Leveraging AI and Compliance for Growth

This insight was published in LPEA's Insight/Out Magazine #32 on 12 December 2024. 

How do you see the growth of alternative investments impacting the industry, particularly in Luxembourg?

The alternative space, especially Private Equity, is growing rapidly. Many traditional asset managers are moving into this space because it offers better margins and growth potential. Meanwhile, Private Equity firms are starting to target high-net-worth individuals through wealth management channels. Luxembourg, as a key hub, is well-positioned to support this growth. The challenge is ensuring that data, reporting, and compliance are up to speed as the sector expands. This trend is supported by the expansion of products like the ELTIF (European Long-Term Investment Fund), which offers investors easier access to alternative asset classes. The new ELTIF 2.0 regulation makes the product more interesting from an investment perspective. The regulatory complexity tied to such diversification presents opportunities for platforms like ours, to help clients navigate these new landscapes efficiently.

Do you think Luxembourg needs to adapt to maintain its position as Europe’s leading fund domicile?

Luxembourg is doing well, but must continue adapting to evolving regulatory and technological landscapes. The key for any domicile, including Luxembourg, is to provide an environment where asset managers and service providers can innovate and operate efficiently. The focus should be on streamlining regulations, fostering a skilled workforce, and maintaining a strong reputation for financial stability and transparency.

You joined FE fundinfo less than a year ago. What has kept you busy?

Since I joined earlier this year, one of the key focuses was to integrate AI into our services and operations. AI plays a significant role behind the scenes, helping to gather data from multiple global sources and validate it with a reduced error rate, using human oversight only for high-level verification. This AI-driven system helps streamline both the asset management and distribution sides, by ensuring data consistency across the value chain. What also happened since my joining, is that FE fundinfo further developed its offering architecture, moving from point solutions to an integrated suite of products operated on a highly efficient and scalable product and data platform. This transition is pivotal as FE fundinfo moved from selling standalone products to offering an integrated platform that brings everything under one umbrella. Now, the platform not only organises these solutions but also ensures consistent, timely, and accurate data management across the value chain.

How has regulation influenced your product offerings, particularly the growing complexity of data requirements?

Regulation has significantly driven our move to bundle services into platform solutions. Asset managers face mounting regulatory requirements, and managing data accurately and efficiently across various endpoints is a real pain point. We help streamline this process,  ensuring compliance with regulations like the PRIIPs KID. AI can also help in adapting to regulatory changes faster. For instance, when regulations evolve, AI can help us create “heat maps” that highlight which areas of a fund’s documentation—like fact sheets or other disclosures—need to be updated. This reduces the need for extensive manual reviews and helps keep products compliant with the latest regulations more efficiently. So far, AI has been primarily used behind the scenes to improve efficiency, such as ingesting and mapping data from multiple sources. It’s also becoming increasingly important in automating code development, changing how our tech teams operate. 
However, human oversight remains essential for compliance.

Speaking of regulation, how is the new Digital Operational Resilience Act (DORA) impacting your business?

Interestingly, DORA is more of an opportunity than a challenge for us. While asset managers must ensure compliance with DORA, we, as a large outsourcing provider, already meet many of the  stringent requirements it imposes. Smaller, fragmented players may struggle with compliance, but our scale and capabilities give us a strategic advantage. 

What are the most significant challenges or bottlenecks in the fund industry?

Regulation continues to be a persistent challenge, especially as asset managers are often hit with version 2.0 of regulation before they’ve fully digested version 1.0. This constant regulatory pressure makes it difficult for companies to keep up and complicates decision-making.

And what do you see as the biggest opportunity for innovation in the fund services industry over the next few years?

The real opportunity lies in fixing what’s already broken. Despite all of the technology advancements, many asset managers still struggle with basic issues like data consistency. Addressing these pain points is where innovation will have the most impact. It’s not about creating fancy, cutting-edge technologies, but about ensuring that the foundational elements work smoothly.