Crypto went from obscurity to mainstream, encompassing traditional ones such as Bitcoin and Ethereum, to an expanded regulatory ecosystem of stablecoins, such as Tether and digital currencies, in which regulators globally are putting in place a regulatory structure—albeit not as fast, coherently, and innovation-friendly as some market participants would like. The much-entrenched crypto skepticism has yielded to crypto acceptance, whether from FOMO, greed, or YOLO; the reality is that cryptos—in one form (hopefully comprehensively regulated) or another—appear to be a growing asset class in the financial-investing ecosystem. That is the easy part; now begins the journey of navigating the thicket of regulations and regulatory actions that will surely follow from a variety of regulators.
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In the years following the 2008 financial crisis, manipulation attempts by LIBOR panel banks, false reporting, and declining liquidity in interbank funding markets generated doubt in LIBOR benchmark rates, and ultimately led to plans for their replacement with more reliable benchmarks. Without backing by underlying transactions, LIBOR depended more on expert judgment than quantifying true bank funding cost, and huge volumes of derivatives and cash products referencing it was a concern. Alarmed regulators established new benchmark regulation (BMR), and alternative reference rates (ARR) or risk-free rates (RFR) that comply with the BMR were developed and recommended by national working groups of several jurisdictions.
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Momentum behind ESG investing continues to grow. Firms who develop a solid approach to incorporating ESG policies at both the firm and the fund level will have a competitive advantage over their peers.
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The IRS has now added two new schedules for pass-through entity tax returns, better known as Schedules K-2 and K3. The reason for these new forms is to accommodate the complex 2017 Tax Cuts and Jobs Act (TCJA) and provide consistency in reporting to partners and shareholders. The new schedules impact most partnerships and S corporations, beginning with the 2021 filing season.
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2022 continues to bring exciting change and new opportunities to Fund Administration in Europe. There are many reasons to change fund administrators—including greater use of complex asset classes, diversification into new investment vehicles, such as Private Markets, investor expectations, technology innovation, service quality, cost and the ability to support managers’ growth plans.
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Fully integrating a robust ESG approach can be a steep learning curve. As interest in ESG increases, both regulatory pressure and investor expectations can change quickly.
Fund managers would do well to be prepared and get ahead of these needs.
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In a recent ESG webinar with three subject matter experts, we posed the following question: “How are managers monitoring their ESG risks and opportunities and how are they reporting this to the investors?”
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Over the years, there has been significant growth in the breadth and depth of analysis undertaken by performance and risk teams across our industry, as both fund managers and clients seek to better understand the returns generated in their portfolios. Performance, attribution analysis and ex-post risk statistics have all been increasingly used to assess the decision-making and risk-reward payoffs resulting from managers’ investment decisions. Along with this has been an increase in the use of ex-ante risk analysis utilizing factor models, stress testing, VAR and other measures to provide deeper insight into portfolio construction and potential investor outcomes.
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