets allowing for new investment opportunities
Over the past years, AIF technology budgets have experienced growth, which is expected to further accelerate over the next three years, with close to 40% of participants anticipating a budget increase of more than 20%. Future budget allocations are expected to focus on the development, implementation, and maintenance of AIF dedicated systems. This is highlighted by the fact that over half of the participants see implementing a new tool for client reporting and/or cash management as a high priority.
Current and foreseen evolution of IT budget
Crypto assets are considered to be a future investment opportunity by 40% of participants. They are the fund type with the highest perceived likelihood of future investments, followed by hybrid funds with 30%.
Fund types with the highest perceived likelihood of future investments
Survey participants
19
participants representing 57% of the Luxembourgish AIF market
36
billion AuM on average per participant
15+
technology systems used across all participating companies
74%
of total assets serviced by respondents fall within the asset classes of PE/VC, private debt, and real estate
Systems across the three depositary functions: Safekeeping, Cash monitoring, and Oversight
The AIF Luxembourg Depositary market hosts systems from a variety of origins: in-house, third-party, UCITS/Banking and AIF ERPs. Despite having dedicated systems in place there is still a high share (+40%) of work being done manually or via Excel.
On average, there are three systems per participant being used across the three depositary functions, and they are mostly specialized by function.
Depositaries are continually trying to navigate the challenges they face within the Luxembourgish AIF market. One challenge that rises above the rest is obtaining documents from AIFMs or AIF’s delegates, with almost 85% of respondents highlighting this as a challenge of high importance.
Looking into the future, participants recorded having similar priorities across safekeeping, cash monitoring and oversight. Increasing efficiencies in order to be able to cope with growth and scalability was a top priority for the majority of respondents, whereas cost reduction was reported to be a secondary priority for the coming years.
- Increase efficiencies
- Fill operational gaps
- Integarte & harmonize sytems
- Meet regulatory needs
- Cut down costs
- Safekeeping Cash Monitoring Oversight
- High priority
- Medium priorityHigh priority
- Medium priority
- Medium priority
- Low priority
90%
of respondents consider that the main reason for which they should change their core depositary system would be to increase efficiencies.
A look into the future
Future Trends: FinTechs and AI
Almost 60% of participants have worked with FinTechs over the last three years however results tend to be mixed. Only one participant out of our sample felt that FinTech contribution was fully successful. Fintech trends that were expected to add the most value to the participants in the future were Artificial Intelligence (AI), technology enhancements and virtual assets.
About 70% of respondents believe that AI will add value to their business, despite only a few having undertaken an AI project. A major trend predicted by 75% of our participants was the growth of depositaries specializing in AIF and/or specific assets classes.
Growing AIF budgets allowing for new investment opportunities
Half of the survey participants currently have a dedicated Depositary AIF budget, which on average has seen a growth of more than 20% over the past three years.
Over a quarter of participants foresee their Depositary AIF budget increasing between 10% to 20% over the next five years. It is predicted that this increase will be used to enhance existing AIF systems or replace the current core systems with newer, more dedicated tools.
Annick Breton
Partner
KPMG Luxembourg
Would you like further insights or find out how you compare with others in your field?
