Q&A Talking Talent

Authored by: Michael Johnson, Chief Commercial Officer, Europe
Updated on: January 24, 2025

Originally published in The Drawdown – Fund Domicile Report 2024

What are some of the key considerations that managers need to consider when deciding where to domicile their fund?
MJ: Legal and tax considerations will always come first. Managers need to think about where their investors are based and where investments are going to be made, as well as the type of asset concerned, in order to identify the right jurisdiction to domicile. Another key consideration may be the speed that the domicile can offer. Price is also likely to be an important factor.

However, while those quantitative issues are likely to be the primary considerations, it could well be that multiple domiciles perform equally against those measures. Secondary considerations then come into play and those tend to be far more subjective, such as the quality and depth of the local workforce. In an age of increased focus on substance, it may also come down to transport infrastructure, for example, or even the quality of the local beer. At the end of the day, managers are humans.

What do you mean by the quality and depth of the local workforce and why is this so important?
MJ: I think the quality of the workforce is going to be broadly consistent in the major European fund domiciles – the UK, Luxembourg, Jersey and Ireland – as well as in the US and the Cayman Islands. However, when it comes to depth of workforce there can sometimes be capacity issues; that largely comes down to workforce retention and the size of the available talent pool.

Managers can become frustrated if they experience significant churn at junior and senior levels because those teams accumulate the corporate memory of the client. At Gen II, our teams are dedicated to our clients and we encourage them to feel like an extension of the client’s team. Our high staff retention rates are therefore critical to maintaining our high service quality. Clients who use administrators with higher levels of staff turnover often find that things get missed and mistakes get made. Frustrations can therefore boil over.

All fund domiciles have grown rapidly in recent years, in line with the rise in alternatives, stretching the availability of talent. Retaining staff and being able to keep that consistency of service for your clients is therefore paramount to our industry.

Has the nature of the requisite skillsets changed, particularly given the rapid tech advances that have taken place in recent years?
MJ: Technology has advanced in leaps and bounds on the accounting side, which means that all our accountants have to be tech savvy. For example, at Gen II we’ve developed proprietary technology that allows for the sharing of data with managers, and all of the accounting team are fully briefed on that. It is an essential component of their skillset.

Regtech – at least in Europe – has not been adopted as quickly, and certainly not as fast as the industry would like. There is still a lot of paperwork involved in reach-out to clients and investors alike. From setting up companies to submitting tax returns, there are a lot of manual processes.

We have been hearing a lot about the war for talent in the past few years. Where is that being felt most acutely in terms of different jurisdictions and different roles?
MJ: In terms of jurisdictions, at the moment I think the war for talent is fiercest in London and Luxembourg; because service providers are not only competing amongst themselves, but they’re also competing with asset managers. That competition can be fought with financial reward, but it can also involve cultural reward. Generally speaking, service providers are an attractive option when it comes to culture, but fund managers can use enhanced financial incentivisation to try and attract that talent.

At Gen II, we share an equity incentive with nearly everyone in the company, which is a big draw and reasonably rare. We’re also specialists. We focus exclusively on private capital funds, which means there is no distraction at the corporate level. I think that is appreciated from a cultural perspective and is why we have such good retention rates. Most staff have worked for other competitors and they know and value our specialist, long-term culture.

In terms of the types of talent being fought over, I would have to say it is those individuals with strong relationships with fund managers. The war for talent involving people who can acquire and develop client relationships is incredible. This could be within foreign exchange providers, or alternative fund accounting systems, or placement agents or administrators – we all need this particular talent set.

How is the talent backdrop influencing the insourcing/ outsourcing debate and the way in which managers are thinking about future proofed operating models?MJ: Europe has always been a heavily outsourced market, one that is reasonably mature and relies upon assurance standards – such as the International Standard on Assurance Engagements 3402 – to provide the manager with comfort in the outsourcing arrangement. This allows them to limit their oversight checks.

The US, in contrast, has largely favoured an insourced model. Most managers originally insourced their back-office functions and are only now starting to explore outsourced models. However, many still want to control and own their own data, relying less on assurance and more on their own checks and balances as they begin their outsourcing journey. It’s one of the primary reasons why Gen II has developed the Sensr product suite; a fully integrated, next generation, web-based set of solutions that provides clients with access to all aspects of their fund data and analytics.

There is also a middle ground between insourcing and outsourcing, known as co-sourcing. We are getting a lot more enquiries about co-sourcing at the moment, although it’s my belief that

co-sourcing is generally a first step towards outsourcing, which is usually the end goal. We have a history of providing a co-sourced model with some clients and continue to receive requests from others, so it’s definitely an upward trend for now.

Published on: January 23, 2025