On the occasion of the “6th International Funds Summit”, Mr John Sergides, CEO of MUFG Investor Services, shares his thoughts with our Partner and Chairman of CIFA, Mr. Andreas Yiasemides. Mr Sergides accepted the invitation of PwC who is sponsoring the conference to participate and talk on his experiences and insights.
Specifically, Mr. Sergidis shares his views on the future of the industry, Cyprus as a basis of operations and analyses the ways in which our country could further enhance its business environment.
How do you see Cyprus as a base of operations?
The growth in outsourced operations to smarter European centers has been meteoric. Eastern Europe has been the beneficiary of this shift; however, as we enter the new phase of Business Process Outsourcing (BPO) beyond fund administration. Cyprus represents the golden mean across cost, infrastructure, talent pool, regulatory stability, professionalism, time zone advantages, and retention rates.
The importance of this location moves beyond only servicing Cypriot domiciled funds, The immediate opportunity is to utilize the Eurasian time zone and build an operational center to strengthen our global footprint servicing a global client base.
In what ways could the country further enhance its business environment?
Although Cyprus is developing as an alternative funds domicile, it will ultimately plateau as some natural factors inhibit the growth. Compared with Dublin or Luxembourg in Europe, or Cayman as an offshore domicile, the lack of structures and execution speed will impede growth.
Larger funds tend to focus on using only a few service providers to gain economies of scale and reduce provider management overhead. Currently there are a lack of service providers required to consolidate services needed to provide further enhancements in the region.
Sustained promotion and education of the Cyprus domicile and vision across Europe and globally is required, with the Government leading the way. The ambition is not to attract a small number of very high paying jobs, but a much larger number of sustainable well-paying jobs with reliable career prospects, to create ecosystems linking with universities, FinTechs, and start-ups for a location for outsourced staff.
To add to this initiative, the government must show its commitment. The Government entities have combined pension funds in the billions of Euros. The concern is that without a specific alternative asset allocation policy, the mismatch between assets and liabilities will grow.
A growing number of funds domiciled in Cyprus are attractive from a structure, track record, and performance perspective. Unless the Government supports these by allocating assets but insists that work is done on these and other asset classes they allocate to is performed in Cyprus, it will be harder to persuade the private sector.
How do you see the global funds industry evolving in the future?
After the bull run of the last ten to twenty years or so, a vast amount of asset growth and inflation has taken place.
Many assets have migrated from the alternative sector to the mutual fund or long-only sector. It made no sense to pay a 2/20 model when better returns could be had from a fraction of those fees in the ETF space. As funds were redeemed and reallocated, the industry adapted, the rise of private equity, real estate, private Debt and infrastructure funds has materialized. Long term sticky, well-performing asset classes have grown incredibly fast and now are estimated to have approximately USD 4 trillion under management.
As the equity markets grow more volatile and performance tails off, assets will once again flow to the more liquid strategies, but a huge opportunity has been created. The rise of the illiquid strategies requires new technology, new methods, processes and investment. The outsourcing of this sector, which is greater than the traditional hedge fund space, has only just begun. Given the alternatives industry in total employs over half a million people globally, and has grown over the last 20 years, the size of the opportunity for the service providers here is tangible. To take on board talented people, hire and train, and invest and build solutions for the next 20 years and beyond.
Director - Marketing & Communications, PwC Cyprus