Recognising the limits of traditional admin models

As many fund managers will know, administration services are often provided on a fragmented basis, by siloed teams reliant on outsourced support using often archaic technology resulting in inconsistent service delivery and a worrying lack of local accountability and control. Moreover, in one-stop-shops, administration is often positioned as a low-margin business supporting that more valuable revenue streams which consequently, benefit from greater investment.

Structural misalignment and conflicts in the administration sector can be identified across all the principal service models.

Watch out for: 

- Fragmentation: siloed teams, over-reliance on outsourcing, inconsistent service.

- Low prioritisation: in one-stop shops, admin is often treated as low-margin “support” rather than core.

- Conflicts of interest: bundled solutions blur oversight and compromise independence.

Key pitfalls by provider type

Institutional providers: Prioritise cost and standardisation, leaving little room for bespoke needs.

Often structured around an old fashioned “alternative asset banking model”, these businesses prioritise standardisation and cost-efficiency over client-specific service. Their extensive outsourcing and rigid operational frameworks leave them poorly suited to the tailored needs of fund managers. As a result, they struggle to remain relevant in a market increasingly shaped by complex requirements.

Independent specialists: Growth, acquisitions, and debt have eroded quality; outsourcing and cost-cutting are common.

Many businesses in this category initially succeeded by aligning themselves closely with their clients, particularly following the introduction of AIFMD. However, rapid commercial growth – frequently underpinned by institutional investment and aggressive acquisition strategies – has eroded their original value proposition. Disjointed systems, layered management, and rising debt burdens have led to cost-cutting, increased outsourcing, and lower service quality.

Trust/corporate service providers: Commoditised models may be cheap, but lack depth and control.

Traditionally offshore, brand-led businesses that focus on relationship and often lack the technical capability to service the complex needs of private funds. Onshore equivalents take a commoditised approach that may appear attractive in pricing terms, but ultimately fails to deliver the value, expertise, and control that fund managers now require.

US tech entrants: Automation is strong, but often ill-suited for the nuanced regulatory and fiscal demands in Europe.

In recent years, a number of US-based technology businesses have entered the fund administration space, particularly within the burgeoning US outsourcing market. While their platforms offer considerable automation potential, they often fall short in addressing the complex legal, regulatory, and fiscal demands of European fund managers. As a result, their solutions require significant ‘add-ons’ to meet the nuanced and asymmetric needs of local fund managers.

Redefining the model

Clearly, what’s needed is a new breed of fund administrator in Luxembourg – one that is purpose built. One that isn’t burdened by legacy systems or entrenched processes, with an operational framework built from the ground up to meet the demands of today’s regulatory environment. One with compliance embedded into every stage of the service model.

Furthermore, this new breed of administrator ought to be embracing the full potential of cloud computing, SaaS, and APIs, powered by state-of-the-art, open access US systems that replace the legacy technology currently employed by large parts of the market. This enables a highly flexible and configurable service offering that adapts to each client’s specific needs. Their infrastructure should also fully support the requirements of the Digital Operational Resilience Act (DORA), delivering exceptional transparency and control over data – a critical advantage for both fund managers and depositaries.

Look for: 

- Compliance-first design: Embedded into every stage of the service model.

- Modern tech stack: Cloud, SaaS, APIs, and open-access US platforms configured for Luxembourg’s rules.

- DORA-ready infrastructure: Exceptional transparency and data control.

Action checklist: 

- Ask: What systems do you use? How configurable are they to my fund’s needs?

- Verify: Are you compliant with DORA requirements?

Match rising regulatory expectations

The Commission de Surveillance du Secteur Financier (CSSF), Luxembourg’s financial regulator, has taken an increasingly assertive stance on enforcement, particularly in areas such as internal controls, governance, data reporting, and depositary functions. This trend serves as a clear signal to the market: the regulatory bar is rising, and firms must evolve accordingly.

An administrator’s operational model ought to be crafted with these standards in mind. Incorporating a robust three-lines-of-defence compliance framework, as well as accredited internal controls, governance, and reporting procedures designed not just to meet but to exceed regulatory expectations. It should take a proactive stance on financial crime prevention and risk management to ensure clients are equipped to navigate a more demanding supervisory environment with confidence.

The CSSF is raising the bar on:

- Internal controls

- Governance

- Data reporting

- Depositary functions

Your administrator should:

- Be built around a three-lines-of-defence compliance framework.

- Have accredited governance and reporting structures.

- Be proactive on financial crime prevention and risk management.

Action: Request evidence, including certifications, frameworks, reporting samples

Prioritise independence and alignment

A truly independent platform, specifically designed to support fund managers and depositaries in discharging their responsibilities under CSSF Circulars, is a crucial consideration when selecting a partner. In contrast to bundled solutions that can blur oversight and compromise the independence of key functions, a strict separation of responsibilities enhances regulatory confidence and supports the integrity of the AIF oversight model.

Why it matters: 

- Independence ensures that fund managers and depositaries can meet their oversight responsibilities under CSSF Circulars.

- Bundled solutions risk conflicts of interest.

Action: Choose a partner with strict separation of responsibilities and transparency in how independence is preserved.

Demand quality-driven, local delivery

A commitment to delivering premium-quality service without the excessive overhead, inefficiencies, or service delays typical of more traditional fund administration businesses is another important consideration.

Within that, it’s worth understanding where the operational activities are taking place – is it in Luxembourg or delegated elsewhere? This has a bearing on the speed and accuracy of results as well as the client experience.

Another key factor in having a Luxembourg-based administrator, is having a partner able to support you through an evolving regulatory environment and ensuring efficient capital deployment.

Find out: 

- Are operational activities carried out in Luxembourg, or delegated elsewhere?

- Does the provider support efficient capital deployment while navigating regulatory changes?

- Can they guarantee speed, accuracy, and accountability?

Action: Always check the location of teams and service delivery as it affects client experience directly.

Consider the wider ecosystem

Fund administration doesn’t sit in isolation. Advisers and intermediaries also rely on reliable execution. That means:

- Experienced professionals with strong reputations.

- Detail-oriented service that supports legal advisers and intermediaries.

- A partnership mindset: your clients are their clients.

Shared values

In the selection of any partner, be it commercial or personal, shared values are intrinsic to the success of the relationship. Therefore, understanding an administrator’s values; its attitude towards independence, expertise and collaboration is arguably the most important factor when deciding on who to work with.

Beyond the technical, ask: 

- Does the provider prioritise independence?

- Do they demonstrate genuine expertise in complex fund structures?

- Is collaboration central to their model?

Final Action: Probe for values as rigorously as you do for capabilities. The right partner will feel like an extension of your team.

Seven steps to finding the “just right” fund administrator in Luxembourg

1. Spot the pitfalls in traditional models.

2. Seek a purpose-built, compliance-first provider.

3. Ensure alignment with rising CSSF expectations.

4. Value independence over bundled convenience.

5. Demand local, high-quality service.

6. Confirm adviser and intermediary support.

7. Align on shared values.