ISJ029

VOLUME 5 No.29 - 2008 INVESTOR SERVICES JOURNAL SERVING THE GLOBAL SECURITIES SERVICES INDUSTRY ISJNEWS.COM GBP 25 - UK, ROW USD 45 - America EUR 35 - EMEA CUSTODY FOCUS - ITALY ANALYSE THIS - HEDGE FUNDS PANEL DISCUSSION - DATA OFF THE RECORD - SETTLEMENT FULLY AUTOMATIC? THE PROGRESSION OF AUTOMATED CORPORATE ACTIONS INDIA - CAPITAL MARKETS CARIBBEAN- OFFSHORING EUROPE - OUTSOURCING EMS - EMPOWERING THE BUYSIDE PLUS Japanese Textile Stencil, 1900 — Mulberry paper with dye V V At JPMorgan, we invest in what’s really important—whether protecting priceless works of art for future generations or building client relationships that stand the test of time. We take our relationship with you very seriously, to help you achieve your business goals, enhance efficiency and mitigate risk. When you’re passionate about your business, the right relationship is essential. JPMorgan clients benefit from the expertise of our entire global franchise. Through this holistic approach, we harness innovative technologies and firmwide resources to offer clients more choices, greater customization and unmatched flexibility. Innovation with superior results. JPMORGAN SECURITIES LENDING A full spectrum of global capabilities, including discretionary, principal and directed lending, as well as auctions and exclusives Financial strength Disciplined risk management Innovation in product development Access to resources and expertise of a leading financial services franchise To find out more, log on to jpmorgan.com/securitieslending, or contact: Western Hemisphere William Smith at 212-623-5664 Europe, Middle East and Africa Michael Fox at 44-207-742-0256 Australia/Japan Stewart Cowan at 61-2-9250-4647 Asia Andrew Cheng at 85-2-2800-1809 The Art of Relationships The products and services featured above are offered by JPMorgan Chase Bank, N.A., a subsidiary of JPMorgan Chase & Co. JPMorgan Chase Bank, N.A., is registered by the FSA for investment business in the United Kingdom. JPMorgan is a marketing name for Worldwide Securities Services businesses of JPMorgan Chase & Co. and its subsidiaries worldwide. ©2008 JPMorgan Chase & Co. All rights reserved. INVESTOR SERVICES JOURNAL Group editor: Giles Turner ([email protected]) Reporters: Joe Corcos ([email protected]), Catherine Kemp ([email protected]) Deputy editor: Ben Roberts ([email protected]) Contributors: Brian Bollen, Nicholas Pratt, Carol McGuin, Jamie Darlow, Alison Ebbage Associate publisher: Justin Lawson ([email protected]) Publishing manager: Monique Labuschagne ([email protected]) Account managers: Peter Lines ([email protected]), Craig McCartney ([email protected]), Mohammed Malik ([email protected]), Tarik Rekiouak ([email protected]), Oliver Blennerhassett ([email protected]) Operations manager: Sue Whittle ([email protected]) CEO: Mark Latham ([email protected]) Investor Intelligence partnership 16-17 Little Portland Street, London W1W 8BP T: +44 (0) 20 7299 7700 F: +44 (0) 20 7636 6044 WWW.ISJNEWS.COM © 2008 Investor Intelligence. All rights reserved. No part of this publication may be reproduced, in whole or in part, without prior written permission from the publishers. Thanks to Juliette, Sophie, Calypso and Electra. ISSN 1744-151X. Printed in the UK by Pensord Press. TOTAL NET CIRCULATION 12,133 Analysis for the Audit Issue Vol 4, No 22 distributed June 2007. Source: AUDIT BUREAU OF CIRCULATIONS, www.abc.org.uk TO RENEW YOUR SUBSCRIPTION PLEASE TELEPHONE: +44 (0)20 7299 7700 OR VISIT... WWW.ISJNEWS.COM MEMBER - PERIODICAL PUBLISHERS ASSOCIATION VOL 5 No. 29 - 2008 INVESTOR SERVICES JOURNAL Although it is cliché to say these are interesting times in securities services, there has rarely been a time where this monochrome statement as been more apt. The industry is set to change beyond recognition in 2008. Tim Howell, HSBC's global head of securities services, hse recently stated that the bank is attracting hedge fund business because of the concern that prime brokers are struggling due to the credit crunch. The hedge funds, with up to USD100 billion in assets, are eyeing up HSBC's foreign exchange and treasury products on top of traditional fund administration and custody services. A power shift is taking place, with a few almighty struggles set to take shape over the next few years. One major shift in the back office taking place at present is in corporate actions. Though it is a little- acknowledged fact, and most don't like to talk about it, many of the bigger firms have sizable contingency fund squirreled away specifically for when they miss a corporate action, according to a data reference manager at the major software firm Interactive. This is because missing an action can potentially cost an outfit millions of dollars, to say nothing of major loss of face in front of clients and competitors. On top of this, the area of corporate actions processing in the back-office is antiquated, manual and inefficient. ISJ takes a look at how automation is changing the corporate actions landscape (p16). In our panel discussion, we discuss the evolving nature of data management (p24), and in our extensive Analyse This section, we ask industry experts about the changes in the hedge fund industry, both in the front and the back of the office (p50). Also, our man on the street Brian Bollen, gets the dirt regarding European clearing and settlement (p38), and we examine how and if European appetite for securities lending is changing (p60). Also, for the first time we take a look at the complicated arena of EMS systems (p65). The obvious theme for this issue is change. The credit crunch, while focusing on CEOs and other front office figures, will profoundly affect how the back office will be run. ISJ hopes to focus on some of the more seismic changes during the next few quarters. Giles Turner A whole new world HEADS UP CONTENTS 2 INVESTOR SERVICES JOURNAL Automation and corporate actions 1 Heads up the Editor’s letter 4 Letters Reader’s points of view I News 6 Global snapshots & mandates Round up of securities services headlines from isjnews.com 10 News analysis Reading between the lines 14 CEO profile Ali Pichvai, CEO of Quad Financial I Special report 16 Fully Automated How corporate actions are getting automated I Technology 24 Panel Discussion The evolving nature of data management I Funds 30 Putting the I in BRIC Focusing on India I Custody 33 The next stage Custody in APAC 35 Hope Springs Eternal Custody in the Italian market I Fund administration 38 Off the record European clearing and settlement 42 Outsourcing and Europe The most active market 44 Regulating paradise The motivation behind Caribbean regulation 50 Analyse This The future for hedge funds 58 Pension funds Ireland Moving towards alternative assets? I Securities lending 60 Plus ça change... How the European appetite for sec lending is changing I Management systems 65 EMS Systems Who has invested and why? I Regulars 68 People moves 80 Hindsight/Foresight Greg Froese of Insch I ISJ Directory 69 The directory of securities services providers 38 60 VOL 5 No. 29 - 2008 16 A global player in asset servicing... Ofering leading value in investor services demands constant evolution. At CACEIS, our strategy of sustained growth is helping customers meet competitive challenges on a global scale. Find out how our highly adapted investor services can keep you a leap ahead. CACEIS, your comprehensive securities servicing partner. ... and climbing. Custody-Depositary / Trustee Fund Administration Corporate Trust CACEIS benefits from an S&P AA- rating www.caceis.com w w w .m u n i e r - b b n .c o m The future of SOR technology W hilst MiFID provides a range of opportunities for innovation that affects both the buy- and sell- side it is multi-lateral trading facilities (MTFs) that are driving innovation. Offering an automated means for brokers to match orders with suitable trading venues, smart order routing (SOR) is key to achieving MiFID compliance and providing competitive advantage. In fact, for most, SOR has become synonymous with best execution. The evolution of SOR technology will be determined by the idiosyncrasies of the new trading venues and the way the financial institutions interact with them. Each trading venue demands a different set of SOR logic in order to optimise trading opportunities on that venue. This way, SOR will evolve from simply splitting orders to become a much more sophisticated algorithmic mechanism resolving the best trading opportunities across multi-dimensional dark and published liquidity pools – intelligent liquidity access. As the market fragments, metrics for judging the power and efficiency of SOR technology will develop, and financial institutions will focus more on the quality of the SOR solutions they use. For now, performance is the key driver as it allows brokers to set themselves apart by securing liquidity and best prices as quickly as possible. Eventually, the marketplace and technology changes resulting from MiFID may well precipitate a shift in the relationship between buy- and sell- side. Market evolution may result in technology moving up the chain, with the buy-side investing in its own SOR systems. This does not mean that the role of broker will become obsolete. While the buy-side is becoming more eager for market visibility, there is still a considerable wealth of trading experience and expertise that only brokers can offer – and that few sell-side institutions would care to forego. However, brokers will need to invest heavily in SOR technology in the near future and develop the most advanced algorithms in order to outstrip the competition and satisfy customer demand. Ian Salmon, head of European strategic marketing at Fidessa LETTERS TO THE EDITOR 4 INVESTOR SERVICES JOURNAL Next for FX T he FX industry is eagerly awaiting the forthcoming final report by the Committee of Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS) following its survey of over 100 banks in 2006. This is a major “check-point” as the central banks pursue their stated policy of pressing financial institutions to eliminate settlement risk in FX, the world’s largest financial market. This comes at a time of increasing growth in this market with broadening participation, more platform based trading and higher volumes in emerging markets. The provisional findings released by the CPSS in July 2007, found that 55% of surveyed FX obligations are settled by CLS, the only global settlement system for eliminating settlement risk. This figure is growing year on year. Fund related FX accounts for a significant proportion of the outstanding 45%. Settlement loss is the potential loss of the total value of the trade due to failure by the counter-part to deliver, and this risk applies to funds. CLS has seen a The pen is mightier than the sword...If you are affected by, or have an opinion on, any aspect of investor services please write to giles@ 2ipartners.com and enter into the running to win an exclusive Cross pen. Since its founding year in 1846, Cross, the leading luxury writing instrument manufacturer, has had a reputation for innovation, craftsmanship and design. Today, the Cross collection is comprised of well designed and always appropriate lifestyle accessories for where you work – whether that’s at the office, at home, on a plane, or in your car. These include personal leather accessories, timepieces, cufflinks and reading glasses. The winner of the letter of the month will receive an Apogee Ballpoint Pen from Cross in a Black Star Lacquer finish, hand polished to perfection and accented by polished chrome plated appointments, worth GBP60. For further information see www.cross.com Change is the challenge for the Transfer Agent O ne of the key themes at the recent International Transfer Agency Summit (ITAS) in Luxembourg, was the globalisation of transfer agency and the race to dominate the Asian market. Fund management companies are clearly becoming more interested in Transfer Agents (TA’s) who can help with managing market volatility at home, whilst enabling wealth creation in emerging markets. Looking at technology and how it can guarantee robust, real-time support, for complex fund structures and a consistent cross border service, with support for unique national rules and regulations, at whatever stage of the economic cycle; I believe ‘change’ is the challenge. To meet these challenges, we need to have ‘change’ at the forefront of our minds. TA’s which can offer genuine choice, scalability, flexibility and the ability to work with whatever stage of customer transformation an organisation has reached. In a shrinking world, it is only a matter of time before TA’s offer a seamless global service. Until then, the key thing is to distinguish the TA best able to handle consumer’s needs, whilst managing change, wherever they are in the world – in other words, change is the challenge. David White, executive director, Mutual Fund Technologies Prize winner \ZibdgZ HZiiaZbZciVcY8jhidYn"<adWVaHZXjg^i^Zh;^cVcX^c\">ckZhibZci;jcYHZgk^XZh ;aZm^WaZhdaji^dch!iV^adgZYidndjgcZZYh#GZaVi^dch]^ebVcV\ZbZci! Wj^aidcYZZeZgjcYZghiVcY^c\#HZgk^XZZmXZaaZcXZ"i]VindjXVciV`Z [dg\gVciZY#8aZVghigZVb#G^\]i]ZgZ!l]ZgZndjcZZYjh# =ZgZ 29_Ad_ÌnvestorServices.indd 1 11/04/08 16:48:51 LETTERS / NEWS 6 INVESTOR SERVICES JOURNAL FREE NEWS DAILY AT WWW.ISJNEWS.COM significant number of funds become CLS participants recently, evidence that the funds community is undergoing a shift in sentiment towards FX risk. Why is this? As the global economy evolves, investment managers are turning to the international marketplace for higher returns and are also viewing currency as a non-correlated asset class with significant opportunities for improved alpha. Others are uncomfortable with the exposure to currency risk in their portfolios and use forward contracts to hedge that risk. As FX becomes more prolific amongst portfolios, investment managers are taking the initiative to offer best practice in both risk management and cost control. But how do investment managers eliminate the risk of loss in FX? Many investment managers historically traded with only one counterparty, their custodian. This avoided settlement risk because only the custodian is involved in debiting and crediting the sold and bought currencies. For competitive reasons, and often to comply with contractual obligations more fund managers are now trading with a range of broker banks. This has changed the risk and operational profile for fund managers. Settlement failure can be caused by a number of things, including counterparty collapse, incorrect settlement instructions, and human error. Collapse of counterparty is a rare event, although the failure of Barings Bank in 1995 is evidence of that catastrophic risk. More common, particularly around high volume points such as the IMM quarterly settlement dates, are operational errors and failures. CLS settles the matched payment instructions related to foreign exchange deals in pairs in real time, eliminating the time zone differences that cause payment delays and give rise to settlement risk. With growing volumes and values being traded on behalf of funds by many investment managers, this operational control and oversight of the settlement part of FX deals has been the missing link in the life cycle of trading and settling. The number of investment funds now registered as CLS third party participants (gaining access to CLS through their custodian banks) has reached 2038 and is testament to the growing awareness amongst funds of the need and ability to eliminate settlement risk. At the last quarter date, CLS settled 199,140 fund related instructions with a gross value of USD521 billion. Furthermore, by demonstrating to clients, auditors and risk managers a sharply reduced exposure to settlement risk and the virtual elimination of failures, investment managers decrease the funds’ liability to claims and other settlement charges. The consultative CPSS report noted that despite banks pushing over half of all FX volumes through CLS, further progress was needed for institutions to properly control their settlement exposure. Current market conditions accentuate the need to control operational risk and adhere to best practice, and therefore the market will certainly see financial institutions, including asset management houses, continue to take the necessary steps towards eliminating FX settlement risk. Jonathan Butterfield, Executive Vice President, Marketing & Communication, CLS Bank International. CUSTODY, CLEARING AND SETTLEMENT London - Nordea has signed an agreement to sell its institutional global custody business to JPMorgan. The business will transfer to JPMorgan over the next 12 to 18 months and Nordea will provide its customers with a full service throughout the transition period. “Nordea wants to focus on services where we can truly add value to our customers”, says Birger Gezelius, head of financial institutions at Nordea. “Our current institutional customers will gain access to JPMorgan’s best-in- class global custody offering and value-added services, while allowing us to strategically focus on our core competencies.” London - JPMorgan announced it has been mandated by Devon County Council Pension Fund to provide global custody and related services for its GBP2.2 billion Fund. JPMorgan previously serviced approximately 250 million of the Devon County Council portfolio. Barry White, investment manager of Devon County Council Pension Fund, said: This appointment comes after an exhaustive review and tender which was conducted with the assistance of Thomas Murray. Our overall perception of JPMorgan was one of pro-activity and a willingness to work with Devon. We were very impressed with the package offered by JPMorgan. FUNDS AND ADMINISTRATION London - Dedicated hedge fund manager Scipion Capital is launching a third fund, which will invest in listed equities and attractive IPO opportunities across the African continent. The new Cayman domiciled fund, called Scipion Alpha Seeker is to be US Dollar denominated and an actively managed portfolio of shares covering the African continent excluding Egypt and South Africa. LEGAL AND COMPLIANCE London - George W. Bush and Gordon Brown have agreed to set up a working group of senior regulatory and Treasury figures from the US and UK which will develop plans to monitor and regulate the banking system to deal with the crisis in the financial markets. The proposals agreed Hank Paulson, US Treasury secretary, NEWS Agents Banks in Major Markets Survey by Global Custodian SANTANDER DE NEGÓCIOS PORTUGAL Cross-Border TOP RATED 2007 Leading Clients TOP RATED 2007 Domestic Markets TOP RATED 2006-2007 www.santander.com SANTANDER PRESENT IN OVER 40 COUNTRIES Value from Ideas and Alistair Darling, UK chancellor, include the formation of a UK-US regulatory body, which will offer “individually tailored” international supervision for leading banks and financial institutions with who are involved in significant cross boarder activity. New York - The Operations Management Group (OMG) has submitted to Timothy Geithner, president of the Federal Reserve Bank of New York, its latest set of goals for strengthening operational efficiency across privately negotiated credit and equity derivatives products Consistent with ISDA’s primary purpose, to encourage the prudent and efficient development of the privately negotiated derivatives business via the continued standardization of documentation, promotion of sound risk management practices and education of the market place, ISDA endorses the commitments and expectations outlined by the industry in its latest letter. MARKET INFRASTRUCTURE Oslo - Goldman Sachs has started direct trading in equities on Oslo Børs and the regulated market place Oslo Axess from Monday 31 March. Including Goldman Sachs, Oslo Børs has 61 members, of which 37 are remote members trading from offices outside Norway. The number of members on Oslo Børs are doubled over the last seven years. On Oslo Axess there is 46 members, including Goldman Sachs. Goldman Sachs is the third new member on Oslo Børs and Oslo Axess in 2008. SECURITIES LENDING New York - Wall Street is lobbying the Federal Reserve to take bonds backed by student loans as collateral in its new lending facility to stem a slump in demand for the debt that’s driving lenders to stop writing loans. The American Securitization Forum and the Securities Industry and Financial Markets Association asked for acceptance of AAA rated securities in an April 2 letter to the Federal Reserve Board and the Federal Reserve Bank of New York. TECHNOLOGY London - A recent panel debate on electronic trading in Europe has highlighted the importance of technology to leveraging liquidity, the role of electronic trading and the impact of dark pools during a series of panel discussions. London - NYFIX, a provider of innovative solutions that optimize trading efficiency, has announced the acquisition of UKbased FIXCITY, a specialist in web-based electronic trading and liquidity discovery solutions. Mandates round up of awards NEWS 8 INVESTOR SERVICES JOURNAL NEWS DAILY AT WWW.ISJNEWS.COM Yet another good period for BNY Mellon, seeing the outfit awarded sizable mandates from the Robert Wood Johnson Foundation, O2 and the Colorado Fire and Police Pension Association (FPPA). BNY Mellon’s rival, State Street, also snapped up several lucrative mandates, including the renewal of its contract with BP pension trustees, which it has had since 1987. It has also been appointed to provide custody services and fund accounting for Rensburg Fund Management’s UK unit trust funds. Meanwhile, Devon Count Council has plumped for JP Morgan to provide custody, accounting, and value-added services to its GBP 2.2 billion fund. Devon CC only chose JP Morgan after a review and tender, which it was aided in by Thomas Murray. Previously JP Morgan had been servicing approximately GBP 250 million of Devon CC’s portfolio. Mandates awarded in March and April 2008 Month Winner Client Location Assignment Mandate size April Northern Trust Handelsbanken Norway Custody Services USD 50bn April BNY Mellon Colorado FPPA Boston Custody Services USD 3.5bn April State Street BP Pension Edinburgh Custody Services GBP 14bn March JP Morgan Devon CC London Custody Services GBP 2.2bn March BNY Mellon 02 London Custody Services EUR 1bn March BNY Mellon RWJ Foundation Boston Custody Services USD 9.5bn March State Street Rensburg London Custody Services GBP 1bn NEWS DAILY AT WWW.ISJNEWS.COM AD odyssy fin tech half page suppied - need full page NEWS ANALYSIS 10 INVESTOR SERVICES JOURNAL Blueprint for change Paulson streamlines the regulators O n March 31st Hank Paulson, America’s Treasury Secretary announced his plans for the US regulatory system. It has been described by various leading financial publications as the ‘boldest’ attempt to overhaul the US’s regulation system ‘since the depression’. Mr Paulson’s plans for the US involv e various phases of reform. He proposes the initial expansion of the Presidents Working Group (PGW), which comprises America’s Treasury, the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission. The PGW group would take control over credit ratings and derivatives-trading infrastructure. The Plan also involves the development of a Mortgage Origination Commission (MOC), which will oversee the securitisation process. Eventually Mr Paulson plans to remodel the regulatory architecture of the country into three clear agencies, the Federal Reserve will monitor overall market stability, a prudential regulator will be created for banks and thrifts, and a business conduct agency. In so doing Paulson will reform the current mixture of regulatory bodies, of which he has long been outspoken in his criticism considering it as an inefficient and fragmented system. The new regulations predate the credit crisis originating in a desire to make the US’s capital markets more competitive by streamlining the country’s regulatory agencies, but with political and economic pressures arising from the crisis in the credit markets and the need to more closely regulate lending standards, the new need for new regulations which will more deeply regulate the securitisation process and the activities of investment banks and hedge funds has become paramount. The new regulations have caused debate. Some think they are not stringent enough, the treasury considered creating a single centralised body like Britain’s FSA. Others consider that the changes are too extreme in their editing out of agencies such as the Office of Thrift Supervision, (OTS) and the drowning out of state level regulators. But for the banks on Wall Street, the new regulations are a death toll for autonomy. The Fed’s bailing out of Bear Stearns meant that they had to expect tougher regulations and this they will get. The reforms mean that the Federal Reserve will have much deeper access into the balance sheets of hedge funds and investment banks in order to hunt anywhere for systematic risk and will now be accountable for overseeing the well being of the economy. The MOC will grade the underwriting of loans going to pools and PGW has unveiled reforms of its own, which include plans for better disclosure of loan terms for borrowers and analysis of underlying assets by issuers of mortgage-backed securities. Credit-rating agencies will be expected to distinguish more clearly between ratings for structured products and straight corporate debt, and to flag up conflicts of interest. The group is also seeking to encourage alternatives to standard securitisation, such as covered bonds, which provide banks with capital- market funding while holding on to their mortgage loans. The reforms are in keeping with European sentiment regarding the crisis, with increased transparency as a predominant concern. However whilst Europe will rely on the principals of best competition, will Amercia simply over regulate? Whilst the regulations may raise the shackles of the banking community it is obvious that there needs to be a serious re-haul of the regulatory environment in the US. Uncertainty about the extent of the problems on balance sheets, and the lack of understanding about what went wrong and questions about whether the banks themselves are in fact financially sound have caused a culture of massive uncertainty for investors. There is a need for new regulations, which will inspire investor confidence and create a new level of stability so that the real economies and stock markets can recover. Also by streamlining the regulators they are essnetially making the system more competitive. Paulson’s regulatory reforms come at a time when regulatory bodies around the world have been responding to the turmoil. The Financial Stability Forum, which is the body coordinating the global response to the market turmoil has been floating strategies to fighting the credit crisis including proposals for a large group of important banks to simultaneously reveal their financial positions. Other bodies include a group of leading UK-US regulators treasurers lead by Hank Paulson and Alistair Darling, which announced its intentions to create a transatlantic regulatory body to monitor and regulate the banking system. There is an attitude on both sides of the Atlantic that innovation in the financial services industry has to be preserved and that transparency regarding the underlying value of credit is now paramount. But whilst the US’s approach of streamlining is very much needed, it is interesting to watch as the cogs of the country’s extensive regulatory machine start to turn and its history of implementing massive infrastructural reform whenever crisis hits, repeats itself. Rather like with the last statute Sarbanes- Oxley which arose out of the Enron decable - it may seem like a good idea at the time but may also have far reaching and problematic effects. I www.securities.bnpparibas.com “ A masterpiece! The story hinges around BNP Paribas Securities Services, who are always coming up with new and ingenious ways of providing their clients with a winning solution. In this book, we uncover the secrets of their success: their on-the-ground presence in Europe, Asia-Pacific and the US means they are perfectly placed to address the full range of their clients’ business needs, on a global scale. BNP Paribas Securities Services - close to clients, close to markets. ” BNP Paribas Securities Services is incorporated in France with Limited Liability and authorised by the French Regulators (CECEI and AMF). BNP Paribas Securities Services London Branch is regulated by the Financial Services Authority for the conduct of its investment business in the United Kingdom and is a member of the London Stock Exchange. BNP Paribas Fund Services UK Limited, BNP Paribas Trust Corporation UK Limited and Investment Fund Services Limited are wholly owned subsidiaries of BNP Paribas Securities Services, are incorporated in the UK and are authorised and regulated by the Financial Services Authority. NEWS ANALYSIS 12 INVESTOR SERVICES JOURNAL custody businesses like Nordea that “simply cannot weather the pressures”, adds Silitschanu. Stemming from the acquisition, JP Morgan is to make available local depository services to locally based Nordic mutual funds. It will open new branches in Norway, Denmark and Finland and additionally is set to grow its presence in Sweden.Conrad Kozak, global head of JPMorgan’s Securities Company, says: “This acquisition emphasizes JPMorgan’s commitment to the Nordics. ”This latest move makes JP Morgan the largest player in the Nordics. I Another one bites the dust JPMorgan Chase acquires Nordea I t’s certainly been a busy month for American financial services giant JP Morgan. Close on the heels of its much-ballyhooed, cut-price acquisition of failed broker Bear Stearns, it has gone and bought Nordea’s global custody business, the largest global custodian outfit based in the Nordic region, worth an estimated EUR 200 billion. Though financial details of the transaction were not released, this will probably turn out to be a pretty good piece of business for JP’s boys. Nordea made the sale through traditional auction and said it had “a lot of interest”. Part of the transaction entails that JP Morgan is made the global custodian for Nordea Funds and Nordea Life & Pensions. So far, on the face of it at least, the acquisition has gone about as smoothly and painlessly as possible. Stockholm- based Nordea will keep its sub-custody business, providing custodial services to those who invest in Nordic countries, and over the next year or so approximately half of Nordea’s employees in its global custody section will move to JPMorgan Worldwide Securities Services. And most importantly, nobody gets laid off. In essence, the sale has stemmed from Nordea continuing to tinker with its own identity and at the same time is a symptom of the continuing consolidation of the global custody market. Nordea is the product of a merger between the Swedish, Finish, Danish and Norwegian banks of Nordbanker, Merita Bank, Unibank and Kreditkassen. It’s a sizable entity, with over 29,000 employees worldwide, and is probably the world’s leader when it comes to internet banking, boasting 4.8 million online customers. However, Nordea has obviously realized that it is simply not comfortable as a global custodian. In essence, it is admitting that it simply isn’t big – or small and specialised enough - to maintain the global part of its custody business. Nordea’s Birger Gezelius says of the sale: “The rationale for doing it is that we have drawn the conclusion, some years back, that long term for anybody who is not specialised in global custodial services and servicing large institutional clients, will never be able to compete with the specialists. “We though it better to act now than wait and see business deteriorate. I think the global custodian market has been consolidating for a while, and I would not be surprised if the speed of this consolidation picked up. Other banks across Europe and elsewhere will come to a similar conclusion.” On JP Morgan’s part, the move is part of a strategy to expand its presence in the Nordic region, where it first established itself near on 15 years ago. The company has identified the fact that Nordics could grow to be one of the largest asset servicing markets in Europe. It claims that currently there is more than EUR 2 trillion under management in the Nordics. Phillip Silitschanu, an analyst with independent research outfit Aite, says: “It is little surprise to see another custody business being bought, as the industry continues its consolidation. The forces behind the wave of consolidation over the past few years will continue to drive the industry to become more concentrated into a tighter and tighter mass; in the end we may finally see a custody industry with only a handful of large mega-custodians, with a few small, niche satellite like firms in the outskirts. It is the medium-sized Enter the dragon HSBC makes its move on the UK’s mortgage market I n a move that has surprised many, HSBC has offered to match whatever existing mortgage deals homeowners have. The gambit is an attempt by Britain’s biggest bank to take advantage of its rivals’ current vulnerability and grab a piece of a market that it has not historically been dominant in. In this current climate, where nobody wants to lend any money to anybody else, many banks that offer mortgages are finding it impossible to get the plentiful funding they had access to previously. Consequently, many mortgage holders coming off deals are finding a market that is stingy to say the least. Those who put down smaller deposits and who don’t have a lot of equity in their properties and are deemed high risk, are encountering a veritable desert. Enter the dragon - HSBC. Over a five- week period, 14 April to 18 May the bank is to extend its Rate Matcher offering to non-customers, to match existing fixed-rate deals even for rates as low as 4.54%, for two more years. The only caveat is that borrowers are required SEB is the leading provider of custody and clearing services in the Nordic/Baltic region. Business is built on long standing partnerships with our clients. Our commitments are efficiency, reliability and providing the highest service quality. For further information please contact: Global Head of Custody Services: Göran Fors, [email protected]. Head of Sub-Custody Client Relations: Ulf Norén, [email protected]. to have a minimum of 20% of the equity in their home and will have to pay a fee, calculated from what the borrowers original rate was and the size of the mortgage. HSBC has estimated 75% of the new customers will pay less than GBP1,000. In the current doleful lending climate the bank can afford to do this as it does not borrow its money to finance mortgages from money markets, as many of its rivals do. And the banking giant has admitted that rather than a planned course of action, the move is purely in reaction to the market. Speaking on the circumstances that allowed the bank to make the offer, HSBC’s James Thorpe said: “It’s a number of factors, primarily we had a very conservative policy towards lending which admittedly hasn’t made us made us the most competitive in the past.” He also cited the fact that HSBC does not sell mortgages through brokers and intermediaries and has not bought any other mortgage lenders, preferring to grow its business “organically”. “We have a building society model where we use retail deposits and the bank’s own capital. After growing retail deposits in the last three years as people have looked to save cash with large institutions like us, we are in a good position.”Thorpe goes on to warn that the deal will not be ideal for everybody. “We don’t want this to come across as the golden goose of mortgages.” Nevertheless, a deluge of new business is expected. The bank has said that it has moved staff from other areas to help with the new business. Overall this could turn out to be a very shrewd piece of business for HSBC, and a little self-congratulation is probably going on over HQ. The bank needed some good news following on from the embarrassing debacle last week when it lost a disc containing the names and insurance data on 370,000 customers. How did this happen? They sent it by unregistered postal mail. Ah well, could have happened to anybody. Meanwhile, Britain’s debtors and homeowners shifted uneasily on news that there was a 2.5% fall in house prices in March, the largest since the early 90s. Gordon Brown’s statement that the price fall is “containable” is unlikely to comfort many, especially in the light of the IMF’s recent warning that the British economy is heading for a substantial downturn and that house prices in the country could decline by up to 10% in 2008. Recently Caroline Flint, the minister of state for housing and planning, shrilly denied a BBC presenter’s accusation that Labour’s claim that the boom and bust years were no more, has been embarrassingly shown to be false, as the storm clouds gather on the economic horizon. Though some, like HSBC, find themselves in a position to take advantage of current climes, most will have to whether the storm, crunch, crisis or bust, whatever you may call it.. I NEWS ANALYSIS CEO PROFILE - ALI PICHVAI 14 INVESTOR SERVICES JOURNAL Ali Pichvai takes time out of his structured schedule to talk to Catherine Kemp about fragmenting liquidity What was it that inspired you move from NET2S to start Quod Financial? I have an aspiration and background which is entrepreneurial, and so for me starting Quod Financial was about a desire to go from advising people into a space where we could practice what we preached and prove that our ideas were not just hot air. We had a vision of what was possible and what clients needed. We started NET2S in 1996. It was my second company. The first one was more of an experiment than a real company and allowed me to learn by making mistakes. We had many ideas when we started NET2S, but consulting was what we did because we were young and didn’t have the capital to do anything else. In 2004 NET2S brought a certain number of assets from Reuters and Quod Financial started out of that, as a NET2S venture. We eventually sold NET2S to BT last year, although I have been fully dedicated to Quod Financial since 2005. What is the vision of Quod Financial, what is your niche? The vision is really that execution is changing in nature. We have been living for the last 15 years with the paradigm of connecting to exchanges. But now we are moving into a space where we will bring intelligence back to the platform and decide how to execute in a multi asset world and how to really look for liquidity, because liquidity is no longer centralised, Profile: Ali Pichvai, CEO and Founder of Quod Finanical Ali Pichvai CEO PROFILE - ALI PICHVAI INVESTOR SERVICES JOURNAL 15 it is decentralised. We are going to see a lot of innovation in this field. This is why we developed what we call the advanced execution platform. That’s the vision we had at the beginning, but it takes time to implement it. We have been working on it for a while, but we are now gaining momentum, it seems that the vision is shared with our market participants. What experiences from your time at NET2S have you brought to Quod Financial? The first thing is obvious. At NET2S we saw multiple cases of how technology can be implemented in the trading arena and this knowledge was the foundation of Quod Financial. Secondly, in building any company you learn a lot of lessons about management, whether it’s how to take a company public or how to survive a recession. One of the hardest lessons is how to manage people; how to attract the best talent, how to keep them motivated, how to help them grow, but also how to get rid of non-performing people. I did an MBA and it never prepared me for management. That is a skill that doesn’t come from knowledge of a market place; it’s something that you have to learn through doing and taking risks. At NET2S we went up to a thousand members of staff, managing a one thousand strong company is very different from managing twenty, fifty or a hundred people. At NET2S we were in 8 countries, the cultural differences between how people lead the same company in different geographies are fascinating. You learn everyday, you also make mistakes but you also appreciate the differences in different cultures. The increasing complexity of trading technology is often blamed for the fragmentation of liquidity in the market, what is your view on this? Is fragmentation a bad thing? Technology empowers, but it also changes the landscape via positive feedback on the environment. Technology is evolving and enabling a lot of things that a lot of traders and investors wanted to do, but it also creates a new reality for new practices and models to emerge. This therefore is changing the market, making it more complex and global. We are living in an evolutionary and complex system. What is changing rapidly is that liquidity is changing in nature becoming decentralised and most asset classes are becoming electronic. Therefore you can do everything electronically out of a pool of liquidity that is scattered across a few places. The buy side who is the final investor now has a cross asset type of investment strategy, but the systems are not yet multi asset or cross asset, therefore there is an appetite for systems that can look for liquidly and do it in a multi asset fashion. It’s not just different trading areas it’s different assets. This is the highest level of complexity to have cross asset trading because you have to know the liquidity profile of each asset class or instrument of asset class, you have to know how they are tied together, it can only be done with machines not on a human basis it’s just too complex. MiFID rules seem to have dramatically changed European Capital Markets, what is your view on these changes? What have they affected already and what will they change in the future? A lot of brokerage houses and buy-side houses see MiFID as a cost, but beyond the cost MiFID was the catalyst for changes which are very positive to the market. They have encouraged the development of a pan-European capital markets space rather than a fragmented national base. MiFID has made Europe more transparent, much more than the US. I believe in transparency in general, because it allows for as much information as possible to be shared in an equal manner between market investors and participants. This in turn ensures that there is more competition in the market place, which is good for the market place. A lot of things that were happening in the US didn’t happen in Europe because MiFID was the impetus for change. Quod recently produced a white paper on the need for a fresh approach to algorithms, how are Quod’s liquid seeking algorithms different from previous algorithms? There is an evolutionary process happening with technology today. Formerly algorithms allowed you to take decisions purely on certain mathematical rules, now the rules are a framework with which you look at different events in the market and you take decisions all the time. It’s not just one set of rules, or one set of decisions. Now, liquidity searching means that you build a certain number of algorithms that predict how the liquidity is on the market. The models we are applying allow you to predict where the liquidity is and where it is moving. But it’s a predictive model and so you have to make decisions, which are contingent on what you see on the market at the same time. Quod brings to the market an advanced execution platform, which is the latest in this kind of technology and allows you to take dynamic decisions all the time because the machine reacts to every piece of market data. This wasn’t true even three-four years ago. What are your goals for the future? I have promised myself that my next company will be a non-commercial venture. I don’t like the word charity, but it should be a company which helps other people to achieve their own goals. There are different phases in life, in the first phase you want to achieve and you want to prove that you are able to achieve something. Once you have done it a few times you realise you are playing the same game more or less, even if it gets tougher and tougher. After a while you have to find something else to challenge yourself. Doing a company for non-commercial purposes, in a more altruistic manner, is the next challenge for me. I Ali Pichvai is CEO and founder of Quod Financial, which is a provider of advanced execution technology for the global capital markets. Prior to founding Quod Financial, Pichvai started NET2S Group in Paris in 1996, a capital markets technology consultancy. He has a Masters in Engineering (Physique et Chimie Lyons, France) and Masters in Business Administration (Bocconi, Italy). CORPORATE ACTIONS 16 INVESTOR SERVICES JOURNAL Fully Automatic As firms acknowledge that they must automate their corporate actions, Joe Corcos takes a contrasting look at the progress that is being made in Europe and the US L ike trips to the dentist, corporate actions can be inconvenient, complicated, and sometimes painful, but are always necessary. Neglect them, and a firm is likely to pay - possibly dearly. During the last few years most in the financial industry have, at times reluctantly, realized that the automation of large parts of such actions is not only necessary, but inevitable. With its huge domestic market, it would be easy to assume that companies in the US have a marked advantage over their European counterparts. In Europe, across a portfolio there could be up to 40 or 50 jurisdictions with their own methods and regulations, whereas in the US there is the very real option of ignoring the hassles of cross-border, multi-currency actions and having to pander to the vagaries of different regulatory regimes. With the DTCC's (Depository Trust and Clearing Corporation) oversight and EDGR (electronic data gathering and recording system), the tool used to collect and report corporate actions, domestic processes are infinitely smoother and less complex. Gert Raeves, vice president, business solutions, GoldenSource, says: “The US obviously benefits from the single regulatory, single currency and almost single depository and clearing mechanisms for products and the dominant position of the DTTC makes of the process a lot easier”. Nevertheless, corporations in the US are continuing to increase cross-border investments, and in so doing face the same obstacles as those in Europe and elsewhere. But in a world that is becoming increasingly connected, it has become both necessary and desirable to be able to automatically carry out cross-border actions, even in a country with such a massive domestic market as the US. Indeed, globalisation is one of the driving forces behind the move for automation of corporate actions. Geoff Harries, the vice president of product strategy at Check Free, says: "That distinction between US domestic processing and what historically used to be called cross-border are merging. "To make a market distinction between regions is very difficult these days, and part of the reason for that is because one of the trends that we've seen has been the shift in asset allocation within US investment CORPORATE ACTIONS 18 INVESTOR SERVICES JOURNAL strategies to diversify into international securities." Of course the most pressing issue to be addressed is that of standardisation. As the volume of corporate actions and the blizzard of electronic messaging that they require steadily increases, companies in both the US, throughout Europe, and elsewhere, must be on the same page, data wise. "I think a standard is desirable, I also think its practical impossibility", says Raeves. "There isn't a single governing body, and that could be a regulator or exchange, that could be effective," he adds. "So the standardization can only happen on a lower technical level, where you say ok there isn't any true fiscal or legal harmonization of real world stuff, what we can do is at least make sure that when we start sending these things around as electronic messages that we do that in a language or format that is at least understood by all of our machines in the same way." Currently the ISO 15022 messaging standard, developed in 1995, is the only messaging standard used widely. Swift (Society for Worldwide Interbank Communication) has been busy pushing the standard in Europe and more belatedly in the US. Ashok Panda the product director of corporate actions at TATA says: "In Europe to some extent [standardization] has been achieved. Though there is still a long way to go. One of the examples could be the ISO 15022 method, the Swift. There is much more acceptability in Europe for using Swift than in the states. "Standardization of the messages and the market practice would definitely help a lot. In the case of US you have the US domestic market and you have the international market. In the US domestic market everything is as per DTCC." The fact that Swift is a European-based organisation also partly explains why it has stronger influence in Europe. However, the Americans have acknowledged the fact that despite the size of their domestic market, they too must adopt ISO, an act that will hopefully boost the already rising appeal of foreign markets in the US. Swift is now working with the DTCC to that end. David Hands, director of product management at DTCC says: “We're working extremely closely with Swift. I would imagine in the future ISO will get a lot more play than it does today. “Traditionally where ISO has not gained much foothold is in the US, because people will always base their corporate actions off DTTC files, and I don't think that inhibits any cross border trading, but acts as a alternative to Swift standards in the US so with our new files going out in ISO we're working very closely with Swift to modify the 15022 standard to incorporate those data elements we need included in the standard. “When you step back and look at the changes that The last eight years has seen a steady rise in the volume of corporate actions. In the 2008 the volume is set to be more than five times the amount recorded in 2000. This is a trend that is not likely to abate, as firms in the US increase cross border activity and developing markets in Asia and the Middle East look to attract foreign investment. Last year developing markets rivalled the UK and Ireland in the growth of corporate actions messaging, closely followe by the Asia Pacific region. Global Corporate Actions traffic Growth of Corporate Actions messaging in 2007 Overall - though the automation of corporate actions has come on by leaps bounds in the last five years - many companies still rely on the manual methods that have been serving them for decades The Logical Solutions Provider Don’t Get Burnt By Bad Corporate Actions Data www.dtcc.com Having to validate thousands of corporate actions each week can expose you to significant costs and risks. That’s why you need global experts like DTCC in your corner. With DTCC’s Global Corporate Actions Validation Service you get: · 24 hour global ahhouhcemehI capIure, validaIioh ahd supporI services · Global CorporaIe AcIiohs domaih experIise ahd khowledge oI local markeI pracIices · Peal-Iime access Io almosI 2 millioh global securiIies ih 160 countries · ÌhIra-day publicaIioh Iiles Iailored Io your securiIies oI ihIeresI · Service levels deIihed by our cusIomers · A parIher commiIIed Io besI pracIices ahd drivihg ihdusIry standards · A predicIable cosI sIrucIure For more information, contact DTCC Solutions LLC at [email protected] or by phohe aI: New York: +1 212 855 4215 London: + 44 (0) 20 7650 1501, Shanghai: + 86 21 3220 4710 (x8021) Clearance and SeIIlemehI - EquiIies ahd Fixed Ìhcome Asset Servicing OTC Derivatives Mutual Funds Managed Accounts Alternative ÌhvesImehIs Ìhsurahce Global Corporate Actions CORPORATE ACTIONS 20 INVESTOR SERVICES JOURNAL are required, you're reengineering your internal systems to accommodate this stuff. I think that 15022 has done a good job setting the scene.” Linda Bookheim, a corporate actions expert at Swift, acknowledges: "In general in the US market, how it does corporate actions is very domestic based. "Our role in the US market is about providing guidance and cross border communication. So with DTCC adopting the ISO standards it will make it much easier for the US community, as they start to increase their cross border investments, to use Swift to communicate to the counter parties that are indeed not on the continent." Bookheim's colleague, fellow Swift corporate actions expert Max Mansur, admits that there are certain "data element translation issues" in the US, but that these are being rationalised with the ISO standard and being incorporated. Meanwhile, in Europe there is what Mansur calls a "tremendous amount of harmonization", with the overall goal of the continent being able to act as a single, harmonized market. Of 15022 Hands says: “Its quite dynamic and almost over-flexible people are saying these days. There's a movement to refine specific data content within the message because it leaves less room for interpretation, and if you do that people use the standard more appropriately, and as people do that adoption will continue to grow.” However, some are less enthusiastic about the supposed popularity of the ISO standard. Steve Miller, senior product manager at SmartStream Technologies says: "Lack of standards has been the main barrier to automation in general, and take up of ISO15022 hasn't been as wide as is needed to fully take advantage of the standard. "Swift is doing more and more work in this area but we have seen reluctance, historically, for US institutions to buy into the work Swift has done." Miller went on to admit that though eventually a standard may emerge, it will "not be in the foreseeable future", and referenced the fact that the financial services industry is "littered with failed initiatives". And yet companies in the US and Europe are forging ahead with automation, though they are by no means the only ones. Asia and the rest of the world are catching up fast. According to Swift by far the fastest growth in corporate actions automation is occurring in Asia Pacific and developing markets. Furthermore, since these markets often do not have old systems in place, one of the major blocks to automation, incorporating old legacy systems, is not so much of a factor. Mansur says: "Markets like China are definitely starting to automate, and they're starting from scratch, looking at the mistakes that other markets have made and saying, 'ok, we need to automate this process from the beginning, using newer technology, not old legacy tech, that can be easily updated and adapted to changes in the market'". He adds that other developing markets, like Dubai, Taiwan and South Africa have also realized that if they desire foreign investment, they must move their systems from the old- fashioned paper-based model to one that is automated. The technical hurdles that must be vaulted by a company are one of the major disadvantages for an outfit that is considering automation. Overall it is a costly, sometimes lengthy process, with any number of pitfalls. Recognizing what is realistically achievable is key to avoiding an overly lengthy and painful process. Raeves says: “I think people have over-reached themselves sometimes. They haven't simply said we want to make sure that for all of the corporate action notifications that we receive, we have a single validated gold copy, which is a realistic ambition. “What they've done is said, what we want to do is receive all the data and apply it to all the position entitlements and make sure that we are doing all of the voluntary processing. That makes it a project which is a multi-year project which means that measuring the benefits is difficult. You also have corporate risks, including losing your executive sponsors and corporate management teams. That has been the experience of a few of the earlier adopters.” According to Harries, integration of older systems presents a major challenge. In fact he estimates that up to 60 per cent of the cost of automating corporate actions is on the integration side of things. He comments: "One of the things we've seen is not about standards, it's a little closer to home. It's the internal systems where the actual data resides.. "Some of the bigger obstacles aren't necessarily about market practice, standards and adoption of Swift messages, they're closer to home in terms of building the integration, that is a key element in the success of a project.” Harries goes on to warn that any company considering automation should be sure to select a vendor strong on integration, otherwise "you're left with a significant part of the puzzle that has not been solved." Somebody once said that in life the only certain things are death and taxes. Most financial institutions can add corporate actions to that list CORPORATE ACTIONS 22 INVESTOR SERVICES JOURNAL John Byrne, the CEO of Information Mosaic, agrees: “Early on a lot of people have had a bad experience with automation. When you go into down stream processing of automation the systems require a lot of integration. To automate corporate actions correctly you have to be able to reconcile and see all of the positions that a firm has, correctly.” Overall, though the automation of corporate actions has come on by leaps bounds in the last five years, it is by no means universal, and many companies still rely on the manual methods that have been serving them for decades. Nat Sey, the reference data business manager for Interactive, calls corporate actions “the last bastion of manual processing”. Many custodians have succeeded in automating their corporate actions process, as have sub-custodians and data vendors, however the issuers have been slower off the mark, generally continuing to pass on notices to the rest of the market in a text form. This makes things ever-more complicated for those further down the chain. Panda says: "In the last five or six years the automating of corporate actions has evolved quite a lot. But as far as the adoption of that by the different financial institutions is concerned I'm not very sure about that because whilst they keep talking about it, there is not very much progress in that respect. "It almost looks as if they know that it has got to be done but they haven't yet taken a decision. They're just sitting on the wall and trying to take that jump." Part of any reluctance to adopt automation of corporate actions is to do with the very nature of them. One of the most obvious reasons to automate one's corporate actions is to try and reduce the possibility of missing one and being hit by a financial body-blow as a result. However, for an outfit that has not suffered such an event, or perhaps whose memory of such a calamity has faded, there seem few pressing reasons to initiate the costly and possibly fraught move to automation. “On the business side, too often corporate actions have been viewed as a huge challenge offering less strategic benefits than processing new instruments, or as being forced on firms due to the need for regulatory compliance. As a result they are put on the backburner in favour of other projects. It has been a reactive process in that it's not until something goes wrong, causing a significant operational loss or customers service issue that corporate action's automation is given priority.” Bookheim says: “The cost of implementing a system is an impediment, it requires building your own or the purchase of third party software, and in all cases it requires a really strong business case. “It's hard to quantify a business case that is based on potential risk rather than something that's going to benefit you and make money.” However, the reality of these possible catastrophes is considered imminent enough by many institutions and many have established a sizable contingency fund just sitting waiting to be deployed, claims Sey. He comments: “If you speak to a number of the investment banks in the industry if you ask them if they have contingency funds for corporate actions they may kind of shift uneasily, because no one wants to admit to it, or indeed the size of these sorts of contingency funds. But its pretty much accepted wisdom that they do exist because in a manual corporate action world making a mistake is pretty inescapable at a certain point, that's the sad fact. “There are pretty severe penalties in place for missing corporate actions and I don't just mean necessarily monetary penalties, there's reputational risk involved here as well in terms of missing a corporate action.” The undeniable fact remains that by making a large portion of corporate actions automatic, the risk of being hit is lessened. Some actions of course cannot be automated, but automating the ones that can, it frees- up more people to look at the ones that can't. Sey continues: “The goal of automation is not to receive 100% automation, which is not achievable, you need to have a pair of eyes looking at certain processes. But what automation does for you is to allow you to shift the focus of the manual processing towards the more esoteric events, which are naturally the events which carry more risk”. It is simply a matter of encompassing all the data flows hitting one's business, whether they are in manual or electronic forms. Somebody once said that in life the only certain things are death and taxes. Most financial institutions can add corporate actions to that list, and that being the case, automating them helps cut down not only the likelihood of financial disaster, but also saves on time and resources. Currently the US and Europe are leading the way in automation, and both sides of the Atlantic are making approximately even progress, with Europe slightly edging the US. Overall the progress of automation can be likened to the gruelling winter breeding trek of the Emperor Penguin - slow, painstaking, and somewhat inefficient, but determinedly inexorable. I Automating corporate actions helps cut down not only the likelihood of financial disaster, but also saves on time and resources SmartStream’s Transaction Lifecycle Management (TLM ® ) software solutions bring operational efficiency, real-time visibility and risk control to the Middle and Back Office. Highly scalable, automated processes track and control entire transaction lifecycles as they break through organisational silos and extend beyond the enterprise. Collaborative, flexible processing environments are created that support, not limit your business. Integrated human and system workflow at the heart of SmartStream’s TLM solutions provides robust processes and a complete audit trail of every transaction. Regulatory compliance is made easier while risk and costs are reduced. Take Control Cash Management Compliance Management Corporate Actions Exception Management Reconciliations Trade Finance Trade Process Management www.smartstream-stp.com with Transaction Lifecycle Management ® PANEL DEBATE 24 INVESTOR SERVICES JOURNAL ISJ PANEL DEBATE Data Management Evolution Our panel of experts debate the evolving nature of Data Management... Robert Cumberbatch is the European business lines director, Pricing and Reference Data, Interactive Data (Europe). Cumberbatch joined Interactive Data in June 1998 as production director to run the company's IT operations. Cumberbatch was responsible for the mission critical IT infrastructure with a 24 x 7 data centre, a 24 x 6 technical support group, network support and project planning. From January 2003 Robert led an international real-time integration of ComStock's infrastructure into that of Interactive Data. Matt Meinel, Global Director of Business Development, 29West. Meinel worked on the original Reuters Triarch system at Rich/Reuters. Following that, he served at the UBS Investment Bank and its predecessor organizations - Swiss Bank Corp and O'Connor & Associates - for more than 15 years, starting as software architect/project leader with O'Connor and rising to CIO-level. Matt spent 5 years living and working in London and ran global IT development groups within UBS for more than 10 years. Mario Orphanou is Product Manager for Enterprise Data Management products at Odyssey Financial Technologies and has been an active participant in Market & Reference Data Management for over 20 years covering active operational engagement in both buy and sell side organizations, EDM software development, and consultancy services. Gert Raeves is the Global Head of Marketing and Business Solutions, GoldenSource Corporation Prior to GoldenSource, Raeves worked at CheckFree where he was responsible for product marketing in their Securities and Investment Division. During his five year tenure, Raeves held a variety of roles including securities product manager, business development director and, most recently, product marketing director in charge of middleware, EAI transaction management and corporate actions. Michele I. Kelsey, SVP/Americas Business Owner, Pricing and Reference Data, Reuters America, Michele Kelsey has over 20 years experience in fixed income, financial services and information technology. She is currently Product Business Owner for Reuters DataScope Pricing and Reference for the Americas. Kelsey was with Reuters Loan Pricing Corporation from its early inception and growth, and ran sales, marketing and the global loan pricing service. PANEL DEBATE Is improving data quality across a firm a technology issue or is it more about the cultural practices of the firm – should clean, concise data be treated as a higher priority throughout the lifecycle of a firm? Cumberbatch: Often, improving data quality across an organisation is a technological, cultural, organisational and procedural issue. Each of these areas can have very different drivers and needs, and occasionally these drivers are in conflict with each other. For example, the search for speed can drive IT architectures to be more distributed, spreading processing capabilities closer to where they are needed most, whilst the principles of a ‘golden copy’ can drive the push for centralised data repositories. The need to improve data quality can stem from the inefficiencies caused when decisions are based upon inaccurate, incomplete or untimely data – or from the gains that can be enjoyed by enriching existing datasets. Firms must decide whether their information assets adequately meet their organisation’s information needs and take the appropriate steps to ensure that they do. The aim of this approach would be to move away from, or to avoid, inefficiency or to seek further benefits. Orphanou: Data management is both a technology and cultural issue. As data volumes continue to grow exponentially due to rising transaction volumes and regulation, it is crucial that firms adopt an enterprise wide approach to data management and that this is given high priority at every level within an organisation. Kelsey: Organizations are increasingly adopting the concept that data needs to be treated as an asset. Once a piece of data enters the firm, it needs to be scrubbed, tagged, and tracked as it moves through the platforms and downstream systems. The ability to measure data quality through a formal data metrics program, which is a constant 24 hour process, is vitally important to the equation. A data governance structure is also critical. Rules must be applied to manage conflict resolution properly, exercise control over who can change the data and under what circumstances, and ensure that the systems communicate smoothly. The strongest operators in this market will look at culture and technology as being equally important. Though technology is needed to power the solution, at the end of the day, people are driving the technology and choosing to make the investment based on importance. Do you need custody services in the Nordic region? Or are you looking to take advantage of market conditions in Denmark, Finland, Sweden or Norway individually? Then it pays to talk to Nordea. We are the leading financial services group in these countries and provide you with in-depth knowledge and custody services in each market as well as the entire region. We offer comprehensive services and a single point of entry to the Nordic region through a dedicated relationship manager supported by a Nordic team of specialists. If you want to capitalise on our experience, please contact Ms. Anne-Lise Kristiansen tel +47 2248 6238 email: [email protected] Making it possible N o r d e a B a n k A B ( p u b l ) Spot-on custody services. PANEL DEBATE Is improving data quality across a firm a technology issue or is it more about the cultural practices of the firm – should clean, concise data be treated as a higher priority throughout the lifecycle of a firm? Cumberbatch: Often, improving data quality across an organisation is a technological, cultural, organisational and procedural issue. Each of these areas can have very different drivers and needs, and occasionally these drivers are in conflict with each other. For example, the search for speed can drive IT architectures to be more distributed, spreading processing capabilities closer to where they are needed most, whilst the principles of a ‘golden copy’ can drive the push for centralised data repositories. The need to improve data quality can stem from the inefficiencies caused when decisions are based upon inaccurate, incomplete or untimely data – or from the gains that can be enjoyed by enriching existing datasets. Firms must decide whether their information assets adequately meet their organisation’s information needs and take the appropriate steps to ensure that they do. The aim of this approach would be to move away from, or to avoid, inefficiency or to seek further benefits. Orphanou: Data management is both a technology and cultural issue. As data volumes continue to grow exponentially due to rising transaction volumes and regulation, it is crucial that firms adopt an enterprise wide approach to data management and that this is given high priority at every level within an organisation. Kelsey: Organizations are increasingly adopting the concept that data needs to be treated as an asset. Once a piece of data enters the firm, it needs to be scrubbed, tagged, and tracked as it moves through the platforms and downstream systems. The ability to measure data quality through a formal data metrics program, which is a constant 24 hour process, is vitally important to the equation. A data governance structure is also critical. Rules must be applied to manage conflict resolution properly, exercise control over who can change the data and under what circumstances, and ensure that the systems communicate smoothly. The strongest operators in this market will look at culture and technology as being equally important. Though technology is needed to power the solution, at the end of the day, people are driving the technology and choosing to make the investment based on importance. Do you need custody services in the Nordic region? Or are you looking to take advantage of market conditions in Denmark, Finland, Sweden or Norway individually? Then it pays to talk to Nordea. We are the leading financial services group in these countries and provide you with in-depth knowledge and custody services in each market as well as the entire region. We offer comprehensive services and a single point of entry to the Nordic region through a dedicated relationship manager supported by a Nordic team of specialists. If you want to capitalise on our experience, please contact Ms. Anne-Lise Kristiansen tel +47 2248 6238 email: [email protected] Making it possible N o r d e a B a n k A B ( p u b l ) Spot-on custody services. PANEL DEBATE 26 INVESTOR SERVICES JOURNAL An airplane cannot fly itself; it must have a competent pilot at the helm, who not only understands and can operate the technology but also evaluates the real world external and practical issues. The difference here is that the pilot understands the importance of data quality, and using technology properly. Though some financial institutions have not always understood this, I think the recent climate has caused cultures to change and drive their technology toward data quality. Raeves: It depends where you are on the chicken and egg question...It is both a technology and cultural issue. The root causes of having bad data are a mix of poor behaviours, institutionalised neglect, and siloed business functions. For all the pious noises about the central role of data, financial institutions do not define themselves as data processors - they are in the business of making money. If that means creating another data silo to start trading a new product, so be it. On the flipside of that argument, the adoption of a shared data software platform can and does trigger a lot of existential questions about data ownership, standards, and governance. So no - technology is never the driver, but it can be a catalyst for forward looking firms - it is only when you start the process of automation that you are forced to make a complete inventory of requirements - and those requirements are more often than not in the domain of behaviours, company culture, and governance Meinel: Improving firm-wide data quality today is ultimately about cultural practices. However, several thorny technology issues can impede data quality even in a firm that really understands the criticality of firm-wide data quality. One newer thorny issue most firms face in today’s environment is dealing with timely delivery of data when trade times are being measured in milliseconds. Even firms like UBS, my former firm, that invested and focused on global data sets for most of their businesses throughout the 1990’s, faced the reality that many of these systems were not fast enough to keep up with data streams coming in from exchanges and OTC markets this decade. At my current firm 29West, we saw this requirement back in 2002 and responded by designing messaging systems for transporting data messages at speeds as low as 15 microseconds (0.000015 seconds) over modern networks and operating systems. I see many systems at banks, exchanges and hedge funds today struggling with the tradeoff between speed and accuracy. At 29West, we provide messaging systems that provide “guaranteed” messaging at microsecond speeds. This is extremely useful for ensuring that a compliance system actually receives all the trades executed by a high-speed algorithmic trading system. Or that ALL orders routed to an electronic exchange are both recorded AND delivered in time to get decent execution. I have seen many examples of data problems caused by the underlying application messaging systems simply losing data or getting so far behind in processing the data that it’s not useful to the business. However, the culture of firms that are winning says, “OK, we have big technology challenges, but data quality is critical to our firm’s integrity and market standing, so let’s do whatever it takes to solve these problems.” Ultimately, the firms that understand that data quality determines the quality of all their business decisions will endure and prosper. So yes! Clean, concise data should be treated as a higher priority throughout the lifecycle of a firm. How can firms organise their data to not only meet current regulatory requirements (Basel II, MiFID etc) but also future requirements? Or will they always be rushing from one regulatory data project to the next? Cumberbatch: Firms are often torn between doing just enough to comply with individual regulations, and adopting industry best practices, to establishing thought leadership positions. On one hand, certain regulations can encourage a minimum best practice approach, i.e. doing the very minimum is sufficient to comply. On the other hand, there are principles within many regulations that do overlap. For example, many directives, such as the Capital Requirements Directive (aka Basel II), MiFID and others under the Financial Services Action Plan, share common goals in principle. These common goals, which focus on minimising the causes and effects of negative consequences, can include strengthening approaches to managing risk, protecting investor interests, and cementing confidence in financial markets. Other aspects of regulation have an enabling approach aimed at stimulating competition and growth; for example UCITS III’s product passport, MiFID’s organisational passport and the removal of the concentration rule. Compliance is clearly enough, but firms can choose to take further action to grow their business whilst reducing costs. The implementation of new directives and the removal of previous legislation can enable firms to seek and obtain opportunities to work differently. For example, UCITS III’s product passport can provide firms with the opportunity to promote products in new EU countries, whilst MiFID’s passport permits a firm to set up business in a new EU country. In reality, taking the time to step back and look at the overall picture is the best approach, as it can help to avoid duplication of compliance measures. In reality, this takes time and discipline. Often firms are forced to look at each directive in turn, assess its individual impact and take the appropriate measures to maintain compliance. Kelsey: Risk management is a pronounced theme among our clients right now. It is understandably tempting (and sometimes necessary) for firms to drop everything to chase after one regulatory 'have to' after another. But firms are so concerned right now with exposures and managing what is in their portfolios, that we find they are doing a great deal of self policing. As a best practice, the most sophisticated firms are looking ahead of the curve to areas where regulation has lagged but are obvious suspects for future scrutiny. PANEL DEBATE INVESTOR SERVICES JOURNAL 27 In order to get ahead of the curve, firms must organise data from multiple sources so as to understand exactly what is in their portfolios. They must also ensure that there is clear data governance in place, and rules of engagement as to how their downstream systems communicate. Orphanou: There is no doubt that the introduction of new regulations such as Basel II, the Markets in Financial Instruments Directive (MiFID) and the Single Economic Payments Area (SEPA) has put the issue of data management in the spotlight. By investing in EDM and ensuring it is given high priority throughout the organisation, financial institutions can ensure their data management is in good shape and has the flexibility to meet any future regulatory obligations. Raeves: At the lowest common denominator level, many of the recent and announced regulatory requirements share four essential characteristics: Quantity: firms need to capture, store and distribute more data than ever before (more sources, more internal customers, more reporting channels) Granularity: higher levels of detail and more integrated and connected data sets Quality: firms must be able to show where the data came from, how a golden copy was created, and the complete audit trail for composites and individual sources Timeliness: firms must be able to send data in near time - batch processing is out, event-driven is in If they want to create an EDM program that allows current and future compliance - these four fundamental qualities need to be included in the design of the solution. Scalability and future proofing translates into four golden rules: store more data, understand the structure of it, make sure you can trust the sourcing and derivation of the data, and get it in and out of your infrastructure quickly. Meinel: My experience in this area is firms that focus on firm-wide risk management are usually a bit ahead of the regulators and do not need to rush from one regulatory data project to another. If your business has not had this focus in the past, start a business unit whose success is critically dependent on the kind of data, messaging, and reporting infrastructure that makes it easy to respond to regulatory demands. Start a cross product risk trading unit or provide prime brokerage for a hedge fund and your firm will be facing many of these types of data issues. The business manager of one of these units that is succeeding in the market will be more demanding than any regulator. What is the cost/benefit return associated with outsourcing and or offshoring (security, regulatory, legal etc) and has that altered in recent years? Cumberbatch: The benefits of offshoring or outsourcing can be reducing costs, increasing a firm’s resource capacity and taking advantage of centres of excellence and competence that are not deemed to be of strategic benefit to an organisation. These are very important considerations for a firm, as unsuccessful offshoring or outsourcing initiatives can prove costly to reverse and put a firm at a competitive disadvantage. These benefits have very different value propositions to firms. For some time, reducing costs seems to have been the most attractive reason for offshoring or outsourcing, but this has also proved to be the largest source of dissatisfaction. As demand for these ‘cheap’ and capable resources increased and began to approach supply, then so did their cost. However, increasing capacity or using centres of competence to augment existing resources introduces different benefits. Here, the focus is on expertise, which an organisation doesn’t need to own or simply does not have. Clearly this is less ‘cost’ sensitive to where many outsourcing and offshoring organisations will be heading. Orphanou: Managed Data Services are a viable option for the smaller firms. Hedge funds in particular tend to outsource data management to their administrators. However, for those firms looking to use their data as a means of competitive advantage, the outsourced model may not be ideal. Data is an enterprise asset and protecting this is critical, also questions may arise over the audit ability of outsourced data management. As a result, some organisations will always prefer to handle data internally. Kelsey: Outsourcing and offshoring are central elements to any organization's go to market strategy. Going forward, we will see a fundamental shift toward outsourcing and the range of services offered by firms, including the purchasing and provision of data management sources. As the markets continue to evolve, we are likely to see a mesh of providers emerge, which provide a hub of data services to the market. Offshoring has certainly helped to streamline parts of the data management process that are more routine, and there is a compelling cost savings element. However, firms often underestimate what it takes, and how quickly subject matter expertise can be developed. Institutions must recognise that there is no conveyor belt for market knowledge, no substitute for people who have deep knowledge of, for example US Fixed income, or Canadian equities. As firms continue to learn from their experience in offshoring, they will invest more heavily in automation, either directly or via an outsourced firm, and put systems in place to make up for knowledge gaps. This has to be part of any cost/benefit equation. Raeves: Outsourcing and off-shoring does not necessarily translate into straightforward savings - the business benefit is more about focusing your business on what it does best. Some firms are making the call that managing data is not a core competency, others feel that much of their market differentiation is in their unique understanding of highly complex financial products, closeness to their customers, and detailed understanding of their counterparty risk. There is no right or wrong answer here - it is tightly linked to how firms define themselves and what differentiates them from their competitors. PANEL DEBATE 28 INVESTOR SERVICES JOURNAL Meinel: Although costs are going up in many traditional offshoring locations, the benefits are still there for traditional data cleansing work, generating reports and for engineering messaging and data infrastructures. 29West has several clients that are connecting middle and back office groups in India or Asia or US non-financial centers to front office groups in NY, London or Tokyo using our enterprise messaging solutions. Since the abilities of firms to include offshore groups in the culture of the onshore firm has improved it is feasible to move even more responsibility to these “offshore or nearshore” groups. Is automation the key to better organisation of firms’ reference data management, enabling them to better manage risk and cut costs? And what are the obstacles to getting a clear view of clients’ data? Kelsey: Most data and technology experts agree that virtually anything in the data realm can be automated - it's a function of priority, time and investment. But there is a danger in assuming that there is a silver bullet. Automation needs to deal not only with the data itself, but the software and platforms that house the data, as well as the applications that fuel the business. There is clearly automation in and between each of these layers, which gets challenged at many points along the way. At the data level, organizations often want to take the best of class data from several sources. This creates mapping and normalizing challenges - if you look at even a few standard data fields across organizations, more often than not they don't match. It also creates timing challenges, making it critical to understand when and how each source updates their data. At the software or platform level, firms will seek to build a competitive advantage by differentiating. This often introduces proprietary middleware, which means more automation challenges. Finally, legacy applications and databases often exist to do very specific things, and are structured accordingly. Again, it's back to recognizing that once a piece of data comes in, it needs to be treated as an asset and tracked. Where it goes, how it is stored, and who can change it is a vital component to achieving automation. Cumberbatch: Automation is a better way to manage both pricing and reference data, as the manual collection, re-keying and processing of data will inevitably lead to errors. While automation can reduce errors caused by manually moving or entering data between different systems, it also speeds up the process of making this data available to the applications that need it when and where required. When errors occur, they must first be identified, then diagnosed and then successfully resolved. When manual processes are used to share important data between different applications then any errors are very complicated to identify, to diagnose and to resolve. The time taken to resolve these issues can disrupt time-critical workflow processes and thus lead to considerable expense. The old school means of handling data in individual silos, which focused solely on the requirements of each business function, often resulted in a number of disparate systems. Many firms now focus on open access and sharing a ‘golden copy’ across the organisation. Information technologies can achieve this, but other considerations, such as information security, need to be considered as well. Information needs to be shared when it is required, by authenticated consumers who are authorised to see it and with appropriate accountability. Orphanou: Inaccurate data creates a huge operational risk and reworking failed or broken investments costs the industry millions of dollars annually. In particular, reference data underpins every banking product and achieving Straight-Through Processing (STP) represents a significant opportunity to reduce transaction costs. It is important that an organisation’s systems all use the same high quality reference data and that this reaches the appropriate business functions efficiently. This will reduce reconciliation issues, and improve risk management and compliance. There are many obstacles to achieving this, not least inflexible legacy infrastructure and the wide range of data terms from data providers. Flexibility and integration is key and financial institutions should look to make more use of SOA. EDMs should do more than simply collate, cleanse and store data. By encompassing workflow orchestration and automating its distribution to downstream applications financial institutions can significantly reduce costs and improve risk management. Raeves: Automation levels in the financial services industry obey a strict one-way logic: virtually all data and most processes are suitable for automation, and there is no case for manual processing other than inertia, underfunding, or short-termism. Technology is ideally suited for high- volume, repetitive processes - and the very business model of the mainstream banking and investment industry is predicated on scale and cost-effective growth. Finance and IT are a very good match. The challenges of client data are a little different from product data: products are exchanged between trading parties, but the (necessary) illusion of unique customer relationships means institutions are loath to consider their customer databases as a commodity, in the same way they would with a security master file. This means there are no standards for uniquely identifying customers, there is no de facto data oligopoly in the same way it exists for product data, and there is no perceived business driver to make customer data more interchangeable. Meinel: Automation is key to managing reference data. However, I have seen several firms technology groups over- engineer their automated solutions for reference data. New types of reference data are being generated every day. I favor automated solutions that focus on providing key subject matter experts with highly automated toolsets as opposed to systems that try to completely automate out human expertise and judgment. By choosing and designing a clear standardized publish/subscribe PANEL DEBATE INVESTOR SERVICES JOURNAL 29 mechanism into their reference data architecture, firms can leverage the expertise of a domain expert across product silos. For example, it’s typically much better long term for an equity system that needs forex information to leverage the actual reference data used by their forex group than by reinventing it or doing it themselves.= In my experience, one of the main obstacles to maintaining a clear view of clients’ data is that firms frequently approach client data systems as if client data is “static”. That is they put much more effort into designing ways to access the data than they do into ways to publish changes to client data. The reality is that client data is much more dynamic than people realize and can be handled with the same sorts of data management architectures used for dynamic data such as orders, trades, and payments. Has last summer’s credit crunch forced firms to take data more seriously to help manage risk? Cumberbatch: Recent events, from the volatility of the global financial markets to the sub-prime crisis, have put a spotlight on risk management and the essential reference data supporting this process. Only by optimising reference data management, and thus having an in- depth knowledge of the millions of instruments flowing through its systems, can a firm take a holistic approach to effectively managing risk. Critical to this, is the ability to take a 360° view of each financial instrument . Effectively managing and reviewing reference data can help investors understand the underlying dynamics of a security and help them determine their risk exposure. For example, even though a security may have an AAA rating, that rating may be supported by internal or external credit enhancement. To understand the risk profile of that security, it can be crucial to know whether that credit enhancement will hold up under stress. With consistent, timely and accurate reference data, institutions can gain additional transparency and can get a more complete understanding of the financial instruments streaming through their applications and databases, and as a result manage risk more effectively. Orphanou: The sub-prime crisis has highlighted the importance of ensuring financial institutions have access to the right data to evaluate risk. While its impact is yet unknown, the crisis may affect the reference data requirements associated with assets. Financial institutions may look to store more information on customers and more closely evaluate the risk of investing in certain products. Financial institutions require a significant history of consistent, accurate and granular data. EDM solutions that centrally collect, manage and retain critical operational data will help practitioners to analyse and make better decisions about their credit risk exposure. Such a system also makes it possible to audit data from the point of origin to consumption. Kelsey: Absolutely. The turbulence in the credit markets over the last year has made it imperative that investors measure exposure and monitor risk very closely. For most financial firms, this is very high on the agenda right now. The credit crunch not only changed the complexion of the portfolio mix, but the degree of scrutiny the underlying instruments receive. Though cash issuance has dried up considerably, portfolio managers still need to achieve returns for their investors, and still need to achieve diversification. They are increasingly turning to the derivatives markets as an alternative, and are taking a more global approach in search of investments. Because each transaction is bespoke, the volumes in the derivatives markets are eclipsing those of the underlying cash instruments. And they are far more complex to value. While lack of transparency in pricing complex instruments might have been tolerated in a bull market, this is no longer the case; it is simply becoming too much risk for the return for investors to bear. Additionally, investors don't only want to know risk of issuer but who owns them, so counterparty information becomes a key consideration. Another form of risk often overlooked in this type of discussion, which can benefit from data management and investment, is trade settlement risk; specifically, reducing trade failure rates. This is a form of risk that, in many ways, organizations have a greater degree of control over than the market risk of the current credit crunch. By that I mean, the better the data management capability, and the frameworks that power them, the lower the risk of trade failure. Raeves: Yes, the credit crunch centred around some very complex financial products, but reacquainted the industry that - however ingenious the financial engineering - you need to be able to answer the basic questions: what is the product, how much is it worth, how do you price this asset, who is my counterparty on this contract? It illustrated the gap between the small specialist group of quants and engineers who understand the products, and the risk, control, and finance infrastructure of the wider institution. It is clear now that CROs and CFOs will actively corral the sharp end of the firm, and what they need to do is get the right data - so that the numbers and calculations that are used for the trading and investment activity, are the same ones used for risk and exposure management. A shared, centralized and standardized data architecture is what is needed for an effective risk architecture - it is the only way to catch risk as it flows through the system - whether it is market, credit, operational or legal risk. Meinel: Yes. The complexity of the fixed income securitization products clearly got a lot of attention the last several months. These particular products are notorious in their sensitivity to data errors in reference data. I expect firms that continue to trade and deal with these products to invest seriously in improving data accuracy and timely deliver of data to their risk managers. I FUNDS INDIA 30 INVESTOR SERVICES JOURNAL Building BRIC As one of the BRIC markets (Brazil, Russia, India, China), India challenges China’s development hegemony in the Asian region. Jamie Darlow looks at why it is such an investment hotspot and the development of its capital market L ast month, the Ford Motor Company tied off the sale of its luxury car brands, Jaguar and Land Rover, for a rumoured USD2 billion, paid for with a USD3 billion one-year bridge loan from Citigroup and JPMorgan (lending must go on, credit crunch or no). The buyer is of course India's Tata Motors, one of the world's largest companies and a shining demonstration of the nation's economic might. India now has some of the largest corporates in the world and it's now debateable whether India should still be considered an emerging market. It now has all the trimmings associated with a developed economy, including a booming listings market. The market capitalisation of listed companies as a percentage of GDP exceeded 90% in 2006, up from 32% in 2000 according the World Development Indicators database, published in April 2007. The funds market has also seen phenomenal growth over the past few years. India is slated to become a USD1 trillion market in assets under management for wealth management providers by 2012, with a target market size of 42 million households, according to a recent report from Celent. There were around USD545 billion in assets under management in 2005 in India. Growth of around 8% a year since then now puts that figure at around USD600 billion in assets under management. And this is sustained growth, according to Neil Daswani, managing director and global head of Securities Services with Standard Chartered Bank. “India's five- year bull market, backed by record fund inflows and strong corporate earnings, encouraged retail investors to put 4.8% of their household savings into funds in 2006 and 2007, up from 0.4% two years earlier,” he explains. Akhauri Sinha, head of RBC India, agrees that assets under management are likely to hit the trillion mark in coming years. “Going by the present growth rate of 15%, Celent's USD1 trillion figure by 2012 is not a big figure and seems achievable,” he says. Yet he thinks some of Celent's figures may actually under-represent the market. “In India there are currently around 300 million middle class households which is set to rise by 2012 to 375 million as income levels continue to grow. India's average saving rate is 35%, higher than most of the world's economies. There were around USD545 billion in assets under management in 2005 and there has since been an average growth of around 15% annually. The AUM is predicted to grow at an average rate of 15% minimum in the next three years. As of now India has around USD600 billion assets under management. Going by the present growth rate of 15%, Celent's figure of USD1 trillion by 2012 seems achievable.” The exact figures aside, those middle- class savers represent a massive opportunity for investment banks, precisely why RBC opened a representative office in India earlier this year. And RBC is certainly not alone - recent entrants include RBS and the Development Bank of Singapore, who join JPMorgan, Merrill Lynch and Morgan Stanley who are all firmly established regionally. Market potential has also drawn a plethora of asset managers to India. There are currently 32 Asset Management Companies (AMC) in the country with around 20 applications outstanding at the Securities and Exchange Board of India (SEBI). Sinha INVESTOR SERVICES JOURNAL 31 FUNDS INDIA says it is expected that by 2010 there will be anything between 50 and 60 AMCs in India. “The more the AMCs, the more the need for need for depositaries, clearing houses and custodial services,” he explains. “There is good potential for all such businesses in India. Presently, this area is serviced by the large international banks, and some domestic ones,” continues Sinha. “Down the line, this particular sector is definitely going to grow because there is a high demand for these services and as of now the demand exceeds supply. Apart from domestic players, it is expected that international players will come in to fill the gap.” The New York Stock Exchange (NYSE) Group also showed interest in India in early 2008, buying a 5% equity position in the Mumbai-based National Stock Exchange of India Limited (NSE), the maximum investment permitted by a foreign investor in a stock exchange under the securities laws of India. The stake is costing the exchange USD115 million in cash from a consortium of selling shareholders, including ICICI Bank Limited, Industrial Finance Corporation of India Limited, IL&FS Trust Company Limited, Punjab National Bank, and General Insurance Corporation of India. The transaction is expected to close in the first quarter of 2007. Investment in and out of India is huge and the staggering growth in savings and GDP in India has left the regulatory behind in some instances. The rupee is still subject of controls implemented by the Securities and Exchange Board of India (SEBI) - foreign investors must register with the regulator. Today there is partial capital account convertibility, where an individual can invest up to USD200,000, part of a phased roadmap for convertibility of capital accounts driven by the Tarapore Committee. “Captial account convertibility for us is a 'process' and not an 'event',” a spokesperson for the exchange explained. While there are conditions to full convertibility for capital accounts, including tight control of both inflation and fiscal deficit as a percentage of GDP, which has to be within a certain range, the country is expected to see full account convertibility within a few years. “The government of India is taking steps to make Indian currency convertible on capital account.” The Tarapore Committee has also made a series of recommendations for a phased liberalisation of controls on capital outflows over a three year period. A full description of the recommendations can be seen in our boxout, but Daswani from Standard Chartered outlines the implications here: “Our view is that clearly authorities are relaxing controls over capital flows we are going to see only gradual move towards capital accounts convertibility. Near term fiscal overruns on wage revisions for government staff, high spending on social sector and so on, along with turmoil in international financial markets might slow down the pace of liberalisation. Similarly opening up of banking system to foreign ownership will be gradual, and rightly so.” International organisations such as the European settlement service, Euroclear, are anticipating any liberalisation will lead to an increase in their reach in what must be the world's worst kept secret, Indian economic expansion. This year Euroclear sign a memorandum of understanding (MoU) with the Central Depository Services (India) Limited (CDSL) to foster greater cooperation. Philip Reichardt, head of International Collaboration at Euroclear, explains the Indian mutual funds have grown exponentially in recent years after minimal growth during the first part of this decade. Reliance Mutual Fund continued to lead the pack with assets worth Rs 90,937 crore under management. Though the fund’s assets slipped 2.77% as compared with February (Rs 93,531.67 crore), it is steadily moving towards the milestone of Rs 1 lakh crore. Source: www.easyMF.com Mutual Funds growth in India FUNDS INDIA 32 INVESTOR SERVICES JOURNAL motivation behind the pow-wow: “We formalised our relationships with an MoU so that we can exchange information freely. From our side, we will give them insight into European domestic and cross-border transaction processing practices as they are keen to bring themselves in line with international standards.” Reichardt explains the opportunities: “A lot of the opportunities for us depend on how foreign banks are allowed to interact with local banks. In most instances, the local market is keen to get involved with Euroclear as we are seen as a proxy for foreign investors. In the Indian market, we work with a large network of foreign banks and domestic Indian financial organisations. With a few exceptions, the domestic Indian banks are not as well known internationally because they haven't had the business opportunity.” Arun Tiwari, head of the Mumbai office at Swift, comments: “Economic liberalisation in India has come a long way and it is on an irreversible path supported by all governments that have been in power since the early nineties. With this in the background, it will be only natural that we'll see increased partnerships & cooperation between Indian and western markets.” Euroclear has existing MoUs with the other depositories in India, the National Securities Depository (NSDL), the depository for the equity market, and the Clearing Corporation of India, a central securities depository that specifically handles the settlement of government securities. Meanwhile, the NSDL has not been idle, signing an MoU with Taiwan Depository & Clearing Corporation (TDCC) in February. Back in India now, and Swift opened its first office in India in Mumbai late November last year. The organisation said it is strengthening its presence as a direct result of sustained growth and development of the financial services sector in India, and in particular the proliferation of international relationships between Indian financial institutions and counterparties worldwide. Investment into India is becoming easier and more mainstream. March saw Standard & Poor's launched an index designed to provide investors with tradable exposure to the Indian equity markets, listing ten of the largest and most liquid Indian companies which trade on developed market exchanges. Mutual funds are also beginning to develop in India, says Reichardt. “We've seen interest developing for these funds on the international front, with investors wanting to add these to their foreign investment holdings. The Indian equity markets are still very retail based, but it's growing and expanding,” he explains. “Expect to see growth continuing as the government is keen to nurture the development of more professional advice for Indian private clients - and Indian private clients know they need more professional advice because they can't keep pace with all of the changes, like every other market. India has been a safe bet up till now, but professional investors must know how to manage money in down as well as upward markets.” Institutional investors have had an increasingly important role over the past 15 years, with foreign institutional investors and Indian mutual funds now responsible for assets under their management representing around 18% of the entire market capitalisation. “With the accelerating trends of reforms Indian stock market will witness more and more of institutionalisation and the increasing size of money under the control, this set of investors will play a major role in Indian equity markets,” explains Daswani of Standard Chartered. “The importance of institutional investors particularly foreign investors is very much evident as one of the routine reasons offered by market pundits whenever the market rises it is attributed to foreign investors' money, no wonder we see headlines like "Flls Fuel Rally" (Foreign Institutional Investors), in the business press. This is not unusual with India alone as most developed economies of today might have seen a similar trend in the past.” But there is a dark cloud on the horizon for India, given the recent downturn in the US economy that still accounts for around a fifth of the world's GDP, according to the IMFs 2007 figures. This depends on the extent to which India has 'decoupled' from the US, according to Daswani. “The idea of a complete decoupling, in which a US slowdown had no impact on India, is clearly implausible given the interdependent, linked-up nature of the world's modern globalised economy. For proponents of decoupling, the world economy is now less dependent on the United States than before because of development in China and India, increased intra-Asian trade and a more vigorous European economy. There can never be a decoupling from the US economy but the magnitude of the impact will not be what it was in the past.” RBC's Sinha agrees the US subprime crisis will affect India: “there is no country in the world that can say a US recession will not affect their country. But India will not be affected that much. The total exports to the US from India represent around 19% of Indian exports. Ongoing demand in domestic consumption means that any decline from exports will be filled by the domestic market.” Stan Chart's view is slightly more sobering. “Asia will not be an oasis of prosperity in case of a global slowdown, and the stock market could be hit hard. India is doing terrific but no one can be granted immunity in a global slowdown. India may feel collateral damage in the equity markets,” says Daswani. However, India is certainly better placed to withstand a US slowdown than a decade ago. I “With the accelerating trends of reforms Indian stock market will witness more and more of institutionalisation and the increasing size of money under control” “The idea of a complete decoupling, in which a US slowdown had no impact on India, is clearly implausible given the interdependent, linked-up nature of the world's modern globalised economy” APAC REGION CUSTODY INVESTOR SERVICES JOURNAL 33 T he established markets of Australia and Japan dominate the Asia Pacific region. Between them they manage over a trillion US dollars just in mutual fund assets under management, with Australia taking top spot with close to USD540 billion as at the third quarter 2007 and Japan at USD552 billion, according to Cerulli Associates. But 2008 could see them knocked off their pedestals by China, whose mutual fund assets were close to USD400 billion by the third quarter 2007, quadrupling from around USD100 in 2006. If anything, the Chinese custody market is being unnaturally restrained by the state's regulatory control of capital markets, which slows foreign investment. China has been careful in opening up its markets to foreign investment and Hernan Rodriguez, managing director, Depositary Receipts, at the Bank of New York Mellon, feels the process could be speeded up: “The rest of the world would be delighted with the opportunity to bring the latest technology and trading techniques to the Chinese market, but much of the drive would depend largely on the willingness of an unwieldy bureaucracy to permit the introduction of multiple simultaneous innovations.” Laurence Bailey, JPMorgan's Worldwide Securities Services APAC CEO, agrees regulation has impeded foreign investment. “The obtuse and dynamic regulatory framework in China is causing some sluggishness in foreign investment,” he says. “As most local companies are still state owned and often not audited by internationally recognised accounting firms, foreign investors could be reticent about investing in local businesses.” Controls are now being relaxed in China but the upshot of regulation has given the domestic custodians a head start in the region. The Industrial and Commercial Bank of China (ICBC) plays the biggest role among many, but they are likely to be joined in coming years by the presence of locally incorporated foreign banks, many of whom are looking for entry through Hong Kong, one of the most developed custody markets in the region. Chong Jin Leow, head of Asia, BNY Mellon Asset Servicing, sees future potential for growth. “Hong Kong, operating one of the most open markets in the world, has been a centrepiece of investment market creativity and sophistication for the past twenty years. It boasts a highly developed pension market, a vibrant retail market, and a large and diverse institutional and high net worth market that has led to the creation of highly complex products including hedge funds and REITS,” he says. Marcel Weicker, head of location in Singapore for BNP Paribas, agrees the region shows future promise. “Hong Kong certainly also seems to have growth potential with the continuous listing of China mainland companies on the HK Stock Exchange,” he explains. Hong Kong and Singapore represent a half-way house between the developed markets of Japan, Australia and New Zealand (more on them in a minute) and the nascent developing states such as Thailand and Taiwan. Giles Elliot, Singapore-based product head of Custody and Clearing at Standard Chartered, explains that Korea holds great potential for custody services growth. The bank bought an 80% stake in domestic fund accounting company A Brain last October, giving access to the local market. “It gives us a notable market share and extended capability into the local fund administration market, one of the fastest growing markets in the region,” says Elliot. The next stage Jamie Darlow looks looks at the lastest custody services developments in the APAC region 34 INVESTOR SERVICES JOURNAL APAC REGION CUSTODY “Pension fund reform and mutual fund reform and the growth in the number of products, combining with a relatively wealthy local community makes for market potential in Korea,” he continues. “The community is increasingly looking for cross currency exposure on those investments - many are not happy having their pension plan entirely linked to the Korean market. There has been a thirst for more structured products therefore, away from the traditions of the cash account. That's driving a lot of growth - the demand to get into equities and international equities, where traditionally they had been money market orientated.” Inbound foreign investment has been possible for more than a decade in Korea, albeit with the usual requirements such as registration with the securities commission. Elliot says Korea has been a pretty structured market but that we are now seeing liberalisation with new regulation coming through - currency liberalisation for example, including account convertibility. Liberalisation of markets seems to be something common among developing APAC markets. Taiwan, Malaysia, Thailand and Indonesia, and of course India, are all taking steps to open up markets and promote foreign investment. Privatisation is expanding the value of capital markets in all APAC countries, making them attractive to foreign investors from Europe and the US. Taiwan and Korea have both recently introduced private pension schemes. The other driving factor is of course the growth in the number of those wanting to invest. The middle classes are growing in number across Asia causing domestic custody to increase. India is slated to become a USD1 trillion market in assets under management for wealth management providers by 2012. This is thanks to the dramatic growth in middle class individuals who are expected to save money and will represent 42 million households by 2012, according to a recent report from Celent. Indian custody is covered in more detail in our special report, which reveals the country is fast approaching developed market status, at least in terms of custody services and the size of the market. Those markets considered 'developed' in the APAC region - Japan, Australia and New Zealand - still have potential for growth, however. “In Australia we find an extremely mature pension market, but one of the most vibrant hedge fund, private equity, and offshore fund markets in the world representing significant high value avenues for growth and expansion for global custodians with the ability to support these investment models,” explains Chong Jin Leow. Superannuation in Australia pushed pension fund assets past the AUD1 trillion mark in 2007 and the market is expected to grow to AUD1.8 trillion by 2011 and AUD3 trillion AUD by 2016, according to the Australian Finance Group, Global Funds Management Index. The impact superannuation has had on the market should not be underestimated - Northern Trust entered the Aussie market in 2007 with a staggering AUD51 billion (USD42 billion) mandate from the Future Fund Board of Guardians. The Future Fund was created in 2006 by the Australian government to accumulate sufficient financial assets to offset the government's unfunded superannuation liability, which is expected to grow to over AUD140 billion by 2020. Superannuation is expected to have a similar, albeit smaller, impact on Australia's antipodean neighbour. Guardians of New Zealand Superannuation's selection of Northern Trust as its custodian for the New Zealand Superannuation Fund's (NZSF) NZD11.5 billion (USD8 billion) assets. Northern Trust took custodial responsibility for the fund's assets on 1 July 2007. Japan also still holds growth potential, according to Chong Jin Leow. “All markets in Asia represent ongoing opportunities for growth,” he says. “In Japan, the worlds second largest economy, we are witnessing the emergence of some of the largest pension funds in the world entering global investment markets, leading to incredible opportunities for cross-border custody and securities lending. In some instances these pension funds are managing in excess of USD1 trillion in assets each, and growing monthly.” Developed markets means developed and diverse investments and therefore advanced services are required and it is the developed markets that tax the resources of custodians the most. Where markets are nascent and expanding rapidly, funds are usually investing through equities. This is meat and drink to the custodian banks, who already have all the technology and experience required to service those clients without much additional investment. There are still huge profits to be made in the developed markets but this comes with the need to innovate. Funds in Australia, for example, can demand daily valuations, high volume fund switching solutions and capabilities, daily compliance and performance monitoring, and unitised accounting. Asia is seen by most custodians as purely a growth area, yet there may be some tough times ahead for the funds they service. There is much speculation about whether the Asian economies will be badly hit by the US downturn, as they were in 1997. Chong Jin Leow says that in 2006 and early 2007 there was talk of Asia 'decoupling' from the US and Europe and becoming a region immune to the economic forces of the US and Europe. “I believe that the current market conditions serve to highlight the recognition that if anything, Asia has emerged as a participant in the global economy and as such feels the impact of any economic turmoil exhibited in the world. So, yes, our expectation is that funds will be under pressure in the short term as investors attempt to understand the true extent of the credit crisis in the US, however we also expect Asia to recover very quickly given the strong economies that have emerged since the 1997 crisis in the region,” he concludes. I Increasingly, investors are relying more on independent, bespoke research and less on the traditional bundled research widely distributed by global investment banks INVESTOR SERVICES JOURNAL 35 ITALY CUSTODY I taly is a place where change comes slowly, but for the Italian fund industry, its arrival could be imminent. At least that is what many are hoping. Italy's complicated tax regime and over-regulation has long been a thorn in the paw of the industry, and probably one of the largest factors in driving funds elsewhere and contributing to the Italian economy's general poor performance. However, after pressure from the industry and the Bank of Italy, the country's central bank, a new regime has been drawn up and now only lacks implementation. But bearing in mind the bloody mess that is Italian politics, nothing is certain. The main problem is the fact that the way an Italian domiciled fund and a foreign fund are taxed are different, creating an imbalance that is seen as unfair. An Italian domiciled fund pays capital gains tax on the daily- calculated NAV of the fund every day, funnelling money to the government, which otherwise could be used for reinvestment. In contrast, foreign funds only need pay tax whenever they decide to sell-up, leaving them more for reinvestment in the meantime. Massimo Cotella, the chief executive of SPA, the Italian legal entity of Societe General Security Services, explains: “While if myself as an individual I invest into a foreign fund being sold into Italy I see a performance that is not impacted by the capital gain, so say I buy at EUR 100 and sell at EUR 101, I get EUR1 profit on which I will be applied the capital gain once I sell it. “In the Italian domiciled funds, as it matures, whether you sell it or not you're still levied on the tax, and that creates a discrepancy in performances, and if the market goes sour you have a lot of credit which is damaging the funds, because you have assets which cannot be reinvested.” Italy is currently without a government, but during the last one, the new law instituting a fairer tax was successfully passed through parliament, leaving the next government with little more to do other than implement it. According to Cotella, the industry will be satisfied if the new law is enacted by January 2009, but the feeling from the industry and the Assogestioni (Association of Asset Managers) seems to be the sooner the better. Mauro Dognini, the deputy general manager of BNP Paribas Security Services in Milan says of the current arrangement: “For Italian residents there is an incentive to buy foreign funds rather than domestic funds. As you know, the industry in Italy is a bit in crisis because we are losing assets year after year. In 2007 the industry lost about EUR 56 billion in outflow of money. “It is a bit unfair, the Assogestioni have been trying to convince the parliament to change this law. But we change parliaments very often here in Italy”. After having no effective government since January, this month Italy is to decide between Walter Veltroni's centre-left Democratic Party and AC Milan owner Silvio Berlusconi's centre-right Forza Italia and its allies. So far polls seem to be favouring Berlusconi, despite his Hope springs eternal Italy's red tape and tricky tax regime have long been major disadvantages to the country's fund industry, Joe Corcos takes a look at how things may be finally changing trying to go towards pragmatism.” According to Cotella, the Bank of Italy is also attempting to create a Chinese wall, a method of preventing conflict of interest problems, between the asset managers and the banks. In the Italian industry most asset managers are owned by banks, which creates a captive market, something the Bank of Italy wants to offset. Cotella says: “The whole chain is a captive market, from the distributor to the factory to the holding companies and managers booth. “So the bank of Italy is very much in favour, if not of a separation even in the capital in the two, at least a strong Chinese wall. They're pushing to have more independent board members in the asset manager boards so that the boards will be impacted by independent opinion and not just by the captive world. So they're trying to create an asset manager a lot more autonomous from the group they're belonging to.” Dognini thinks that the Bank of Italy's efforts to separate the distribution and production side of things will aid the industry. He recounts that traditionally in Italy the banks have owned the Italian funds, resulting in captive distribution, leading to a bank both creating funds and distributing them within their branches. He says: “When the banks decide that funds are no longer remunerative and want to sell other products like structured bonds it may change very quickly and convince clients to exit the funds and enter into other products. “If you push for segregation and obtain it, so the independent asset manager is not linked directly to the distribution of the banker, things will change and funds may be chosen because they are better products than others.” “We are in a period of changes. This is a strong push because it comes from the regulators. We will see how the market will adapt.” Another potential stumbling block in doing business in the Italian market is finding a distributor for funds. Players in the custody market can run into difficulties because there are simply not enough distributors. Cotella explains: “The problem is that for the custodian market or the funds market again especially there aren't that many players anymore, here as you can see in the lowering fees to be gained, in an industry which is losing assets, you need a lot of expertise to be able to be close to your customer, on the other hand you have to have a high and powerful IT resources, and money invested in IT”. A principal mistake made by some Americans setting up funds in Italy was installing their global IT system in Italy, according to Cotella. “There's a lot of localism that has to be played with the IT. It means gathering the resources the knowledge, and the expertise. “It's much easier to open up a fund in Luxembourg than in Italy. It is a lot more complicated in cost structure. You have to open up a company here and it requires some structure.” Whatever happens with the new tax law and the slackening of regulation and red tape, what is certain is that the Italian economy is in bad need of any fillip it can get. Reuters has reported that the manufacturing industry in the country has slowed almost to a halt and exports have declined substantially. The most recent NTC/ADACI Purchasing Managers' Index has fallen below the 50 level, which separates growth and contraction, to 49.4. The last time it was so low was in June 2005. This combined with the buffalo mozzarella fiasco and Naples' seemingly never-ending trash crisis (apparently to be resolved by sending the waste to Germany), have left the Italians needing something to restore their pride. The answer is unlikely to be a suddenly rejuvenated funds industry, as the effects of any changes by the government won't happen overnight. However, even a slowly improving industry with a new, fairer tax regime and more efficient regulation will at least be one positive for a country that desperately needs them. However in Italy, the future is unwritten. I ITALY CUSTODY 36 INVESTOR SERVICES JOURNAL unpopularity and perceived lack of success during his previous two terms in charge. But accusations of Berlusconi's links with the mafia, political corruption and dodgy business practices are less fresh in the minds of voters than Romano Prodi's recent centre-left government's unpopularity stemming from tax rises episodes such as the Naples garbage scandal. However the Italian funds industry is hoping that whether it is a centre-left or centre-right government that is elected should not make too much of a difference to whether the tax reforms go through. Dognini says: “Everybody is hoping that one of the first things the new government does is align the taxation of the Italian funds with the foreign funds, so probably this problem will be solved quite quickly, but there are many people that have been saying this for many years.” He continues wryly:“There are a lot of rumours that it will happen in the first 100 days.” Of the reforms Cotella says: “It seems to be not a problem from the theoretical point of view but they still have to enact that and that is one thing.” What is certain is that if and when the tax reforms are enacted, they will have an impact on the Italian custody market. According to Cotella, funds that already exist will be favoured by the law. The Bank of Italy has also recently instituted a raft of other reforms. For example it has vastly scaled back what must be included in a prospectus and put in place regulation that allows funds to merge in as little as 15 days. Also, now no authorisation is needed to set up a fund if it is a clone of one that has already been authorised. Such measures are widely seen as an admission that something needs to be done to aid the financial services industry and the Italian economy overall. Of the new reforms Cotella comments: “These were things that in the past you were not able to do and since a month or so ago they are now possible, so they are What is certain is that if and when the tax reforms ar enacted, they will have an impact on the Italian custody market “We are in a period of changes. This is a strong push because it comes from the regulators” CLEARING AND SETTLEMENT 38 INVESTOR SERVICES JOURNAL Off the record An industry insider talks to Brian Bollen about European clearing and settlement “ Everything is off the record, or I just won't talk to you.” It's not often that I am hoist by my own petard, but this interview with a specialist who is deeply steeped in the folklore of the Byzantine world of European clearing and settlement was off to an interesting start, putting me on the backfoot immediately. I feared the worst, an hour or more of pompous, posturing, self- serving lecturing but a smile soon started to spread across my face as I realised I was in for a treat. It turned out to be a hugely enjoyable interview full of robust, confident, provocative and contentious assertions. One of the best I have ever experienced since leaving Midland Bank International Division and joining the Financial Times Group in October 1984. Anyone who thinks that the clearing and settlement world is deadly dull and tediously boring and relentlessly clinical and technical clearly isn't talking to the right people at the right time on the right terms. Seldom have I relished the rollercoaster ride of a conversation such as this. It started with an analogy likening the debate over the future of Europe's financial plumbing to the squabble over the Zeebrugge energy interconnector in Europe's energy infrastructure. It ended with Da Vinci Code-ish assertions that France and Germany have renewed their attempts to turn the European Union back into their own pet project, this time through the back door, using the planned overhaul of Europe's fragmented and disjointed cross-border trading, clearing and settlement provisions. One of the first recommendations I make when leading a media training course to prepare senior executives to deal with representatives of the press and other media is to insist that everything is off the record, unless otherwise agreed. The principal reason for this is that if the interviewee, or an accompanying public relations minder, doesn't utter these magic words, the entire interview is 'on the record'. This means that the reporter is at complete liberty to use whatever is said without any further reference to the interviewee for 'quote approval'. Insisting that the interview be 'off the record, unless otherwise agreed' means that the reporter is honour-bound to agree on the accuracy of the words being attributed to the interviewee. 'Off the record', incidentally, does not mean that the reporter cannot use the material contained in the conversation, as is often thought. 'Off the record' means only that it should not be attributed to the interviewee without that interviewee's approval. Be warned, though, that if what you say is juicy enough, the reporter might still choose to ignore the agreement and carry on regardless. One overarching rule of thumb to bear in mind when tempted to say something to a reporter is that if you would not be happy seeing it plastered over the front page of the most rabid muck-raking tabloid journal, DON'T SAY IT TO A JOURNALIST!! Another reason for using the formula, with a reporter you feel you can 'trust', is that it can lead to a much more relaxed and fulfilling interview experience for both parties. Writing as someone who has experienced the full gamut of interview conditions from 'on the record' and 'off the record' to 'background only' and 'deep deep background' and 'if I tell you I will have to kill you', I am happy to report that I have been prepared to accept all such preconditions in different circumstances. I can assure readers that a full and frank discussion with an industry expert who is prepared to speak openly in return for an assurance of anonymity can be hugely enjoyable. The words 'selfish', 'rapacious', 'greedy' and 'bastards' featured more than once, uttered with great good humour but a clear intent to wound. The need for balance demanded I contact as many parties as possible for their input, but a number failed to respond, or did respond but in such a way that they failed to convince that the great project to render European trading, clearing and settlement more harmonious and efficient, and less expensive, is not about to run into the ground. To this disinterested observer, it seems obvious that the industry generally is paying the price for the short-term financial gains it made from the demutualization of stock exchanges across Europe. As one observer puts it: “Ever since the CLEARING AND SETTLEMENT 40 INVESTOR SERVICES JOURNAL key questions raised by the CSDs on governance, feasibility, end-user costs, among others, it could be a jump into the unknown that Europe's CSDs could find themselves signing up to.” Impartial market observers will surely utter a quiet three cheers for the Euroclear way, if only because it is becoming tangible, and, so far, seems to work, and is already better than the planned official alternative. “When we launch our Single Platform, for instance, it will be multi-market and multicurrency. It will process domestic and cross-border securities transactions as well as custody, collateral management and securities lending transactions on the same platform, covering about 50% of the European securities markets, while Target2- Securities will only perform the settlement function in euro only,” says Euroclear's Symons. In the meantime, the Nordic markets to which he makes reference have undergone something of a transformation in recent years, the most recent landmark event being the completion of the takeover of OMX by Nasdaq, which also owns, to some extent or other, the CSDs in Iceland, Estonia, Latvia and Lithuainia, notes Ulf Noren, SEB's head of sub-custody client relations for the Nordic and Baltic markets, as well as Germany, Ukraine and Russia. Norway remains a refusenik, ploughing an increasingly lonely looking furrow, but anyone who knows Norway and its inhabitants will recognise the behaviour pattern. There is no way the country will fall in line with its neighbours just because everyone expects them to, and even if it is the most advisable thing to do. In the meantime, Ulf Noren points out, ChiX has now started trading in Sweden and can be expected to take 10-20% of liquidity from the market, and maybe even more from Finland, where it was scheduled to begin trading on April 4. “We are going to see a lot of trading fragmentation as the various exchanges and platforms compete with one another,” he predicts. There is no doubt that 2008 will be a critical year, says Paul Bodart, general manager of the Brussels branch of BNY Mellon. “The push given by the authorities is starting to help, and the exchanges have been behaving like English Premier League clubs like Chelsea or Manchester United, pursuing their own interests to the exclusion of the good of the game.” It is also plain as a pikestaff that the combination of political interference and the naked self- interest of many if not all of Europe's central bankers threatens to scupper the private sector's dogged attempts to deliver a single, efficient set of plumbing for Europe's financial services industry. Just as Euroclear appeared to be making demonstrable progress with its efforts to harmonise the five markets in which it now has a direct presence (the UK, Ireland, Belgium, France and the Netherlands) and where its long awaited single settlement engine has been up and running since January 2007, the European Central Bank's politically driven determination to explore a mechanism dubbed Target2-Securities came out of the blue and hangs over the market like a dark rain cloud. It will be interesting - possibly even riveting - to pick over in detail the results of the consultation exercise on the ECB's telephone book-style document on Target2-Securities, published last December. The market expects the ECB to decide by the summer of 2008 whether to press ahead with it, or whether to kick it into the long grass where it can quietly disappear and vanish from the collective memory. I personally sense a strong preference for the long grass scenario, especially from those who have dedicated money, time and effort to get us where we are today. In the meantime, as Tony Freeman, Executive Director of Industry Relations and Market Growth EMEA at Omgeo in London, puts it: We are in a holding pattern in Europe. Planes are stacking up in the skies over Heathrow Airport, waiting to land on a new runway: Target2 Securities. If it is built, and there is a lot of political weight being thrown behind it since the shocks sent through the markets last summer, it will reshape the European landscape, bringing structural change and greater efficiencies.” Those mild-mannered people at Euroclear are far too polite to speak out aggressively and start rocking EU boats, even if it means reaching the desired settlement solution more efficiently and more quickly, but maybe someone else can do it for them. “Euroclear is neutral on whether Target2-Securities should go ahead, but we need more information in order to make an informed decision on behalf of all our clients,” comments Paul Symons, Director and head of Public Affairs at Euroclear. “We are looking for ways to cut tariffs and costs, and believe that we are witnessing the benefits of competition in action as the Commission's Code of Conduct on clearing and settlement, and new platforms emerge at different points of the business. The best providers will in the end attract the most business, and this will drive consolidation between providers or force a rethink of their strategies. The ECB is looking to create a monopoly, and we have to ask the question honestly: which is the best solution? The reality is that there is a variety of answers. In the meantime, Euroclear has moved on, and the Nordic CSDs are following a similar plan in terms of CSD consolidation and market- practice harmonisation. There IS light at the end of the tunnel. We conceived our model in 2002 and the target implementation dates seemed very far away, but suddenly they are arriving thick and fast, and we are delivering on our promises, which is important for us to do. It has been a major challenge, involving investment of over 500m. Some time after Target2-Securities was first mooted in July 2006, our user- populated Board instructed us to carry on and deliver our new business model as soon as we could deliver. Once completed, our programme will provide 300 million per year in savings. Unless the ECB provides convincing answers to "If you are a local player, you are competing head-to-head with institutions that have a global client base; and that is very difficult " CLEARING AND SETTLEMENT Code of Conduct will be important in driving things forward,” he adds. The complexities and difficulties that lie ahead, however, are illustrated by the sentence that follows: “We have seen 25 requests from different parts of the overall infrastructure to connect to one another and so far only one has materialised: the first and only practical CCP interoperability solution under the code of conduct is the agreement between LCH Clearnet and Xclear (LSE) for peer-to-peer clearing services.” One down, 24 to go. Adds Michael March, director of corporate communications at LCH Clearnet: “Although the Access and Interoperability provisions Code of Conduct was signed with some fanfare in mid-2007, outside London there remains scant evidence that access is being opened.” Elsewhere, Clearstream, whose parties at the big set-piece gatherings are renowned for being much much livelier than Euroclear's, reaffirms its belief that the ideological battle between two different views of the future has been over for some time and that new considerations face the market. “The debate about whose model is best - Euroclear's, our own or Target2 Securities - has become less relevant now in today's world of interoperability set up by regulatory initiatives such as the Code of Conduct,” says Thomas Zeeb, executive board member responsible for Clearstream's client relations. “Also since the events of last August the focus has switched to finding liquidity, to keep the markets functioning efficiently. We already have an extremely efficient system both domestically within Clearstream Banking Frankfurt as well as internationally, either through the subcustody network, or via using the bridge with Euroclear and into domestic markets. We are also seeing dramatic increases in competition from our traditional competitors as well as new market entrants; the market has already benefited from this fierce competition between Clearstream and Euroclear and there are more new players looking to carve out a slice of the action for themselves.” As evidence of the pressure on both price and service, he adds that Clearsteam grew its assets by an average of just under 100bn a month in 2007, but revenue increases did not grow by anything like the same proportion, highlighting the need to keep up the drive to reduce inefficiencies still further. Hardly were these words out of Thomas Zeeb's mouth than news broke that Settlement: The Next Generation, might be showing at cinemas near you sooner than you thought. Seven leading CSDs - Clearstream Banking AG, Frankfurt (Germany), Hellenic Exchanges S.A. (Greece), IBERCLEAR (Spain), Oesterreichische Kontrollbank AG (Austria), SIS SegaInterSettle AG (Switzerland), VP Securities Services (Denmark) and VPS (Norway) - signed an agreement in early April to establish Link Up Markets, a joint venture to improve efficiency and reduce costs of post-trade processing of cross-border securities transactions in Europe. The Link Up Markets initiative is a result of the changing market environment and aims to promote simplified cross-border business as requested by the Lisbon Agenda, proclaimed the official announcement. The seven CSDs believe that improved interoperability between CSDs with a single point of access for customers results in significant cost reductions. “For many years, customers have been requesting a solution for easy access to other markets,” said Jeffrey Tessler, Chairman of Clearstream Banking AG, speaking for the joint venture. The CSDs participating in the initiative have developed a unique solution geared at reducing the complexity and the costs of cross-border transactions. We establish an environment that creates the potential to reduce current cross-border settlement costs by up to 80%” Link Up Markets is scheduled to be launched in the first half of 2009. While we wait for the dust to settle, our anonymous mole argues that there are bright spots in the European clearing and settlement saga, and Euroclear is one of those bright spots. “Plumbing takes time to install, but we are near to having a single process in Euroclear. My guys just don't see the point of Target2 Securities, but it seems as if Clearstream and/or the German authorities have been nibbling at the ECB's ear. If you've been working on the Euroclear project for all these years, it's a bit harsh if a public sector-driven intervention kicks in just after you finish a decade's work.” The key problem, according to some of those close to the coal face, is the vested interests of many of Europe's central bankers, who are seen to be dragging their feet, in the way that we might expect of turkeys being asked to vote for an early Christmas. In short, they want to hang on to their own job and the very nice lifestyle that goes with that job. Anyone who has been in a taxi driven by a former currency trader will recognise the syndrome. “One of the problems is that we have spent the best part of 20 years getting the central banks out of the settlement system, now they're coming back,” says one market participant. “Another is that the determination of ECB president Jean-Claude Trichet to be lender of first resort when the credit crunch began last summer has neutered the commercial banks. The ECB's readiness to wade in and take rubbishy bonds and CDOs as collateral in return for real cash means that the banks are literally indebted to him and his institution for billions and billions. They won't say anything to upset the applecart. They will zip their lips and get on with it, even if there is a bad smell coming from the project and the way it is run.” Please tell us, dear readers, he must be mistaken, surely. A quasi-Governmental institution putting its own interests ahead of those of the markets it is supposed to help and those of the people it is supposed to serve? Whoever heard of such a thing? I "One of the problems is that we have spent the best part of 20 years getting the central banks out of the settlement system - now they're coming back" OUTSOURCING 42 INVESTOR SERVICES JOURNAL E uropean banks have been less than forthcoming when it comes to outsourcing deals. Instead they have preferred to deal with matters in house or via their own affiliates. But asset managers are now finding it difficult to get the specialist know how when it comes to alternative investments and are increasing looking to partner with third party services providers. Indeed the situation could not be more unlike that in the UK. There, a wave of lift out deals has meant that with a few exceptions, the middle and back office space is almost entirely outsourced. Jim Connor, partner at Morse consulting comments: “The Prudential was one of the first deals in 2000 but it was the SWIP deal later that year that set out the blueprint. The rationale behind is was essentially the need to integrate four different systems and thus crate operational cohesion. SWIP wanted to focus managing the money, not system integration.” What followed was a few years of landgrab, where the big third party services providers tried to get hold of as much back office activity as they could. This was also extended to Europe with the services providers trying to get deals in as many countries as possible - creating bridgeheads which would, it was thought, lead to further deals and thus market share. Geoff Cook, managing director at BBH in Luxembourg comments: “Everyone thought mass outsourcing was the next big thing and that one big deal in one country would provide enough of a toehold to get deals from other institutions in that country. They were wrong.” In Europe there has been no great outsourcing stampede. Although there were two big deals between State Street and AXA and ABN that could well have set the ball rolling, organizational structure and cultural factors have meant that middle and back office has, largely, remained an internal function. Gilliane Philip Courtines, Head of Relationship Management, Institutional Investors at BNP Paribas comments: “In continental Europe asset managers tend to be part of a universal bank that also offers insurance, pensions and other products. This affords them economies of scale and any 'lift out' will generally be to affiliates owned by the parent company.” Internal economies of scale of course mean that there is little in the way of cost savings or value to be added by engaging a third party. The AXA and ABN deals being the exception. Connor comments that in the case of AXA and ABN there was a degree of operational dependence. In addition activity in the UK marketplace that may have influenced the decision to outsource. He says that aside from commercial aspects to outsourcing that social legislation generally made life more difficult as well. “Big lift outs involve transferring peoples' employment and there are all sorts of legislative issues around that in continental Europe. The lack of commercial reason and the hassle factor with this has effectively prevented the market from developing. This was the case at Deutsche bank where an outsourcing deal was considered and then rejected in favour of keeping the middle and back office in house,” he says. But the integration of alternative investments into the mainstream means that asset managers need specialist platforms and staff able to deal with more complex asset classes and structures. Outsourcing and Europe 2007 saw Europe's first ever year as the world's most active outsourcing market. Europe surpassed the Americas in both the number of contracts awarded in the region and in total value. Alison Ebbage examines what is driving this appetite for outsourcing OUTSOURCING INVESTOR SERVICES JOURNAL 43 to have someone on the ground who know the local regulations, the local legal regime, the people, the language etc. Services providers that have a global footprint are ideally placed to take on this function and accompany clients on their journey up the value chain.” The demand then, is for services providers that are able to offer a modular type offering on a single platform. And some might say that the initial landgrab type deals were a failure for the services providers in that they ended up running several different platforms at great cost and inconvenience to themselves. As if to prove the point there have been a number of headline deals that have been reversed; In 2005 JP Morgan had abandoned its five-year struggle to implement an outsourcing deal with Schroders and ended up paying back some GBP20m (e30m) Were those deals a failure due to the lack of focus and definition in them? Could experiences like these now be put to best advantage on the continent? Connor thinks so: “Players in continental Europe will now have a better service to choose from. Services providers are in the midst of maturing their initial offerings and can now offering out a tried and tested package that is more suitable for mid market players who don't necessarily want to let go of everything, “ he says. Being able to mix and match the client offering but operating on a single platform in a standardised fashion is clearly essential in the current climate. Cook comments: “The days of huge lift outs are gone and so now it's down to being able to offer the client x and y, not the whole alphabet. We've found this to be a more successful business model as it is more scaleable and allows us to have clients running on the same platform rather than trying to run many different ones,“ he says. I Hedge funds and funds of funds, venture capital, property funds, complex derivatives; all need specialist custody and administration. And although the behemoth players will be doing sufficient business volumes to warrant significant infrastructure investment in supporting such investments, niche and smaller players almost certainly will not have that critical mass.. This is where the market shows the most potential, according to Mark Schoen, head of product management EMEA at Northern Trust. “In this environment you have the perfect landscape to buy in components of outsourcing. There are lots of challenges with alternatives such as liquidity, pricing, cash management, and performance calculation. Systems that are alternatives literate cost a lot to buy in and then implement. Although you can get by on excel up a point there will be a tipping point where a dedicated system is required.” By way of illustration Schoen points out that a long only system has maybe 10 to 20 critical data elements compared to between 20 and 50 for a derivatives based investment. And Philip Courtines adds: “Doing it all in house when it comes to private equity, structured products, funds of hedge funds, or real estate funds is not really viable. Plus you can't use systems like SWIFT so if a third party has the know-how and the resource to manage it thus adding value for the asset manager then it would be foolish to not consider outsourcing.” She comments that it is this need for innovation with newer asset classes and investment structures that will, thus drive change.“One of our important client groups is corporate entities who manage significant monies but simply want to focus on their core business and partner with a provider who has the critical mass required to administer it effectively.” She gives the example of EDF and Areva, both of whom have been awarded public money to deal with nuclear power stations and waste and have then outsourced to a third party asset managers plus are using BNP Paribas Securities Services as an full outsourcing partner. “In addition to core custody and asset servicing, we do all the reporting and are part of the governance of that money. We do the performance, regulatory, IFRS and accounting reporting for them and have provided such services as well as the insurance piece to retirement company AG2R,” she says. Schoen echoes the trend for this sort of client. “ We see a lot of pensions funds and sovereign wealth managers who have looked to diversify their investments but need help in the back office. This is prevalent throughout the Nordic region and especially in Sweden,” he says. Add to the mix the increasing cost of compliance, regulatory requirements to have risk properly assessed, the ability to independently value derivatives, as well as do a good job of servicing the asset in the fist place and it is easy to see why smaller and medium sized players such as corporates and pensions funds are now at least considering an outsourced arrangement. Philip Courtines comments: “In Germany for example, the regulation has changed so that institutional clients now require independent reporting. This is very important when you consider that reports have traditionally been done by the asset managers themselves. The pace of regulation is pushing the industry to have more independence.” Indeed third party providers, if they are to capture some of this business need to be able to provide a service that is not just about making cost savings for the client but that actively support the product range and adds value and can protect the asset manager's revenue stream. Take the role of the transfer agent. It has gone from being a bundled service to now being potentially a distribution support type service for asset managers that have a product they would like to sell in unfamiliar territory. Philip Courtines comments: “If you are trying to market a domestic product in other countries then it makes clear sense Take the role of the transfer agent. It has gone from being a bundled service to now being potentially a distribution support type service for asset managers that have a product they would like to sell in unfamiliar territory CARIBBEAN 44 INVESTOR SERVICES JOURNAL These days it seems like every piece of rock in the middle of an ocean is trying to transform itself into an international funds centre, with varying degrees of success. Malta has set itself up as a specialist in fund of funds and even Gibraltar is attempting to get in on the action. Meanwhile, Jersey and Guernsey are forever attempting to expand their funds markets, despite a perceived limited capacity. So where does this leave the Caribbean? For a long time this region was regarded as a hotbed of tax evasion and money laundering, the place to go when you wanted something set up quickly and with little scrutiny. Discrete, fast, and oh yes, boasting fantastic beaches, the Caribbean was the go-to option for all and sundry. However, this perception faded some time ago and since we have seen a transformation of sorts, with locations like Bermuda, the Caymans and BVI instituting more regulations and presenting themselves as specialist, boutique domiciles, with their past as a home for shady deals no more relevant than the Caribbean's history as a haven for the likes of Blackbeard and Henry Morgan. The Cayman Islands is the big gun of these domiciles. Setting up a fund in the Caymans, which is then perhaps administered in Dublin, has become a model that has been made to run as smoothly as a Swiss clock. The legal, regulatory and financial aspects all operate in tune with each other, and any snags have long since been ironed out. But an overriding strength of Caribbean jurisdictions is their ability to change and adapt to varying demands of their clients. And the last few years has seen many of them carefully and painstakingly add well-crafted new regulations for their funds industry. Most of these regulations are less to do with the actual monitoring of funds in place, and more to do with who gets in and who doesn't. Monitoring is often done elsewhere. Darren Stainrod, the head of fund services for UBS in the Caymans, says of the location: "The Caymans continues to be the domicile of choice for new hedge fund launches. "Other jurisdictions like Bermuda and the BVI are starting to replicate Cayman's successful legislation. As other domiciles attempt to carve into this market, they are faced with changing the mind-set of the regulators and those that work in the industry." After first being developed as an offshore banking centre in the 1970s, the Caymans has since diversified into an variety of areas and today is known as the major hedge fund domicile in the Caribbean. In this regard it had a jump on Bermuda by not requiring those domiciling their funds in the jurisdiction to also base their administration and other functions there. Like the other Caribbean domiciles, the Cayman Islands has been focussing harder on regulation, and telling anybody who will listen about its efforts. In December last year, the Caribbean Financial Action Taskforce stated: “Caymans suspicious activity reports have decreased by an annual average of seven per cent over the last three years. This may be due to enhanced risk management and compliance controls in industry since the introduction of the statutory requirements for systems, procedures and training. “There is a strong compliance culture in the Cayman Islands. The Cayman Islands specifically have worked diligently to develop a very robust anti- money laundering regime that is comparable with most Western jurisdictions.” As well as recently revising its Mutual Funds Law and Money Laundering Regulations, The Caymans has just signed a memorandum of understanding with the UK's FSA to exchange information and aid each other in investigations. And additional to its anti-money laundering efforts, the Cayman Islands Monetary Authority (CIMA) has been continuing to attempt to perfect its policies to keep the domicile attractive. “CIMA has recently clarified its position on foreign domiciled funds administered in Cayman. Cayman domiciled funds are required to register with CIMA but until recently it was unclear if foreign domiciled funds administered in Cayman needed to register. CIMA has now clarified that registration for these funds is not required”, says Stainrod. By clarifying the rules on this, CIMA has allowed funds from different jurisdictions to use administrators established in the Caymans. Stainrod adds: “In addition, CIMA has recently introduced e-filing for their registered funds. “This will allow the domicile's growth Joe Corcos takes a look at the motivation behind the regulation efforts from the main Caribbean domiciles and what the future holds for the region Regulating paradise fundservices©sscinc.com www.ssctech.com NetherIands AntiIIes P.D. ßox 4671 Pareraweg 45, Curacao 7eI: +599-9-434-3562 Fax: +599-9-434-3560 Daily, weekly, monthly fund valuations NAV calculations; P&L Management, performance, nnancial and partner reporting Income allocation and reallocation to partners and shareholders Auditor support FĦğĕ AĕĞĚğĚĤĥģĒĥĚĠğ Fund Structuring Setup of oĊshore fund vehicles Incorporation services License and regulatory approval management Document drafting for oĊshore vehicles Establishing broker and bank relationships FĦğĕ MĒğĒĘĖģ SĖģħĚĔĖĤ x LĖĘĒĝ SĦġġĠģĥ Preparation and maintenance of shareholder register Subscriptions/Redemptions/Transfer processing Connrmation of shareholder transaction details Compliance with USA Patriot Act, Know Your Client and Anti-Money Laudering rules TģĒğĤėĖģ AĘĖğĔĪ x SęĒģĖęĠĝĕĖģ SĖģħĚĔĖĤ : ( · 9 ( * 2 7 < 2 8 & 2 9 ( 5 ( ' SS&C Pund Services has a comprehensive suite of products and services for the alternative investment industry, including on and offshore hedge funds, funds of funds, separate managed accounts, private equity funds, combined master feeder funds, private wealth groups and family offices. Our solutions can be scaled to meet your existing business needs, your growth strategy, your global reach and the complexity of your investment strategies. |n other words - whatever your size, your strategy or your needs - we have a proven solution that is designed to maximize your efficiency and produce meaningful cost savings. 86$ &KLFDJR 'HQYHU 0LQQHDSROLV 1HZ<RUN 6DQ)UDQFLVFR 6NLOOPDQ1- :LQGVRU&7 ,QWHUQDWLRQDO $PVWHUGDP &XUDFDR 'XEOLQ .XDOD/XPSXU /RQGRQ 0RQWUpDO 6\GQH\ 7RN\R 7RURQWR CARIBBEAN 46 INVESTOR SERVICES JOURNAL to be scalable in the future, as well as providing a solid platform for CIMA to use to provide statistical analysis on a timely basis”. Currently the Caymans retains its place as unacknowledged leader among the Caribbean domiciles. It has more capacity than most and can offer a host of services. And like other jurisdictions, the Caymans is not resting on its regulatory laurels. "We do see new regulations being introduced in the future to meet certain industry needs such as unit trusts for Japanese investors, Segregated Portfolio Companies for segregating liability and the supporting of Shari'ah compliant products", says Stainrod. Regulation almost always helps grease the wheels of the actual processes that go into domiciling a fund in a given jurisdiction. And in doing so, regulation enhances reputation - a major factor when it comes to choosing a domicile. “If you look at why people choose fund domiciles its reputational risk. Caymans may be in all probability the most expensive domicile of the Caribbean locations to base a fund but probably 60 to 70% still go there every time. If it's a one billion dollar fund $20,000 rather than $15,000 doesn't really matter”, says Chris Adams, the global product head for alternative funds at BNP Paribas. Bermuda's finance minister, Paula Cox, agrees with Adams. At the recent Bermuda International Business Association (BIBA) event in London, she said unequivocally, "Reputation is everything". Bermuda, the Caymans' smaller counterpart, introduced its Investment Funds Act (IFA) in 2006 in an effort to clarify and streamline its regulatory regime. The IFA did not significantly alter Bermuda's regulatory regime, though what it did do was create a new classification of authorised fund and present a fresh licensing regime for fund administrators. The new licensing regime simply ensures that administrators are running the correct operating systems. Additionally, the IFA grants the Bermuda Monetary Authority (BMA) more power to carry out investigations and restricts how confidential information is used. Cheryl Packwood, BIBA's CEO, says of the act: "It is the policy in Bermuda for the Ministry of Finance and the Bermuda Monetary Authority (BMA) to collaborate on writing financial legislation. On this occasion, as is traditional in Bermuda, they also asked for the input of the financial industry in reviewing the Act and recommending pertinent changes or additions to it prior to presentation before the House of Assembly. Cox said that the IFA represents "a seismic shift and advance in the investment fund industry in Bermuda". However she went on to assure that Bermuda is determined only to regulate where needed and that the policymakers in the jurisdiction are aware how damaging over-regulation can be. Nevertheless, most agree that the inclination over the past few years in the Caribbean has been towards, rather than away from, new regulation. "Generally speaking there is a trend towards enhanced regulation, keeping up with international standards, call it what you will, here in Bermuda certainly", says Graeme Dargie, the BMA's director of banking, trust and investments. He adds: "We are keen to make sure that the regulations here keep pace with whatever the international standards may be at the time, and of course they're always changing." Currently Bermuda is striving to present itself as a specialist location for funds, free of any association with money laundering, tax evasion, and so forth. It is little wonder this jurisdiction wishes to keep a clean reputation. Financial services are the number one industry on the territory, subordinating tourism. Bermuda has one of the highest per capita GDP figures in the world, mostly driven by the financial services industry. Currently there is well over USD 200 billion in funds in Bermuda. Dargie says: "Since coming to Bermuda I've been quite impressed with efforts to keep the bad business out. "There are big efforts to make sure that the business we get, the promoters behind it and the senior officers are fit and proper. At that stage a lot of business doesn't make the grade or doesn't come here in the first instance because it knows it wouldn't get through the vetting stage." However, he admits that there is “a bit of work to do on the money laundering front”. “What I think you do need to see is good cooperation between regulators, because the funds industry, more than many others, is quite fragmented. “You'll often find that you have a piece of the action here but the investment manager will be somewhere else and the custodian may be somewhere else and if something goes wrong I think that is when regulators do need to cooperate and you need adequate powers in your own legislation to enable you to obtain whatever information it is that you need that might help to investigate something that went wrong or clear up some kind of mess.” Of course the need not to over-regulate is also key, and Dargie is quick to point out that "The framework here aims to be sensible and proportionate, not to over- supervise when it's not called for." Despite its small size, Bermuda is also trying to present itself as a serious option for fund administrators. Paula Cox said recently: "Other places have funds administered from elsewhere, but a greater share of hedge fund managers are now choosing to set up in Bermuda". Whether there is actually a trend of more fund managers and administrators basing themselves in Bermuda is debatable, as Dublin and Luxembourg, with their far superior resources and infrastructure, look like they will continue to dominate this area of the market. Indeed, it is the perception that these relatively diminutive jurisdictions in the Caribbean are lacking in infrastructure that is a major stumbling block to attracting administrators and managers. Adams says: "You do what you have to do in the Cayman Islands or BVI or Bermuda, but firstly they're heavily resource constrained. I know they're all investing in their infrastructure but let's be clear, they're small islands sitting in a deep blue sea, so there's a physical limit to what they can actually do. "You see it to a lesser extent in the Channel Islands, but you still see it, there are physical limitations to what they can do. I'm aware that there are administrators there but they've obviously made a decision based on their business model that they want to be in the location. Our business model and that of the bahamas. the better choice. Financial services –in its finest form–can only be found in a few, special places. The Bahamas is one of them. For more information contact Bahamas Financial Services Board: Tel 242.326.7001, Fax 242.326.7007, E-mail [email protected] or visit our content rich website at www.bfsb-bahamas.com The Bahamas has nurtured and provided professional and efficient financial services since the 1930s. Today, through an array of leading financial institutions, we offer full banking, trust and asset management services, investment funds including SMART © Funds, private trust companies, foundations and other financial planning products and services. Financial services: perfectly crafted for the discerning clientele. CARIBBEAN 48 INVESTOR SERVICES JOURNAL most of our peer organisations is that we don't." However while jurisdictions in the Caribbean may never become administration and management centres, one well-known and seemingly ever- present advantage they do have is speed to market. For example, it is possible to set up a fund in Bermuda in a mere week, according Susan Stirling, the marketing director of BIBA. Dargie claims: "One advantage is there's a relatively well-established path to setting up business here. "There are a lot of checks and balances that need to be gone through but by and large the professional firms here are well geared up to doing this. There is a steady flow of new business and we try and make it as easy as possible for new businesses to set up provided they meet the standards, and that applies to new investment businesses, and investment funds." Setting up a fund in the BVI is also a relatively rapid process. According to the BVI Financial Services Commission it takes a mere 48 hours for an application for recognition and approximately two weeks to finalize the registration of a fund. After many years playing catch-up, the BVI is now number two only to the Cayman Islands in the assets it has in funds, having surpassed Bermuda some years ago. But to some, one Caribbean domicile is very much like any other. Adams says: "If you look across the Caribbean locations I don't see any material differences. "In the last three months we've set up Cayman, BVI and Bermudan funds and if you were to ask me I wouldn't be able to tell you why the promoters had gone for those locations. My only belief would be because their existing fund range was there so it's for historical reasons. "Cayman obviously has the lion's share because they got into the market first, but in terms of arbitrage between them, our view would probably be that they've all struck an appropriate balance between having the right KYC and AML controls in place because otherwise we wouldn't touch it, and relying on the good name and reputation of the directors of the funds and then relying on jurisdictions like Dublin or Luxembourg who actually do the work." Yet despite the attractive new regulations that the Caribbean domiciles are instituting, their future is by no means assured. As Paula Cox said at the end of her address in London, Bermuda cannot afford to become complacent, and neither can any of its counterparts in this sunny region. The popularity of the area depends largely on a set number of qualities that it has, foremost among them quick and easy set up of funds and low taxation, that are lacking in other regions. Should there be a major shift in governmental policy and several other factors, then jurisdictions like the Caymans, the BVI and Bermuda could be in trouble, with their impressive new regulations simply smoke in the wind. In his recent paper, dubbed The Future of Offshore Financial Centres, CIMA's chairman, Timothy Ridley, addressed this possibility, highlighting one potential cause as "the major economic powers implementing domestic policies and programmes that eliminate the need to use small international financial services centres (SIFCs). This would entail the introduction of well-balanced regulatory and supervisory regimes and the introduction of tax rates and other costs to levels that made it impossible for SIFCs to compete. If this were left to Ireland with its 12% tax rate this might happen." However, Ridley went on to admit that this possibility is "remote". Another possibility, he writes, is massive growth and success for SIFCs, stemming from more globalisation of financial markets and regulatory competition between countries. In this scenario any negative connotations the term "offshore" has would be completely negated. A more realistic future for SIFCs according to Ridley, is that some jurisdictions will see success, while others will dry up. He also predicts continued efforts from major powers to marginalize any attractions such locations can offer. However, one thing is certain, prudent regulation is a decisive factor in the survival story of any SIFC, and will continue to be in the future. What is needed, Ridley writes, is "a good risk based regulatory and supervisory approach, a flexible and adaptive approach to legislation and regulation to provide the structures, products and supervision expected by the market". These factors, combined with a willingness to work with international regulators and of course continuing investment in infrastructure, are crucial to a domiciles survival. There are plenty of examples of those who have tried and failed to become a successful funds centre. The one that immediately springs to mind of course is Vanuatu, which has fallen off the map of international funds centres. Overall, it is this flexibility and adaptability that Ridley writes of that most Caribbean domiciles do have going in their favour. The ability to pass new regulation and new policies as the landscape of the financial services industry changes is the key to their continuing survival and relevance on the world scene. But passing the right regulations while resisting any preponderance to over-regulate is walking a very high tightrope. I These factors, combined with a willingness to work with international regulators and of course continuing investment in infrastructure, are crucial to a domiciles survival One thing is certain, prudent regulation is a decisive factor in the survival story of any SIFC base in bermuda Hedge your investments – eliminate risk with the right jurisdiction ʥˇˆ˃˔ ʪˑ˗˕ˇʏ ʔʒ ʸˋ˅˖ˑ˔ˋ˃ ʵ˖˔ˇˇ˖ʏ ʪ˃ˏˋˎ˖ˑː ʪʯʓʔ ʤˇ˔ˏ˗ˆ˃ ˖ˇˎʎʖʖʓʎʔʛʔʎʒʘʕʔ ˈ˃˚ʎʖʖʓʎʔʛʔʎʓʙʛʙ ˙˙˙ʎʤʫʤʣʎˑ˔ˉ a proactive jurisdiction with a premier reputation • low cost set-up and administration • speed and precision ANALYSE THIS - HEDGE FUNDS / PRIME BROKERAGE 50 INVESTOR SERVICES JOURNAL Hedge Funds Trends, challenges and opportunities Is it becoming more difficult to launch hedge funds? CHARLIE WOOLNOUGH, SENIOR BUSINESS DEVELOPMENT MANAGER AT FORTIS FUNDSERVICES D espite the fact that the hedge fund industry now manages in excess of $2.5 trillion, it is still a relatively young industry undergoing a high rate of growth. Even with a global credit crisis underway, total asset under management are rising, via both performance and greater capital inflows. As the market grows and matures, the governance standards demanded by investors introduce wider challenges for new entrants, particularly on operational issues. Underlying the governance standards, there has been a substantial shift in the factors which influence investor's allocation decisions. This shift has been driven by the growing influence of institutions as investors in hedge fund and fund of hedge fund managers. The evaluation of a fund manager's ability to generate absolute returns remains the key attraction of a hedge fund, but the level of infrastructure, risk management and transparency that a hedge fund manager is able to offer is now equally important. Indeed, it is often easier to quantify and evaluate the operational strength of a fund over its ability to generate future alpha. Such demand for operational standards means that new hedge fund firms must launch with larger teams comprising of not only investment professionals, but also operational experts. New firms must also be more diligent when appointing service providers. Brand name administrators and prime brokers will add to investor confidence when performing due diligence on a new venture. Higher operational standards do however add to the cost of setting up a hedge fund, meaning that new firms will have to raise more capital to meet running costs. This trend has lead to the launch of numerous incubation/seeding platforms, which offer start-up hedge funds operational support in return for a fixed percentage of revenues. The “Institutionalisation” of the hedge fund industry will continue to transform the market in a myriad of ways. The increasing levels of professionalism are a welcome development for the industry, adding to the appeal of hedge funds. There is a danger however that the increasing barriers to entry may bring with it a fall in entrepreneurial spirit. Where next for the Hedge Fund industry CHRIS ADAMS, GLOBAL PRODUCT HEAD FOR ALTERNATIVE INVESTMENT FUNDS AT BNP PARIBAS SECURITIES SERVICES W hether it is hedge funds or private equity, the rise of fund of fund structures appears unstoppable, and the obvious driver for this is institutional investors. Insurance Companies and Pension Funds now account for approximately 40% of the inflows into Fund of Private Equity Funds for example. These institutions remain underweight to these asset classes, and when investing they are looking for diversified exposure to the sector, increasingly looking to managers to create bespoke baskets of funds rather than fund of funds. There is no reason to believe that this trend will not continue. Barriers to entry to the hedge fund management industry remain low - driven to a significant extent by technology. However the ability of hedge funds to differentiate themselves from the pack is ever more difficult - most commentators acknowledge that the average lifespan of a hedge fund is reducing. Therefore institutional and fund of fund investors are likely to be ever more attracted to reputation and brand. Coupled with this is a trend for large banks to purchase hedge fund managers and then to use these organisations as the platform for the management of all of the bank's hedge fund assets. This reinforces the consolidation of hedge fund assets into the hands of larger players, and makes it harder for new entrants to obtain investments from these institutions. As the hedge fund industry becomes dominated by large institutions, so will the industries that service them. Scale, balance sheet strength and credit rating will become ever more important in both regulated and unregulated markets. Historically hedge funds would select their service providers based primarily on their experience of administering funds. As these skills have become commoditised, managers will differentiate their service providers based on, for example, their ability to support the distribution of their funds in Asia as well as Europe and the US, and their ability to offer liquidity and execution services. As recent events have shown, once in ten thousand year events can occur surprisingly frequently, and the ability of a fund's service provider to continue to offer a full range of services through good times and bad will remain key to the fund's long term ANALYSE THIS - HEDGE FUNDS Are Hedge Funds Entering The Mainstream? AUBREY NESTOR, PRODUCT ARCHITECT, BRAVURA SOLUTIONS I t will be a long time, if ever, before hedge funds are regarded as mainstream retail investment products. There are many barriers to this eventuality including those for the fund manager (loss of control over liquidity), the investors (risk, access), and the retail administrators (complexity). It can be said, however, that there is a shift occurring towards the mainstream for the hedge fund sector. This is manifesting itself in three main ways: Firstly many of the major 'long fund' management groups have launched small numbers of hedge funds that sell alongside their existing long fund ranges (albeit typically to many fewer investors with much higher average holding and deal values). Secondly, some traditional hedge fund managers are seeking to conservatively expand the number of investors in their funds. This might be achieved by increased marketing, or by the lowering of the minimum investment limits or by a simplification of the product features (e.g. easier access, more frequent pricing, simpler performance fee structures). Finally, many long fund managers are seeking to apply hedge fund like techniques and features to elements of their long fund ranges (e.g. 70/30 funds, FAIFs, Performance Fees). One of the trends that Bravura Solutions have encountered is the requirement by traditional long fund managers to be able to run hedge funds, or funds with hedge fund-like features, on the same system that they administer their long fund ranges on. This provides many benefits including: A single investor view for the manager (for Management information, retrocessions etc), a standardised customer experience whether they are buying hedge or long funds, maximum staff flexibility, minimising of system deployment, operation and maintenance costs, and a single software provider to interface with. As the hedge and long fund worlds slowly edge towards each other, the trend from a software perspective will be that some of the more arcane and difficult features of hedge funds might drop away, but at the same time the remaining pieces of complex, hedge fund specific, processing will need to be able scale up from the low hundreds of investors that are typical in the hedge fund world today, to cope with thousands and even (low) tens of thousands of investors. Can hedge funds stave off further prescriptive regulation? TOM MCEVILLY, DIRECTOR OF GLOBAL SOLUTIONS STRATEGY AT CHECKFREE T he hedge fund industry can no longer ignore the increasingly complex compliance landscape and the growing debate regarding hedge fund regulation. The formation of the Hedge Fund Working Group (HFWG) voluntary practices, increasing FSA interest, previous interpretations of MiFID and, for those funds choosing to go public, Sarbanes-Oxley, are all bearing down and needing attention. So how can the proactive adoption of internally instigated controls stave off the imposition of prescriptive regulatory requirements? One answer, and perhaps the simplest, is for hedge funds to look to technology and solutions that are designed to meet operational risk management and compliance requirements simultaneously. Gone are the days of gaining operational efficiency with one project and starting another to ensure that control procedures are in place to address regulation. More often than not this ultimately leads to unnecessary duplication of efforts and disparate solutions. Enlightened fund managers who see compliance as a competitive opportunity will focus on improving 'cornerstone processes' such as reconciliation and exception management. Importantly through these cornerstone processes the fund manager proactively forms a vital foundation layer for a strong operational risk management framework whilst naturally traversing and enabling multiple compliance and control mandates. Cornerstone processes focus the back office on delivering key operational benefits such as increased productivity and risk mitigation while also satisfying the internal control requirements of the various compliance mandates. This focus allows hedge fund operators to derive a two-pronged benefit from a single systems implementation and ensure that through their own controlled implementation they satisfy auditors and regulatory bodies without the need for formal regulation. Within today's uncertain climate, it is fair to presume that regulatory and compliance pressure will not ease. So focusing on projects that enable cross-compliance and mitigate operational risk should become a standard P&L objective. By embracing cornerstone processes, and thereby adopting more stringent voluntary practices, fund managers can also make the case for staving off future prescriptive regulation. ANALYSE THIS - HEDGE FUNDS 52 INVESTOR SERVICES JOURNAL How will the Sub Prime debacle and Credit Crunch effect the Hedge Fund space and Hedge Fund Administrators? DERMOT BUTLER, CHAIRMAN, CUSTOM HOUSE R ecent articles in the media including both the Financial Times and the Daily Telegraph would have readers believe that not only is the hedge fund world full of manipulative crooks and Gordon Gecko's but also the majority of Hedge Funds - one commentator suggested 75% - would close in the very near future. Whilst I accept that there may be some crooks and “Gecko's” in the hedge fund arena I would refuse a suggestion that the market is overridden with such people. You get crooks and Gecko's in all walks of commercial life and in that regard the hedge fund industry is no different - except that the hedge fund industry is clearly and publicly trying - and I believe succeeding - to introduce standards of best or sound practises, which will preclude all but the most persistent crook. The Gecko's of this world are a product of human nature and they are here to stay in whatever industry, whenever and wherever they can prosper. The suggestion that 75% of hedge funds will fail is frankly ludicrous. No doubt some hedge funds will fail and indeed some have already - although I would point out that the Carlyle Fund, which several of these articles featured, is not and never was a hedge fund by any definition that I know. It was a leveraged long only fund whose portfolio specialised in credit exposure. Nevertheless it is likely that several of those funds that have invested in these market sectors have suffered - including subprime, credit, and some debt instruments as well as the certain exotic hard to value OTC derivatives products - may fail. So also will funds that have been masquerading as hedge funds but were in fact essentially long only equity funds - just as they did in the demise of the tech bubble in 2000/2001. Well managed long short funds - which is the largest sector of hedge funds - futures and commodities funds and several of the arbitrage strategies will not only survive they will prosper because of the very volatility that commentators fear. The fact is that when institutional investors see their staple diet of equities, fixed income and property once again in such disarray and in negative territory, they are inevitably going to look favourably on those hedge fund managers and strategies (and indeed funds of funds managers) who have consistently done their job in preserving capital first and making real returns second - just as they did following the tech boom bubble at the beginning of this decade. How are the changes in the hedge fund administration landscape benefiting start up managers GAVIN GRAY, MANAGING DIRECTOR, PHOENIX A number of trends have significantly altered the hedge fund administration landscape over the last number of years. The continuing acquisition of independent hedge fund administrators by larger traditional administrators has resulted in a perceived consolidation of the marketplace, however, as these hedge fund administrators have been disappearing, a new breed of administrator is stepping up to fill the gap. This new breed are pitching their service offering based on a range of selling points including, quality and flexibility of service and a comprehensive technology. Alongside the service provider consolidation, the global institutional administrators would also appear to be increasingly selective in offering their services. In this changing landscape, and considering the current market environment, navigating the selection of an independent administrator is becoming an increasingly important and difficult task for a start up hedge fund manager. While a comprehensive due diligence questionnaire (such as that prepared by AIMA) should form the basis of a detailed review of an administrators experience, systems, regulatory oversight, controls and other key areas, it is important for an investment manager to understand that there are an increasing number of differences in the scope and range of services being offered by the different administrators. One recent development is in the area of trade and investment operations support. Increasingly administrators have either developed investment operations outsourcing platforms or are white labelling third party trade support software to allow for much closer alignment with the investment manager. The administrators range of service coverage in this area can range from simply facilitating more favourable terms with a third party software provider to complete outsourcing, whereby the administrator will have an investment operations outsourcing platform and team with the specialist knowledge to facilitate trade capture, broker matching, break resolution and reporting of matched trades to the prime broker or prime brokers. The more comprehensive offerings will include integrated live portfolio pricing modules. The benefit of such a comprehensive service is to allow the start up investment manager have a greater focus on managing the portfolio rather than being consumed by setting up their own operational infrastructure, an unwanted distraction in these volatile times. CHICAGO Chicago Administration&Corporate Services LLC. 372 West Ontario, Suite 1N, Chicago, IL 60610. Tel: (+1) 312 280 0330 DUBLIN Custom House Administration&Corporate Services Ltd. 25 Eden Quay, Dublin 1, Ireland. Tel: (+353) 1 878 0807 SINGAPORE Singapore Administration&Corporate Services Pte Ltd. 180B Bencoolen Street, Tel: (+65) 6303 8393 Custom House Offers 24/7 Service For more information on Custom House, the only hedge fund administrator awarded a Moodys Management Quality Rating, please review our website (www.customhousegroup.com) or contact Dermot Butler ([email protected]) or David Blair ([email protected]). t h h i h i t d1 1 06/03/2007 20 05 00 Custom House Administration & Corporate Services Limited now offers its clients a full “round the world” and “round the clock” hedge fund administration service through its head office in Dublin and representative offices in Chicago and Singapore. Custom House Administration & Corporate Services Limited is authorised by the Irish Financial Regulator under Section 10 of the Investment Intermediaries Act 1995, which authorisation does not extend to the Chicago or Singapore representative offices. ANALYSE THIS - HEDGE FUNDS 54 INVESTOR SERVICES JOURNAL How can hedge funds manage costs while growing their business? RICHARD BUCKLAND, HEAD OF OPERATIONS FOR NORTH AMERICA. LACROSSE H edge funds seeking to operate in today's environment face a bit of a dilemma: How can they build and support a first-class infrastructure without capital? And further, how can they attract capital without a first-class infrastructure? It's the classic Catch-22. Operational due diligence is now an integral part of an investor's risk control and due diligence process. Those funds that lack the technology, infrastructure and intellectual capital could find it difficult to attract assets. The increasingly popular solution to this problem is outsourcing. Traditionally, funds have outsourced their fund administration activities (fund accounting, subscription/redemption processing, etc.). The more recent phenomenon of outsourcing full middle-office and operations activities has started to take hold. These services include valuation support, P&L calculations, position reconciliations including the investigation and resolution of breaks, cash and collateral management and trade confirmation. Many new fund managers have found that by outsourcing all of their operations activities, namely administration, back- and middle-office, they can place more focus on front- office activities such as portfolio management and capital raising. They're also realizing that they can reduce the time to market to weeks by working with a specialist provider who has the knowledge and experience necessary for new strategies or markets that arise suddenly. There are several important advantages to outsourcing a funds middle- and back-office services. The most notable relate to reduced capital expenditures and lowered cost pressures. In certain circumstances, funds can take advantage of a more variable versus fixed cost structure, which may include charging the cost of some middle-office and operations activities as a fund expense rather than carrying it as a management expense. A fund can also decrease the “management bandwidth” required to oversee operational and support activities. The challenge is finding a provider that can support the asset classes and markets in which a fund trades. Finding the right provider that can offer full middle-office and operations support can help reduce operational costs and enhance a fund's ability to quickly take advantage of opportunities. This allows the manager to focus on the front-office and capital raising activities necessary to build the business. “What are the latest industry trends regarding hedge fund administration?” PETER SANCHEZ, CEO, OPHEDGE T he appetite for institutional investors for hedge funds is increasing. They are attracted by the higher returns and by the more exotic investment opportunities. Some studies predict global institutional investments into hedge funds will increase to over $1 trillion USD by 2010. Pension plans and endowments are a more demanding and risk adverse investor type who demands increased transparency, independent valuations and cost efficiencies. To meet this requirement from institutional investors, funds are looking for services beyond the traditional fund administration services of calculating the Net Asset Value and providing shareholder services. These additional services include independent valuation services, daily profit and loss calculations, collateral management, full trade, position and cash reconciliation daily with the fund's prime brokers, and processing and accounting of more complex derivative financial instruments as well as of more non-standard fund capital structures. Furthermore, the trend of having more institutional investors in hedge funds has created top down pressures on the funds to manage their operational risk. This has led to a trend to outsource more services as noted above to the full service provider fund administrator. Segregation of duties and independence is a key control in mitigating operational risk. The administration service provider must have experienced middle and back-office personnel to handle OTC derivatives and the related settlement and valuation requirements for those products. Outsourced functions may give potential institutional investors comfort that the appropriate operational experience is in place and that the appropriate segregation of duties exists between the manager and the administrator. In conclusion, it is important to note that even if all of the middle and back office services are outsourced to a full hedge fund service provider, the hedge funds' management still needs to retain accountability for the proper performance of those functions. ANALYSE THIS - HEDGE FUNDS 56 INVESTOR SERVICES JOURNAL Is Curacao still an attractive jurisdiction for offshore hedge funds? and how does Curacao differentiate itself from its competition? MAI LIEM, MANAGING DIRECTOR & LEGAL CONSUL, SS&C TECHNOLOGIES C uracao has been the base of the earliest funds such as Quatum, Long Term Capital, Tiger, Jaguar and the Tudor funds. Today the majority of all offshore hedge funds are via their attorneys routed to the Cayman Islands. It was time for Curacao to get even and take measures to stay an attractive jurisdiction for offshore hedge funds. By the introduction of a tax-exempt entity Curacao leveled the playing field with its competitors. Although Curacao has not taken spectacular measures; new legislation and directives guarantee a fast process of incorporation and maintain good legal standing of the service providers and the hedge funds itself. Curacao as part of the Netherlands has implemented a solid legal structure for tax exempt legal vehicles and Curacao has a local regulator whom has been assisted by the Netherlands Regulator but the regulation has been amended to fit the Caribbean market. All jurisdictions in the Caribbean have a tax neutral environment for offshore hedge funds, all are in the same time zone as New York and setting up an offshore company is done swift and diligently in all jurisdictions. Why is this Dutch Island still on the map and how does it differentiate itself from the rest? History, Expertise and Infra Structure The financial offshore industry in Curacao dates from 1940. The Curacao service providers have decades of experience with the hedge fund industry. This experience and expertise in combination with a no nonsense approach focusing on getting business done is Curacao's competitive edge. Worlds' Leading Service Providers Leading service providers: all big four audit firms, international banks, administrators and international law firms have offices in Curacao for over 50 years. Thanks to a pleasant working visa environment and highly educated local staff the service providers manage to attract and keep the best brains. Costs Compared to the other jurisdictions in the Caribbean: going Dutch is the most affordable way to structure your offshore hedge fund. From registration fee to local law firm rates Curacao is the best you can get. What are the key features for the successful administration of fund of hedge funds? DONARD MCCLEAN, HEAD OF FUND SERVICES, IRELAND UBS GLOBAL ASSET MANAGEMENT S uccessful hedge fund administration is about getting the right combination of people and best-of-breed technology to deliver tailored solutions to clients. Each client wants something a little different and not simply to receive information at the end of a production line set up. With our open architecture approach, ability to work in the client’s preferred jurisdiction, and the capability to administer various fund structures, we can offer an all round, tailored solution through our primary contact service model. Adapting the format and frequency of reporting to clients is also a key feature of our approach - whether through physical reports or via our secure web portal. The relationship between fund administrator and investment manager is changing as the investor base changes. Traditionally, the target market for hedge funds was the high net worth individual. That position changed some time ago to include institutions and, increasingly, pension funds. One consequence of this is that more due diligence is required with service providers - administrator, custodian, lawyer, accountant - having to undertake due diligence on each other. This results in investment managers being more focused on who their service providers are which can be an advantage to companies such as UBS, as compliance and due diligence are important drivers for our business. Although the flows of information around fund of funds are still to a large extent paper-based, automation in the form of workflow tools and web based trading and reporting is becoming more prevalent. A significant industry initiative currently taking place is a collaboration between top-tier administrators and industry bodies working towards an automated solution using the SWIFT messaging system. Once in place, this initiative will allow the straight through processing of fund of fund trading from investment manager to custodian to transfer agent. The messaging platform should also facilitate a more automated approach to pricing, valuation and settlement of fund of fund trades. Anticipating how clients’ requirements will develop is key to keeping pace with the ever-changing hedge fund industry. Having good relationships with the regulators within the locations in which we operate, actively participating in industry groups and working in jurisdictions where the regulator is open to new ideas and supportive of business, ensures that clients’ evolving needs can be catered for in future legislation and regulation. IRELAND - PENSION FUNDS 58 INVESTOR SERVICES JOURNAL Irish pension funds With the Irish stock market performing so poorly, Nicholas Pratt examines whether Irish managed pension funds are looking to more alternative assets in order to generate better returns T hese are tumultuous times in Ireland following the hastily announced resignation of long- term premiere Bertie Ahern. After more than a decade in charge of the country, during a time in which Ireland witnessed an unprecedented era of economic prosperity, Ahern gave notice of his intention to step down on May 6th. As unexpected as the exact timing was, the fact that Ahern has been under constant investigation over alleged irregularities in his personal finances meant that his eventual departure at some point this year was inevitable to most observers. When the May date arrives it will be seen as the end of an era, not just because of Ahern's absence from office but also because the unprecedented economic prosperity of the last few years appears to have also departed. Nowhere is this clearer than in the performance of Irish managed pension funds. According to figures from Dublin- based Rubicon Investment Consulting, these managed pension funds lost 5.5 billion during the last seven months of 2007 following the collapse of the US sub- prime lending market and the subsequent malaise that hit global equity markets. This meant that the value of pension funds in 2007 declined by an average of 2.6%, the first time the Irish market had suffered a loss since 2002 and, but for a strong performance in the opening half of the year, where returns increased by 5.9% up to May, these figures would have been a lot worse. In terms of individual managers, AIB Investment Managers was the best performer during 2007 with an average return of 1.3% with Eagle Star being the only other manager to enjoy a positive return (0.6%). At the other end of the scale, the worst performer was Bank of Ireland Asset Management with -7.6%. The early months of 2008 have not been much better for the Irish pension funds market, according to Rubicon's latest figures which reported an 11.4% loss for the opening quarter. Over-exposure to the global equity markets is the obvious explanation for the industry's losses, accounting for 3 billion of the end of year losses. The Irish stock market, which is heavily weighted to financial stocks, fared particularly poorly among global equity markets, declining by 28.6% between May and December in 2007. Figures from the Irish Association of the Pension Funds' (IAPF) asset allocation survey, which covers all pension assets not just managed funds, show a similar but not as dramatic level of losses. The survey calculated that there were 86.6 billion in assets as of the end of 2007, a 1.3% decline on the previous year's figure of 87.7 billion. “Everything is in a state of turbulence at the moment,” says Jerry Moriaty, director at the Irish Pension Funds Association. “The Irish stock market has been very volatile on a daily basis so it has been hard to take stock of exactly what is going on at the moment.” However, over the last five years - since the last equity market downturn in 2002 - Moriaty says there has been a concerted move away from Irish stocks, about 40%, as well as a general move to less risky assets, with investment increasing in long-term bonds with 42% of pension fund assets invested in medium or long- term bonds by the end of 2007, an increase of 15% on the 2006 figures. And although the figures do not yet show this, Moriaty also believes that there is a greater appetite for moving into alternative assets for the sake of diversity. The extent of this appetite was evident at the recent annual investment conference held by the association earlier this month where the presentations covered a number of alternative investment areas - Asian property, climate change and 130:30 products. For example, Garrett Walsh, head of credit research for Europe and Asia at Pioneer Investments, whose presentation was titled Making money out of the credit crunch, highlighted the case for using derivatives as a short term tactical solution to the current trading challenges. “Derivatives can be used to pair trades and to sell short-dated protection on assets,” said Garret. “Also, credit default swaps can be used to take directional bets and curve trades can be used as flatteners and steepeners for investment portfolios.” John O'Brien, principal of QED Equity presented an introduction to 130:30 investing which referred to the superior risk and return trade off that theory suggests these new instruments possess. O'Brien also highlighted the operational issues that come with these instruments, such as the requirement for major infrastructure changes in terms of custodians and prime brokers, collateral management and legal facilities, and appropriate fund structures and risk controls. However, despite the presentations, Fiona Daly, managing director of Rubicon Investment Consulting says there has not been a huge change in investment strategy. “Some funds have pegged back their equity weighting but we've seen nothing dramatic. There has been a lot of talk about alternative investments or products that have a broader range of assets and we have seen the advent of liability-driven investments which incorporate more novel instruments. “But there is a reluctance among trustees to move whole-heartedly into IRELAND- PENSION FUNDS alternatives given the complexity and lack of transparency that surrounds the area. It is mostly the larger pension funds that can afford to dip a toe into this area without overly affecting the diversity of their portfolios,” says Daly. Much of this reluctance is down to a lack of knowledge among pension fund trustees, says Daly. While it is often hard for trustees to find time to embark on rigorous education programmes, there are a number of initiatives, courses and conferences aimed at improving this situation. One such initiative was unveiled at the recent IAPF conference - the first set of investment guidelines for members. Moriaty likens the guidelines to the Myners' Report which was introduced in the UK back in 2004. In all there are seven guidelines for defined contribution trustees and an equal number for defined benefit trustees. “They are basic common sense guidelines but they form the basis of a good framework for trustees who are wondering about how they should address investment matters,” says Moriaty. Furthermore, says Moriaty, the guidelines have been endorsed by Brendan Kennedy, chief executive of the Pensions Board, giving the guidelines the necessary stamp of regulatory approval. In terms of regulation there is a Social Welfare and Pension Bill that is due to be passed into law later this year which will add a layer of security for pension fund trustees in that pension fund administrators will have to register with the Pensions Board and trustees will face a mandatory requirement to undergo regular training. There is also a government green paper on the Irish pension funds market that has been made available for public consultation and comment. At this stage it is still quite vague and is more an examination of all the aspects of pensions provision rather than a specific framework, says Moriaty. In particular it asks how the industry can improve coverage and adequacy and questions whether there should be an introduction of mandatory incentive schemes for savers. But what would Moriaty like to see come out of the consultation process? “I would like to see more simplification in the market so that more consumers can understand it, particularly in relation to tax relief and tax credits or how the government's contributions to pension funds are expressed on the average pay-slip.” Daly says that she would like to see a more reasonable approach to the way that contribution schemes are operated and also opposes the idea of a mandatory scheme. “Otherwise pensions become like a tax and it will reduce schemes to the lowest common denominator meaning that we will lose the benefit of the many good schemes there are in the market.” Despite the poor performance of Ireland's managed pension funds at present, most in the market still have an element of long-term optimism. As Moriaty points out, the 86.6 billion of assets in the market is almost double the 44.8 billion of five years ago. There is also the feeling that the current turbulence in the equity markets is as much a result of investors' panicked reactions rather than any fundamental flaws in the market. There is also the fear of a recession in the US but, says Daly, until it becomes clear to what extent this recession may be and until the current market turbulence works itself out, there is a risk in too many trustees instructing their managers to make any dramatic cuts in their Irish equity assets. “It is hard to say that there have been any lessons learned in all of this, because of the unique nature of the events that have led to the market's decline” says Daly. “Until everything is washed through, it will be difficult to tell if there will be any long-term effect from this. “Personally I don't think things will fundamentally change in the global equities market and investment managers will want to be careful of moving away from their core investment philosophy as a reaction to the current market conditions. If they have convictions I would I S ecurities lending is alive and well and thriving in Europe. The credit crunch and liquidity crisis caused by the US subprime crisis, the meltdown of giant Bear Stearns, and the rumors surrounding the potential problems of other investment banks have not dampened market opportunities in Europe. The predominant market players are still the same as they have been for the past several years, although what the credit crisis in the US has done has put a renewed focus on securities lending programs, risk management and transparency. The primary borrowers remain large broker-dealers such as Morgan Stanley, Goldman Sachs, and so forth, and the large global custodian space continues to be occupied by the likes of JPMorgan, State Street, The Bank of New York Mellon. There are several niche lenders as well who have entered the market as well over the past several years, all jockeying for spots. “In the European market, there are also a number of pension funds as well as fund management companies that do their own lending for the assets they have under management,” adds Paul Wilson, managing director and global head of securities lending sales and client management at JPMorgan. “But even with that, the dynamics of this industry have not changed dramatically over the past several years.” Despite the liquidity problems and economic slowdown in the US, securities lending in Europe is “a buoyant market to be in right now,” says Simon Waddington, head of trading, securities lending, RBC Dexia Investor Services, London. “In 2007, we generated 39% more revenue for our clients than in 2006 across the combined RBC Dexia group, much of which came from revenue growth on existing accounts.” The players are mostly the same, but Waddington says the growth can be attributed to a number of factors. “The cost of funding and focus on risk management has directly impacted many hedge funds, but at the same time, they thrive on the record volatility we've seen in the markets. Combine that with the growth in 130/30 funds from traditional long-only managers, and the result has been strong demand to borrow from all the major prime brokers, thus increasing returns for beneficial owners.” Regarding the credit crunch in the US, experts believe there have been some effects on the securities lending market, but not in the profound way that has affected financial institutions in the states. In some respects, the European market has seen new opportunities for securities lending, with renewed interest in cash reinvestment and a steepening of a yield curve that had been flat for quite some time. SECURITIES LENDING 60 INVESTOR SERVICES JOURNAL How has the European appetite for securities lending been affected by the market developments? Carol McGuin investigates Plus ça change... or Crowded Pool or Exclusive Access? The choice is yours. eSecLending takes an active approach to securities lending by managing customized programs for institutional investors. Unlike the traditional agency approach, where many lenders’ portfolios are grouped together and their securi- ties sit in a pool waiting to be borrowed, eSecLending markets each client’s portfolio individually and awards lending rights to the optimal bidders. Our clients receive more lending revenue compared to traditional programs, because eSecLending introduces objective competition via a blind auction process. eSecLending clients achieve all this while maintaining conservative risk parameters, retaining close control over their lending pro- grams and receiving superior, customized client service. eSecLending provides services only to institutional investors and other persons who have professional investment experience. Neither the services offered by eSecLending nor this advertisement are directed at persons not possessing such experience. 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SECURITIES LENDING 62 INVESTOR SERVICES JOURNAL “Securities lending in Europe has had a few changes since last August, when the subprime crisis started in the US,” says Guy d'Albrand, global head of liquidity management at Societe Generale Securities Services (SGSS). “I believe we also started seeing a confidence shake-up in European institutions, although certainly not to the extent as experienced in US banks and custodians. “There was a shortage of term cash in the markets, resulting in an increasing spread between three-month EURIBOR fixing and the three-month EONIA swap,” he continues. “What we starting seeing then were those institutions that were long on securities, especially fixed income, realizing they could make more by lending out these securities, taking cash on collateral, and reinvesting that cash at much higher rates than before.” Now, with the steepening of the yield curve, fixed income lending activity has increased, and markets have entered a new era, where there is a spread between lending against cash and lending against other securities. Since August, there has been a growth in fixed income lending activity in Europe, with demand for very high-quality AAA-rated government bond securities particularly high. Consequently, demand has outstripped supply, lenders are saying. Also, Wilson adds, what the crunch in the US has driven is a greater bias toward noncash collateral. “The typical model in the US is that a greater proportion of loans are made against cash collateral,” he explains. “Given that the dominant players in the marketplace are US participants, there have always a greater proportion of loans against cash collateral than against noncash collateral. Clearly, if you take cash collateral, you must ensure that cash is invested in a range of money market instruments to generate a return sufficient enough to pay the rebate back to the borrower and maintain a spread for the benefit of the lender.” One of the trends European lenders are seeing as a consequence of the credit difficulties in the US is a reassessment of the way cash collateral has been managed. As a result there is now a far greater proportion of loans made against noncash collateral than against cash collateral. “When you look at the different lenders in the market, each has its own style and philosophy toward the way cash collateral is managed. Simply put, some lenders may undertake loans at relatively low fees in order to generate cash collateral which is then invested in lower-quality investments to make a return. And there are other lenders who typically try to maximize the value of the loan itself, take the cash collateral, and invest it very conservatively,” adds Wilson. The US credit crunch, adds Waddington, has been somewhat of a double-edged sword for European securities lending and borrowing. On the one hand, many borrowers are focusing on balance sheet constraints and moving away from cash collateral, which has caused significant growth in business for noncash lenders such as ourselves,” says Waddington. “On the other hand, however, the traditional cash collateral lenders are making huge returns on their reinvestments, so both cash and noncash lenders are benefiting from the current environment at the same time.” “I don't expect markets will come back to their former balance very quickly or very soon,” says d'Albrand, when asked about an end to the credit crunch. “However, it may be that we are in a new balance now. What we see now are counterparts much more careful about collateral they receive, and in general, there seems to be much more risk consciousness in the markets than before. The securities lending community is becoming more mature and risk conscious.” Despite a the publicity surrounding the hot markets in Latin America, security lending participants believe there are markets yet to tap in Europe. There are many countries and lenders within those markets that don't engage in securities lending because a developed securities lending environment does not yet exist and the only form of lending is synthetic. Of course, in some markets, there is tax legislation required to keep up with securities legislation. Belgium, for example, issued a world decree in March 2007 clarifying that securities lending would not be deemed a capital event or a disposal. This has paved for way for Belgian mutual fund owners to lend their securities without sparking capital gains taxes on their portfolios. Similar decrees are waiting passage by other governments as well, including Spain. There is much focus on the BRICs- Brazil, Russia, India, and China-due to the amount of inward investment in those countries, and the rise in capitalization is a catalyst prompting opportunities in securities lending and borrowing. Most banks have some sort of strategic policy and involvement for those countries. There is always concern, however, about Russia, about its politics and policies. There are certain challenges to expanding the securities lending market in Europe. For example, d'Albrand says common accounting practices between nations are needed, as well as some regulatory easing in certain countries. In addition to exploring new markets, industry participants are also looking at new product development as a way to generate new and incremental revenue. JPM's Wilson says it best: “If you're standing still in terms of what you're doing, you're probably going backwards.” The product development agenda is crucial to the securities lending and borrowing function, especially as it covers new market expansion, where early entrants in those markets receive the benefits of high fees. Also, effective product development “looks beyond the traditional securities lending transaction, at swaps, equity forwards, and so forth, at innovative ways to gain early entrance into some of these new and emerging markets, even when there isn't necessarily a conventional securities lending and borrowing facility available,” adds Wilson. The credit crunch and liquidity crisis caused by the US subprime crisis, the meltdown of giant Bear Stearns, and the rumors surrounding the potential problems of other investment banks have not dampened market opportunities in Europe SECURITIES LENDING Perhaps the “silver lining” in the credit cloud, globally speaking, is that the credit crunch has forced all industry participants to review their securities lending programs. “It's a resurgence of a word that's been in the industry a long time-transparency,” says Wilson. “I define transparency as enabling clients or beneficial owners to truly customize every component of their programs, to fully understand all their risks, and to explore their upside potential and their downside potential, as well as providing them with concise, detailed, real time, online information that enables them to review and assess what's going on. “Ultimately, what lenders are looking for is transparency in terms of where their risk lies, what risk is being taken to generate the desired returns, and where their exposures are. My own perspective is that where those lenders are using providers who have historically been very transparent, the impact on them has been less substantial.” For example, when managing cash collateral, some lenders follow a policy of allowing each client to determine how cash collateral is managed. So that client can choose the desired credit risk, liquidity risk, and interest rate risk, and customize a program around its unique requirements. Contrast that to a large commingled fund, where the same level of customization is not possible. No conversation about a securities lending and borrowing program would be complete without the topic of transparency and risk management. The collapse of Bear Stearns and the scare mongering about other investment banks serve to underscore the industry's belief in risk management as a core factor in any program. “The days are long gone when lenders would just say I'll take any AAA- rated G-10 government debt at 105% margin and that's the end of it,” says Waddington. “These days, liquidity of the collateral and the correlation between loan and collateral types are just as important as a credit rating.” Where does the industry go from here? Industry participants believe the trend for the remainder of the year will be a focus on risk management. Waddington believes “Europe is going to have a very buoyant year. Despite everything that has happened over the last few months and the constraints of much closer risk management, there is still considerable activity in the markets and demand to borrow is still increasing.” At the same time, there will be a wariness in the markets, a wariness in general surrounding how an investment house as big as Bear Stearns could tumble and a wariness about the rumors surrounding other giants like Lehman and UBS. In the meantime, the securities lending and borrowing community focuses on securing adequate returns on the risk involved. On the borrower side, it's apparent borrowers are not willing to take spreads as small as did in previous years. And, as always, there will be a focus on new ways to generate revenue. I With the steepening of the yield curve, fixed income lending activity has increased, and markets have entered a new era, where there is a spread between lending against cash and lending against other securities Despite a the publicity surrounding the hot markets in Latin America, security lending participants believe there are markets yet to tap in Europe investment E D U C AT I O N P L C G Fund Management Overview G Hedge Funds (various courses) G Bond & Fixed Income Markets G SICAV Briefing G Accounting for Basic Derivatives G Securities Lending & Borrowing G Corporate Actions G Accounting for Investment G Compliance Basics G Pension Transfer Briefing G OEICS & UT Administration G Futures & Options Primers G Swaps Overview & CDOs Overview G Investment Briefings for Trustees (various) INVESTMENT EDUCATION PLC PUBLIC COURSES IN LONDON AND ELSEWHERE TAILORED IN-HOUSE COURSES PROVIDED ON SITE INVESTMENT EDUCATION PLC 40 Fountain Street, Manchester M2 2BE, United Kingdom. Tel: +44 (0) 161-832 3800 Fax: +44 (0) 161-832 5800 E-mail: [email protected] www.InvestmentEducation.net LIQUIDITY - DARK POOL FOCUS Extract from ‘Rise of Dark Pools and Rebirth of ECNs: Death to Exchanges?’ a white paper by Aite Group T here are two types of dark pools in the current market: Independent crossing platforms that tend to focus on facilitating block trading; and single broker/dealer-owned crossing platforms, which are typically tightly integrated with the broker/dealer’s electronic and algorithmic trading group. Independent dark pool operators, such as Liquidnet, POSIT, Pipeline, and NYFIX continue to build liquidity in their respective platforms. Looking to break into this lucrative electronic block trading market, leading broker/dealers financed and launched BIDS, a consortium-led platform designed to function as an industry utility with an aggressive pricing schedule; it may lead to pricing compression in the block trading market if BIDS is successful. In addition to making numerous investments in leading regional exchanges, ECNs, and other ATSs (see figure below), most large broker/dealers have also launched their own dark pools in the form of internal crossing platforms. From the broker’s perspective, internal crossing provides cost savings in terms of eliminating exchange transaction fees. From the client’s perspective, internal crossing can provide rapid, anonymous executions with minimum market impact. While most broker/dealers are still very secretive about the actual trade volume that occur within these individual platforms, crossing rates appear to be anywhere between 4% to 11%, with some of the largest platforms averaging anywhere between 40 million to 100 million in trade volume on a daily basis. Taken individually, broker/dealer-owned platforms do not have enough trade volume to seriously threaten some of the leading exchanges and ATSs. In order to boost their overall fill rate, some of the broker/dealer-owned dark pools have started to link up with other broker- owned and/or independent dark pools. Credit Suisse has been fairly active in this regard, linking up its CrossFinder with Instinet CBX, Fidelity CrossStream, Lehman LCX, Liquidnet (as a SLP) and many more. When taken together, dark pools can definitely have a significant impact on certain orders, especially those orders driven by dark liquidity-seeking algorithms. Firms that heavily rely on dark liquidity-seeking algorithms have reported that more than 40% of shares in certain orders were filled in dark pools before hitting the public market for a clean-up. As a result, dark pools of liquidity are becoming the execution destination of choice for an increasing number of sell-side and buy-side traders. The figure on p66 illustrates some of the options a fictional buy-side trader potentially faces, given a specific order to work in the U.S. equities market. Given a large block order, the trader might first attempt to seek instant fill in the block trading market. Any residual order could be routed to a broker who would then put it through his or her own internal crossing engine. Any remaining shares can be routed via a smart order routing engine to other dark pools before finally hitting the public market. I GRAPHS The graphs below represent some actual activity at the end of February in 2007 and 2008. the graph to the left shows the considerable increase in revenue from securities lending and reinvestment activity, scaled by the lendable assets, in basis points. American equities have more than doubled in return to lendable, demonstrating the increasing demand for high- quality equities borrowing by funds during the subprime crisis. Fewer owners were prepared to lend out their equities over the summer while fund were increasingly keen to borrow them. 64 INVESTOR SERVICES JOURNAL LIQUIDITY - EMS INVESTOR SERVICES JOURNAL 65 H istorically portfolio management systems have had clearly defined functions in the trading process. On the buy-side portfolio managers used Order Management Systems (OMS') to record their orders, manage and shape their portfolios, and to route orders to their traders, whilst traders used Execution Management Systems (EMS') to execute the trades and source the best price from different venues. But as the market has become more fragmented the line between the buy and sell-side has blurred and the use of the software has changed. Increasing numbers of management houses are now investing in EMS' to keep up with market demands. Globally markets have changed and have become much more fragmented with dispersed pools of liquidity. This has put pressure on portfolio fund managers to use management software, which allows them to look at a number of venues at the same time to access various pools of liquidity. Equally new trading systems such as algorithms, GMAs and smart routers embedded within EMS' have redefined the trading process, making it much more complex. Managers have started to invest in and maintain algorithmic systems to adapt to these changes, and to ensure that they are managing their portfolios competitively. There are a wide range of EMS' available, from broker provided to leading independents, and each of these different systems target different parts of the market. “Empowerment on the buy side” is a buzz phrase for most vendors, and increasingly they are developing EMS', which integrate with OMS'. Or they are developing the OMS' to have the qualities of an EMS. In most cases OMS' are still very much necessary for successful trading, and are in the incumbent system and so vendors are adapting to these by creating integrated systems. An interesting change is that many vendor brokers who were initially developing systems, which gave their clients access to their own trading desks, are now creating systems with order routing to numerous places. This is both a reflection of the change in market conditions, with increased dark pools and dispersed liquidity, and of vendors' understanding that it is not just the sell-side but the buy- side also that needs to have access to this fragmented liquidity in order to trade competitively. Belinda Keheyan, head of marketing at ITG, explains: “The type of people who do the trading now are generally quite a different beast from 20 years ago, they are much more IT literate, much more mathematical, they have to understand quite a lot of complex technology, such as algorithms. The trading desk on the buy- side, have become extremely sophisticated. Empowerment on the buy-side is one of the big trends and is fuelling companies like ours to develop more and more complicated systems for our clients.” In the US the trend is much more established, with a much higher percentage of fund managers using this technology than in the UK. This is partly because American Stock exchanges, AMEX 29, NYSE and NASDAQ, have far bigger market caps in terms of listed equities than stock exchanges in the UK. These conditions are very conducive to using EMS' because speed and volume is a high priority. Also, in practical terms a lot of the technology originates from the US, a lot of the prominent vendors are US companies. For managers using EMS' in the UK and the rest of Europe one of the main issues is compliance with MiFID regulations regarding best execution. Portfolio managers are using this technology to show that best practice has been achieved. The EMS gives the portfolio manager the information they need to tell the dealer which stock to invest in and to ensure that his dealing team gets him the best value for his client on a trade-by-trade basis. Frédéric Ponzo, managing director of NET2S explains: “It's about division of labour, an EMS allows you to do your job as a buy side trader to select the best broker for the trade. It is then down to the broker to do their job and come back to you with the best execution.” There is also a growing trend for hedge fund managers, private wealth managers and long only managers to use EMS' to execute trades themselves. This is specifically when they are trading in large volumes of highly liquid instruments. These could be large cap stocks, equity FX, futures, or options. They also use EMS' when the involvement of a trader won't add value to the trade. Leaving the trader out of the execution in these instances makes the trading process much more efficient, as it leaves a portfolio manager's traders time to seek out less liquid stocks or to monitor market conditions more closely. This is especially important when markets are volatile. Whilst “empowerment of the buy side” is a major trend for vendors and is talked about by various vendors as the main reason why they are developing their EMS' to adapt to portfolio managers' needs, critics have highlighted the fact that to a certain extent it is the use of this technology that is feeding the need for it's use and that this is not always good for the market. Sunil Chadda, practice head in Trading Places Catherine Kemp looks at the portfolio management systems market - who has invested in EMS systems and why? 66 INVESTOR SERVICES JOURNAL LIQUIDITY - EMS alternative investments at Carne Group describes what he calls a certain degree of “unhealthy cannibalism” in the market: “If you look at the history of these EMSs, before they were introduced the average order size on the New York stock exchanges was 800 to 700 shares, now it is 400 to 500 shares. Since the markets have gone electronic - traders are using crossing networks, electronic trading systems, matching networks to trade across several markets on one electronic crossing and this has created fragmented or dark pools of liquidity. Essentially the technology has fragmented the liquidity.” And yet it is this very fragmentation, which causes traders to use the technology. Chadda also considers them to be completely counterproductive in certain market conditions. “In highly volatile markets like we've seen in the last few months, you'll find that these models just don't work, they are based on historical data, and in the last two to three years I believe the market has fundamentally changed. It's a new market. People are now investing in commodities, such as gold, oil and grain, as well as shares and bonds and so on. There is no historical data for this new market because it's only two or three years old. So how on earth you can really allow an algorithm to trade on historical data effectively in a new market.” Other critics have pointed to the fact that whilst the use of algorithms is a growing trend for the larger houses, they are not necessarily cost effective for mid-market to lower end houses. To successfully use algorithms you have to constantly update and remodel the algorithms, otherwise other traders will pick up the footprint of your trades and will trade against you. The cost of employing a team to maintain an algorithmic system and of implementing an EMS is high, and unless you are trading in high volumes and are making large returns, it may not be worth it financially. But ultimately as the market evolves and continues to fragment, fund managers are going to continue to need more advanced technology to provide data. The algorithmic and direct market access qualities of the EMS makes it the best tool currently for that. An increasing number of new markets are also starting to use EMS'. Countries such as Hong Kong, Singapore, and Japan, that are not emerging markets, but have not previously seen the kind of vendor presence that is in the UK and US before, are starting to buy into EMS'. Emerging markets like Thailand and Korea are also starting to use this technology. In Asia the markets are much more concentrated, unlike the UK and US, where there are thousands of money managers. In Asia there is much more concentration of the assets in the top tier. It will be interesting to see what effect this influx of independent providers of direct market access will have on such a concentrated market. Another interesting trend, which has been highlighted by commentators, is that whilst jobs are being cut in the city and banks tighten their belts during the current financial crisis, there may well be a cut in IT budgets and slow down in the rate of management houses' implementation of EMS'. However, analysts have pointed out that in fact the opposite is happening. Denise Valentine a senior analyst at Aite Group describes: “They are letting go of the people before the technology. It's very clear for everyone in the trading environment that you need to be electronic. Maybe you can do without an OMS in edition to an EMS, but you can't have neither.” There is a degree of cannibalism in the market. As vendors introduce increasingly complex trading technology it affects the liquidity of the market, which in turn creates a need for more technology. But ultimately technology has fundamentally changed trading culture by making it electronic and currently buy-side traders are benefiting from the many trading solutions that are available on the market, and are adapting them to their needs.. I Diagram demonstrating fragmented liquidity in the US market - Europe is following closely behind. As liquidity fragments - the amount of execuction options increase exentuating the buy-side traders’ need to access this information via an Execution Management System. PART OF I MN' S ACCLAI MED SERI ES OF SECURI TI ES LENDI NG BENEFI CI AL OWNER SUMMI TS - THE LARGEST EVENTS OF THEI R KI ND I N THE WORLD INITIAL CORPORATE SPONSORS FOR MORE INFORMATION, PLEASE VISIT: www.imn.org/canada08/isjm – PRESENTS – I MN is proud to announce our Third Canadian Beneficial Owners' Summit on Securities Lending & Global Custody. We have held this event in Toronto every other year since 2004 and it has attracted increasing numbers of leading Canadian Beneficial Owners. Our independence & experience in organizing events in Canada and throughout the world ensures an unparalleled educational and networking experience for Canadian Beneficial Owners. This distinguished event is being held conveniently for all at the Pantages in Toronto. Delegates will benefit from cutting-edge content delivered by a broad range of leading industry experts who will provide unique insights on best practices to maximize revenues, minimize program risk and conduct appropriate due diligence in light of profound industry changes in the past two years. For more information, please email [email protected] Attention Beneficial Owners: for complimentary attendance consideration, please email [email protected] I MN ~ Cal l : +1 212/ 768-2800 ~ Fax: +1 212/ 768-2484 ~ Emai l : mai l @i mn. org 68 INVESTOR SERVICES JOURNAL MOVING & SHA ING K Boston - State Street Corporation announced the appointment of Maureen Miskovic to chief risk officer. In this newly created senior role, Miskovic will lead a global team of more than 250 multi-disciplinary enter- prise risk professionals that support State Street’s business, customers and operations worldwide. She will report to Ronald E. Logue, State Street’s chairman and CEO and join the compa- ny’s Operating Group, State Street’s senior-most strategy and policy-mak- ing team. With this announcement Miskovic will step down, effective immediately, from State Street’s Board of Directors.“Maureen’s appointment builds on our already strong risk man- agement culture and infrastructure,” says Logue. “State Street has achieved considerable global growth over the past five years and in creating this role, we intend to focus the intellectual capital and leadership skills of this highly experienced industry veteran to advance the strategy for our risk organization at a time of unprecedented complexity and change within the finan- cial services industry.” London - Northern Trust has appointed Wayne Bowers as chief executive officer of Northern Trust Global Investments Limited, the London-based subsidiary, and multi-asset class investment man- agement business of, Northern Trust Corporation. In his new role, Bowers is responsible for the continued growth and development of Northern Trust’s investment management business in Europe, Middle East and Africa (“EMEA”) and Asia-Pacific (“APAC”). His appointment follows that of Steve Potter, who was recently named presi- dent of Northern Trust Global Investments. Bowers will report to Mr. Potter. “Wayne’s strong leadership London - Caplin Systems has hired Scott McLeod as director of sales. Reporting to Adam Hawley, commercial director, McLeod will be responsible for Caplin’s global sales and marketing activities. He commenced his new role on 18 February 2008 and is based in London. McLeod’s financial markets experience, specifically in investment banking technology, spans over 20 years. His career includes senior sales and marketing roles at Reuters, Instinet Fixed Income, Quotron and, most recently, Ion Trading, where he was sales and marketing manager. Throughout his career, McLeod has contributed to major bottom-line growth in the European and US mar- kets. London - Multilateral trading facility (MTF) Chi-X Europe has appointed Tony Whalley, investment director at Scottish Widows Investment Partnership, as non-executive director “We are delighted that Tony has agreed to become a non-executive director of Chi-X Europe,” comments Peter Randall, CEO of Chi-X Europe Limited. "From the out- set, Chi-X Europe has actively consulted with both our participant firms as well as their buyside clients to better under- stand the mar- ket's needs. As he's one of the buyside's most respected heads of trading, we look forward to Tony's continued input and counsel." London - International Financial Data Services (IFDS), the international transfer agency joint venture between State Street Corporation and DST Systems, announced today that Simon Hudson-Lund has become chief executive officer. qualities, disciplined decision-making and proven investment expertise make him ideally suited to this important role. We are at an exciting point in the development of our global asset man- agement business and are delighted that Wayne will be leading our international activities,” says Potter. London - Watson Wyatt Worldwide announced that Carl Hess has been appointed global head of investment consulting, effective from 1 July 2008. He will succeed Roger Urwin who, after holding the posi- tion for the past 13 years, will take on a newly created role focusing on the global devel- opment and deliv- ery of investment research. Hess has been with Watson Wyatt for almost 20 years and currently serves as the director of the investment consulting practice in the Americas. He is a Fellow of the Society of Actuaries and a Chartered Enterprise Risk Analyst. Dublin - Alan Flanagan has been named managing director of The Bank of New York Mellon’s Alternative Investment Services (AIS) business. Flanagan will lead development and expansion of the firm’s growing private equity adminis- tration services business in Europe. He is based in Dublin and reports to Rick Stanley, executive vice president and AIS head of product management. “Alan brings substantial expertise in both the hedge fund and private equity servicing markets,” says Stanley. “Global investing in private equity continues to accelerate and diversify. The Bank of New York Mellon is expanding its European team of experts and working with our clients there to ensure we build the best solu- tions for their evolving administration and reporting needs.” CARL HESS SCOTT MLEOD MAUREEN MISOVIK PEOPLE MOVES T: +44 (0) 844 499 6388 C: Saghar Bigwood or Stephen Everard A: 7th Floor, 69 Park Lane, Croydon, CR9 1BG E: [email protected] or [email protected] or [email protected] W: www.handelsbanken.com /nordic_custody_services T: +46 8 701 2988 F: +46 8 701 2990 C: Johan Wennerberg E:[email protected] A: Blasieholmstorg 12, SE - 106 70, Stockholm, Sweden GOAL is the widely-acknowledged industry leader in providing creative products, services and solutions to automate and optimise the global reclamation of withhold- ing tax and class action compensation. Our research has shown that in excess of US$6 billion of withholding tax remains unclaimed each year by the rightful owners and beneficiaries and the amounts for class actions is even larger. To establish your potential ability to reclaim over-withheld taxes and/or class action compensation GOAL provides a free proof of concept analysis. We simply require details of the income entitlement(s) and/or trade details together with the type and domicile of the underlying beneficiaries. We do not need the name(s) of the beneficiaries. Our Products include GTRS, Class Actions, GQI, e-Reclaim, GOAL TaxBack, DMS and Bespoke Software Development. The cornerstone of Handelsbanken’s philosophy is to put the client and the client’s needs in focus. Nordic Custody Services are locally present in all the Nordic markets and offer a wide product spectre to a diverse client base. Each client is allocated an account manager in each market, fully responsible for the day-to-day activities, as well as a regional relationship manager. Handelsbanken provides specialised and tailor-made custody services including complete corporate action services, securities borrowing and lending for all Nordic countries, as well as settlement and clearing services to clients that are remote members of the Nordic stock exchanges. C: Cornelia Keth T: +49 69 718 3738 F: +49 69 718 6050 E: [email protected] C: Moritz Ostwald T: +49 69 718 6838 E: [email protected] A: Strahlenbergerstraße 45, 63067 Offenbach a.Main Germany W: www.bhf-bank.com International: Olivier Storme T: +352 4767 2847 E: [email protected] France: Patrick Lemuet T: +33 (0)1 57 78 03 34 E: [email protected] W: www.caceis.com BHF-BANK is one of Germany's most prestigious private banks. Its roots date back to the year 1854. As an advisory, service and sales & trading bank, we offer our discerning clientele a comprehensive array of customised solutions. BHF-BANK combines the strengths of a private bank with a long track record of capital market competence. Trust, an individual approach and impartiality - these qualities are at the very heart of the long-term guidance and advice we provide for our clients. Our bank's activities are grouped within the divisions Asset Management & Financial Services, Financial Markets & Corporates and Private Banking. The bank's longstanding experience in the German securities services market goes hand in hand with a corporate culture that values prompt acknowledgements and short decision-making channels. BHF-Bank offers tailor-made custody services to meet its clients' particular requirements. It's reporting services include a comprehensive SWIFT reporting matrix as well as its Internet-based reporting tool cds@web. Assets under Custody: EUR309 bn No of funds: 409 CACEIS is an Investor Services company with six offices across Europe. Owned in equal parts by Crédit Agricole and Natixis, CACEIS provides Custody, Fund Administration and Corporate Trust services to demanding Corporate and Institutional clients. We have considerable expertise in Cross-Border Fund Distribution Support as well as Alternative Investment and Private Equity servic- ing. Our staff have the language skills and industry knowledge to develop business relationships into strong partnerships and our powerful IT systems are constantly updated to ensure high levels of process automation. CACEIS is responsible for over EUR1.75 trillion held under custody, and over EUR850 billion under administration. Custody & Clearing INVESTOR SERVICES JOURNAL 69 T: +47 22 94 92 95 F: +47 22 48 28 46 Contact: Bente I. Hoem E: [email protected] W: www.dnbnor.com DnB NOR is the largest and leading provider of Custody, Clearing and Remote Member Service in Norway. In addition, DnB NOR provides a wide range of value added services to both Foreign and Domestic clients. Through an Alliance solution with banks in Sweden, Finland and Denmark, DnB NOR can offer seamless regional products, which can be customized to our client's needs. Designing custody solutions – for the Nordic region One region • One custodian • One point of entry Asset Servicing ISJ Directory of Services 70 INVESTOR SERVICES JOURNAL ING Wholesale Banking Securities Services provides award winning local and region- al custody services for investment professionals. We are proud to be the largest cus- todian provider in terms of assets and number of foreign clients in Central & Eastern Europe. ING has been providing Securities Services in CEE since 1994 and we will continue our ongoing pursuit of excellence through new technology. Innovation and client focus are the key drivers to service our clients the best way. Other activities of ING Wholesale Banking Securities Services are Paying Agency Services and web-based management of employee stock option & share plans. ING is your local partner in: Belgium, Bulgaria, Czech Republic, Hungary, Poland, Romania, Russia, Slovak Republic and Ukraine. Intesa Sanpaolo’s Transaction Services include : • Sub Custody, Derivatives and Remote Membership Clearing • Global Custody and Depository Bank for mutual funds, pension funds, real estate funds, private equity funds and hedge funds • Fund Administration for mutual funds, pension funds, real estate funds, private equity funds and hedge funds • Paying Agent for foreign funds and sicavs • Cash and Payment services like swift to checks, mass payments, checks and cash letters KBL, leading service provider in the Luxembourg fund industry, offers one-stop shop facilities to international fund promoters. Product structuring (of SICAV, FCP, SIF, SICAR, SEPCAV, …), global custody services as well as an efficient fund administration and transfer agency infrastructure are some of our fields of expertise that will bring added value to the management of your assets. For all kinds of Undertakings for Collective Investment going from plain vanilla cash, money-market, equity and bond funds to sophisticated alternative, venture capital/private equity, pension pooling and funds of hedge funds, KBL offers expert legal, fiscal and technical advice as well as access to the global markets. Nordea is the leading financial services group in the Nordic and Baltic Sea region and operates through three business areas: Nordic Banking, Banking & Capital Market Products and Savings & Life Products. Nordea is the leading custody services provider in the region. Nordea provides high quality, tailor-made custody services for local and foreign investors dealing with Nordic, Baltic or global securities. - The leading financial services group in the Nordic and Baltis Sea region - A world-leading Internet banking and e-commerce operation - The largest customer base of any financial services group in the region - A leading asset manager in the Nordic financial market - The most comprehensive distribution network in the region RBC Dexia Investor Services offers a complete range of investor services to institutions worldwide. Established in January 2006, we are equally owned by Royal Bank of Canada (RBC) and Dexia. We rank among the world's top 10 global custodians, with approximately USD 2.0 trillion in client assets under custody, including in-house assets of RBC and Dexia. Our innovative products and services help clients maximise operational efficiency, minimise risk and enhance portfolio returns. And our 3,800 professionals in 15 markets offer proven expertise to enhance clients’ business performance. aSantander is Spain’s leading financial institution and the largest bank in the euro zone by market capitalization. Our commitment and contribution to the securities industry is well established after more than a century of providing services in this field. Santander’s cutting edge technology enables it to offer a comprehensive array of inno- vative services in a broad range of markets. Santander currently has full local capabili- ties in Iberian and Latin American markets along with a franchised presence in many others. Santander`s experience and product range ensures that every aspect of the securities business is fully contemplated. For further information please contact Lilla Juranyi, Global Head Custody at + 31 20 7979 435 or contact her by email: [email protected] INTESA SANPAOLO S.P.A. Financial Institutions Transaction Services P.zza della Scala 6 20121 Milan Italy T: +39 02 8794 2466 F: +39 02 8794 1519 W: intesasanpaolo.com C: Riccardo Lamanna E: riccardo.lamanna@intesasan- paolo.com Business Development – Investment Fund & Global Custody Services 43, boulevard Royal L-2955 Luxembourg Stéphane Ries e-mail : [email protected] Sandra Cortese e-mail : [email protected] Stéphane Pesch e-mail : [email protected] Tel. : (352)4797 3512 Fax : (352)4797 73910 www.kbl.lu T: +47 2248 6238 Contact: Anne-Lise Kristiansen Head of Sub-custody and Clearing E: [email protected] T: +44 (0) 20 7653 4096 F: +44 (0) 20 7248 3946 Contact: Tony Johnson Head, Sales & Relationship Management E: [email protected] Address: 71 Queen Victoria Street, London, EC4V 4DE, UK T: Europe: (34) 91 2893932 / 28 T: USA: (1212) 350 39 02 W: santanderglobal.com E: globalsecurities@ gruposantander.com 71 INVESTOR SERVICES JOURNAL T: +46 8 763 5770 F: +46 8 763 6930 C: Goran Fors, Global Head of Custody Services E: [email protected] W: www.seb.se Sébastien Danloy Global Head of Sales,Investor Services Société Générale Securities Services T: +33 (0)1 41 42 98 65 E: [email protected] W: www.sg-securities-services.com A:Standard Bank Financial Asset Services 3rd Floor 25 Sauer Street Johannesburg 2107 T: +2711 636 6615 E: adam.bateman@standard- bank.co.za W: www.standardbank.co.za C: Neil Daswani, Global Head, Securities Services T: +65 6517 0022 E: [email protected] chartered.com W: www.standardchartered.com T: +46 8 5859 1800 F: +46 8 7237 147 C: Neal Meacham, Head of Custody E: [email protected] A: Stockholm SE 105 34 Sweden T: +43 50505-58510 F: +43 50505-58579 C: Andreas Petzl , Head of Sales and Relationship Management E: [email protected] W: www.hvb-custody.com/ SEB is the leading provider of securities services in the Nordic and Baltic area. We are committed to custody and clearing processes for the wholesale market. We hold securities worth over 560 bn EUR and provide services in more that 75 markets, 10 of them under the SEB name (Sweden, Norway, Finland, Denmark, Luxembourg, Germany, Estonia, Latvia, Lithuania and Ukraine). We offer a full range of securities services including corporate action and informa- tion services, securities lending and services to remote members of the Nordic and Baltic stock exchanges. We continuously develop new products in connection with clients and partners to ensure we deliver the high-quality products our clients demand. We always strive to make the processes more efficient. With a history of over 150 years in the securities industry; we know the market and our clients well. Société Générale Securities Services offers institutional investors, asset man- agers and financial intermediaries a comprehensive range of financial securities services: custody, clearing & trustee services, fund administration, asset servic- ing and transfer agency. SGSS currently ranks 3rd European custodian and 9th worldwide custodian (Source: Globalcustody.net) with EUR 2,580* billion in assets held and valuates 4,354* funds representing assets of EUR 405* billion (as of June 2007). Financial Asset Services is the custody and investments-servicing division of Standard Bank, providing a unique suite of services to sophisticated investors in South Africa and eight sub-Saharan markets. Standard Bank has assets under custody to the value of ZAR1.56 trillion and an overall market share of approximately 40%. Standard Bank's unique selling point lies in its consultative approach to relationships combined with the bank's commitment to custody and investment administration services. Standard Chartered leading the way in Asia, Africa and the Middle East. Standard Chartered has a history of over 150 years in banking and is in many of the world's fastest-growing markets with an extensive global network of over 1,200 branches (including subsidiaries, associates and joint ventures) in over 50 countries in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom and the Americas. As one of Asia's leading custodians, Standard Chartered has an impressive track record across the 16 Asian markets in which it provides securities services. It serves global, regional and local custodians and broker-dealers, as well as local and regional fund managers. The Bank plays a key role in promoting the development of these markets and keeping the international investor community informed of industry developments across the region. Swedbank provides client-focused custody services to domestic and international secu- rities lending (including auto-borrow facilities), derivative clearing services, proxy vot- ing, full corporate actions and income service. Flexibility is an important aspect of Swedbanks products and services. Our dedicated Client Relations Managers and Account Managers are focused on personalized processing and reporting solutions. Other Features: - ISO9001:2000 quality certification. - Swedbank Markets Online (SMO) internet information and reporting toolfor Custody and Securities Lending. - Nordic Custody alliance with DnB NOR (Norway), OKO Bank (Finland) and Amagerbanken (Denmark) to offer regional custody product. Institutional Assets under Custody: USD 70 billion No. of Institutional Clients: 110 Unicredit Markets & Investment Banking (MIB) serves as UniCredit Group's global product and competence center for global financial markets and investment banking services, including Custody throughout Central and Eastern Europe, including Austria. Brand diversitiy under which the group operates (Bank Austria Creditanstalt, HVB, Bank BPH, Bank Pekao, Zagrebacka Banka and International Moscow Bank), has its roots in local market presence and knowledge, contributing into a single unified product across the region. In 2006 the group was recognised by no less than 3 independent surveys as being the best region custodian The group's ability to deliver service excellence across 13 markets is the cornerstone of our success. From participation in local market associations to our inter group training sessions, to a client consultative approach, the group continues to work towards making a single impression - excellence. 72 INVESTOR SERVICES JOURNAL CACEIS is an Investor Services company with six offices across Europe. Owned in equal parts by Crédit Agricole and Natixis, CACEIS provides Custody, Fund Administration and Corporate Trust services to demanding Corporate and Institutional clients. We have considerable expertise in Cross-Border Fund Distribution Support as well as Alternative Investment and Private Equity servic- ing. Our staff have the language skills and industry knowledge to develop business relationships into strong partnerships and our powerful IT systems are constantly updated to ensure high levels of process automation. CACEIS is responsible for over EUR1.75 trillion held under custody, and over EUR850 billion under administration. International: Olivier Storme T: +352 4767 2847 E: [email protected] France: Patrick Lemuet T: +33 (0)1 57 78 03 34 E: [email protected] W: www.caceis.com Apex Fund Services Ltd is a global hedge fund administration solution for hedge funds and private equity clients located in 9 separate jurisdictions across the globe. The company uses the software solution, PFS PAXUS, which is a fully integrated hedge fund accounting system combined with web-based reporting to allow clients and investors to access their information 24/7 securely online. We will tailor all solutions to meet your needs and our continuing focus on the quality of service and the relationship with each and individual client ensures that we retain our ethos of providing a personalized service rather than a generic solution. Highly qualified and experienced staff, mirrored with top tier technology and competitive fee structures make Apex Fund Services Ltd the clear choice for your fund administration needs. Market Data & Analytics provides high-value real-time market data, indices and back office services. Information from diverse sources are provided to its customers, tailored to their specific information needs. Accuracy and reliability are ensured by collecting the data from the Group’s own trading platforms, such as Xetra® and Eurex® and cooperation partners like STOXX Ltd. and the Irish Stock Exchange. Avox®, a majority-owned subsidiary, validates, corrects, enriches and maintains business entity data. With an operational model, unique in the industry, Avox® enables clients to comply with regulatory requirements and to achieve a holistic view of the risk exposure towards a client. Interactive Data Corporation (NYSE: IDC) is a leading global provider of financial market data, analytics and related services to financial institutions, active traders and individual investors. The Company's businesses supply real-time market data, time-sensitive pricing, evaluations and reference data for millions of securities trad- ed around the world, including hard-to-value instruments. Many of the world's best- known financial service and software companies subscribe to the Company's services in support of their trading, analysis, portfolio management and valuation activities. Through its businesses, Interactive Data Pricing and Reference Data, Interactive Data Real-Time Services, Interactive Data Fixed Income Analytics, and eSignal, the Company has approximately 2,300 employees in offices located throughout North America, Europe, Asia and Australia. The Company is headquartered in Bedford, Mass. Pearson plc (NYSE: PSO; LSE: PSON), an international media company, whose businesses include the Financial Times Group, Pearson Education, and the Penguin Group, is Interactive Data Corporation's majority stockholder. SmartCo is a leading provider of data management solutions for the financial industry. SmartCo’s software, Smart Financial Data Hub, covers all the data area, including financial instruments, market data, third parties, funds, transactions, and provides full connectivity, a powerful and user friendly front-end, traceability, quality control, data enrichment and customisable workflow. Our solutions are based on SmartPlanet, an innovative technology focused on data management, and able to meet evolving business requirements. SmartCo offers to its customers the ability to respond in the fastest way to regulatory and business changes. For further information: www.smartco.fr or [email protected] Telekurs Financial specialises in the procurement, processing and distribution of international financial information. Financial market specialists at Telekurs Financial gather information from all the world’s major trading venues – directly and in real time. The Telekurs Financial database with its structured, coded securities management data is unique in terms of its depth of information and data coverage. With offices in 22 countries, Telekurs Financial combines the advantages of global presence and local know-how. C: Peter Hughes Group Managing Director T: +1 441-292-2739 F:+1 441-292-1884 E: [email protected] A: 31 Reid Street, Hamilton,HM11 Bermuda WWW.APEX.BM Avox Redwither Tower Redwither Business Park Wrexham, LL13 9XT United Kingdom T: +44 (1978) 661 813 F: +44 (1978) 661 668 W: www.avox.info www.interactivedata.com T: 020 7825 7800 F: 020 7608 3514 Brendan Beith European Sales Director [email protected] Fitzroy House 13-17 Epworth Street London EC2A 4DL UK SmartCo 37 rue de Liège 75008 Paris France T: + 33 1 58 22 29 60 E: [email protected] W: www.smartco.fr Telekurs (UK) Ltd 15 Appold Street London EC2A 2NE T: +44 (0) 20 7550 5000 F: +44 (0) 20 7550 5001 E: [email protected] W: www.telekurs.co.uk Fund Administration Data Services www.imfcfundservices.com t +31.20.644.4558 f +31.20.644.2735 Mrs. Consuelo Nardon e: [email protected] Rivierstaete Building, Amsteldijk 166, 1079 LH Amsterdam, Netherlands C: Fred W. Jacobs, III A: PFPC, 301 Bellevue Pkwy Wilmington, DE 19809 USA T: 302-791-2000 F: 302-791-1570 E: [email protected] C: Fergus McKeon A: PFPC Riverside Two Sir John Rogerson’s Quay Dublin 2, Ireland T: +353-1-790-3500 E: [email protected] C: Stuart Mauger T: +44 (0) 1481 744479 F: +44 (0) 1481 744529 E: [email protected] A: PO Box 48 Canada Court St Peter Port Guernsey GY1 3BQ C: Deanna Bidwell (Cayman) T: +1 345 949 9107 F: +1 345 946 1288 E: [email protected] W: www.rbcprivatebanking.com Sébastien Danloy Global Head of Sales,Investor Services Société Générale Securities Services T: +33 (0)1 41 42 98 65 E: [email protected] W: www.sg-securities-services.com Established in 2002, IMFC Fund Services B.V. is a boutique hedge fund administrator and a trustee with its offices in Amsterdam and Sydney. IMFC offers third parties administration and related services to all type of onshore and offshore funds combining high quality, independency, technology, timely calculation with flexibility, experience, custom-made solutions and competitive rates. Our services include: fund set-up and corporate services, NAV calculation and other accounting services, R&T agent and other investors and compliance services. For more information visit our website: www.imfcfundservices.com PFPC is a premier provider of processing, technology and business solutions to the global investment industry. Our core offering includes accounting, administration, investor services, middle-office services and regulatory administration services. Whether your products are U.S. or non-U.S. domiciled funds, trust vehicles, limited partnerships or commingled investment products, PFPC’s multi-jurisdictional, multi-fund capability allows us to process your complex fund structures - from hedge funds, fund of funds and private equity funds to master/feeder and multi-managed funds. PFPC offers personalized alternative investment solutions tailored to your unique needs. With more than 30 years in the fund servicing industry, our seasoned and responsive professionals bring you the know-how, focus and dedication to deliver the services you need, when and where you need them, any way you want them. Our clients have access to a broad range of value added services and tailored solu- tions including global custody and fund administration services for funds domiciled in the Caribbean and Channel Islands. Our services include Trustee, banking and credit facilities, treasury and foreign exchange, trade execution, financial accounting, corporate services, derivative sup- port services and online access, leveraging a custody network that covers 80 plus markets worldwide. Our service combines leading edge technology with professional expertise and a truly integrated service delivering creative, customised solutions. Société Générale Securities Services offers institutional investors, asset man- agers and financial intermediaries a comprehensive range of financial securities services: custody, clearing & trustee services, fund administration, asset servic- ing and transfer agency. SGSS currently ranks 3rd European custodian and 9th worldwide custodian (Source: Globalcustody.net) with EUR 2,580* billion in assets held and valuates 4,354* funds representing assets of EUR 405* billion (as of June 2007). Drawing upon an extensive track record of proficiency, dependability and responsiveness, Swiss Financial Services acts as administrator as well as registrar and transfer agent of funds investing in a broad range of financial instruments. These include futures, foreign exchange, equities, options, bonds and other funds. We perform accounting and administration services for diverse fund types domiciled in, but not limited to, the United States, Bahamas, Cayman Islands, B.V.I. and Ireland. Swiss Financial Services (Ireland) Ltd. Block 4B,Cleaboy Business Park, Old Kilmeaden Road, Waterford, Ireland T: +353 51 351180 F: +353 51 871595 Adrian Maher E: [email protected] INVESTOR SERVICES JOURNAL 73 Daniel Cann, Director [email protected] William Harris, Director [email protected] Folio Administrators Limited Folio House, Road Town British Virgin Islands www.folioadmin.com T: 284 494 7065 F: 284 494 8356 Folio Administrators Limited, part of the Folio Group of Companies supplying fund administration, company management, director services and insurance management, is the leading fund administration company in the British Virgin Islands. We specialize in servicing the needs of start-up to medium sized hedge funds, covering all aspects of fund formation, structuring and on-going operations. We work closely with an extensive number of banks, brokers, custodians, auditors and lawyers to ensure that our clients receive the best independent advice and structures. 74 INVESTOR SERVICES JOURNAL Newedge Global Prime Brokerage Group is a global, multi-disciplinary, solution- providing team dedicated to delivering superior services to alternative investment industry participants including hedge funds, commodity trading advisors (CTAs), fund of hedge funds, family offices, and institutional investors (insurance companies, banks and pension funds). The Newedge prime brokerage team offers a global range of brokerage services covering a wide range of asset classes including equities, bonds, currencies, commodities, and their related listed and OTC derivative products. We also offer an innovative portfolio-based cross-margining solution, a dedicated account management desk, hedge fund start up services, quantitative information on the hedge fund industry, capital introductions services, and recently prime brokerage services to Sharia compliant hedge funds. Newedge is a major new force in finance, resulting from the merger of the two broker- age firms - Calyon Financial and Fimat - on January 2nd, 2008. Newedge is wholly owned by Calyon and Société Générale, with both companies having 50% ownership. Custom House is one of the world’s largest independent alternative investment and hedge fund administrators and the first and only one to be awarded a Moody’s Management Quality Rating. Custom House offers a round-the-world, round-the-clock service from its office in Dublin and representative offices in Chicago and Singapore, enabling it to provide, not only complete global administration services, but also the ability to produce daily dealing NAVs. Custom House is authorised by the Irish Financial Regulator under Section 10 of the Investment Intermediaries Act, 1995, which authorisation does not extend to the Chicago and Singapore representative offices. Hedge Fund Services, based in the Cayman Islands, Ireland and Canada holds a leading position in the area of hedge fund administration, offering a complete range of services including accounting, NAV computation, share holder services, banking and credit facilities. With the dedication and experience of a professional team of 200 and our state-of-the-art web reporting, accounting and shareholder systems, we are well positioned to provide clients with a first class service. With specialist expertise in both single manager and fund of hedge fund adminis- tration, we provide facilities for both onshore and offshore funds. Capabilities also extend to services for investment funds through our teams in Luxembourg, Switzerland and the UK. Cayman Islands: Darren Stainrod, tel. +1-345-914 1076 Ireland: Don McClean, tel. +353-1-436 3636 Canada: Pearse Griffith, tel. +1-416-971 4702 The British Virgin Islands has created a progressive and transparent environment for the establishment and regulation of mutual/hedge funds and their functionaries. By the end of Q3 2006 the BVI had recognised or registered more than 4,000 funds, and licensed some 700 managers and administrators, making the BVI a leading domicile of choice for investment business. Benefits of conducting investment business in the BVI include: -Fast-track registration and licensing system - funds can be registered in a few days. -Presence of qualified, experienced legal, accounting & administration practitioners. -A well-developed corporate professional infrastructure. -Modern, robust and cost-effective regulatory and corporate regimes. -BVI private and professional funds fall outside the scope of the EU Savings taxation Directive. -Segregated Portfolio Companies - also known as Protected Cell Companies - can now be formed as mutual funds under the BVI Business Companies Act 2004. The DIFC is the world's newest international financial centre. It aims to develop the same stature as New York, London and Hong Kong. It primarily serves the vast region between Western Europe and East Asia. Since it opened in September 2004, the DIFC has attracted high calibre firms from around the globe as well as its region. Firms operating in the DIFC are eligible for benefits such as a zero tax rate on profits, 100 per cent foreign ownership, no restrictions on foreign exchange or repatriation of capital, operational support and business continuity facilities. Philippe Teilhard de Chardin T: + 44 20 7676 85 36 philippe.teilhard@ newedgegroup.com Vincent Tournant T: +44 (0)20 7676 8171 vincent.tournant@ newedgegroup.com Duncan Crawford T: +44 (0)20 7676 85 04 duncan.crawford@ newedgegroup.com W: www.newedgegroup.com Custom House Administration & Corporate Services Limited A: 25 Eden Quay, Dublin 1, Ireland T: +(353) 1 878 0807 F: +(353) 1 878 0827 C: dermot.butler@ customhousegroup.com C: david.blair@ customhousegroup.com ww.customhousegroup.com W: www.ubs.com/fundservices C: Mr Gerhard Fusenig T: +41 44 235 4992 E: [email protected] A: UBS Global Asset Management, Fund Services, Stauffacherstrasse 41, PO Box, CH-8098, Zurich, Switzerland British Virgin Islands International Finance Centre Haycraft Building 1 Pasea Estate Road Town Tortola British Virgin Islands T: +1 284 494 1509 F: +1 284 494 1260 W: www.bviifc.gov.vg DIFC Dubai International Financial Centre Level 14, The Gate P.O. Box 74777, Dubai, UAE E: [email protected] T: +971 4 362 2450 M: +971 50 4958902 F: +971 4 362 2333 W: www.difc.ae International Finance Centres Prime Brokerage Fund Services offers comprehensive fund administration services including fund set-up, registration and support around the world (currently 28 countries), fund accounting, NAV calculation, compliance management, risk control and reporting. We provide a flexible offering from the full range of services, including Private Labelling, to selected functions. Services are based on leading fund administration architecture, multi-source pricing and powerful compliance tools. Capabilities also extend to services for hedge funds through our teams in Cayman, Ireland and Canada. In times when management attention is increasingly focused on value creation, it may be rewarding to re-evaluate whether asset administration remains a strategic core business to you. Luxembourg: Jean-Paul Gennari, tel. +352-44-1010 1 Switzerland: Markus Steiner, tel. +41-61-288 4910 UK: Mark Porter, tel. +44-20-7901 5000 W: www.ubs.com/fundservices C: Mr Gerhard Fusenig T: +41 44 235 4992 E: [email protected] A: UBS Global Asset Management, Fund Services, Stauffacherstrasse 41, PO Box, CH-8098, Zurich, Switzerland Hedge Fund Administration W: www.eurexseclend.com T: +41 58 854 2066 F: +41 58 854 2455 E: [email protected] Eurex Zurich Ltd., Selnaustrasse 30, 8021 Zurich, Switzerland VocaLink Drake House Three Rivers Court Homestead Road Rickmansworth Hertfordshire WD3 1FX T: +44(0)870 1650019 F: [email protected] W: www.vocalink.com W: www.dataexplorers.com T: +44 (20) 7392 4000 F: +44 (20) 7392 4004 A: 155 Commercial Street, London E1 6BJ United Kingdom London: Julian Pittam T: +44 (20) 7392 5018 E: [email protected] Boston: Tim Smith T: + 1 (617) 973 5099 E: [email protected] T: +1 212 901 2224 C: Michelle Lindenberger E: Michelle.lindenberger@equi- lend.com/[email protected] A: 17 State Street, 9th Floor New York NY 10004 T: +44 20 7743 9510 A: 54 Lombard Street London EC3V 9EX W: www.equilend.com T: US- +1 617 204 4500 T: UK- +44 (0)20 7469 6000 C: Christopher Jaynes E: [email protected] W: www.eseclending.com A: 175 Federal Street, 11th FL, Boston, MA 02110, US A: 1st Floor, 10 King William Street, London EC4N 7TW, UK Eurex is one of the largest derivatives exchanges and the leading clearing house in Europe. Wherever you are located, we provide you with access to the benchmark futures and options market for European derivatives. Eurex also offers short term fund- ing products, such as Eurex Repo. Eurex Repo is among the forerunners in providing integrated trading and clearing for repo transactions. Eurex’s latest innovative market- place is called Eurex SecLend. Eurex SecLend. Europe’s leading investment banks participate as borrowers in the Eurex SecLend marketplace, acting as principal brokers, dealers and intermediaries. They all benefit from Eurex’s leading state-of-the-art trading and processing services. For Eurex, service and technology innovation is not just a buzzword. New trends are being transformed into inventions through the adoption of advanced trading practices. Find out more on www.eurexseclend.com. VocaLink is the transaction specialist. We pioneered electronic payments four decades ago and many of the world’s top banks have been relying on our services ever since. Our automated payment system processes over 80 million transactions per day and has the capacity to handle all of Europe's automated payments. Our switching platform powers the world’s busiest ATM network. The VocaLink CSM delivers reach for our clients throughout the SEPA and beyond with a range of value-added services that leverage our know-how and technical capa- bilities. VocaLink is the partner of choice in the transactions business. Find out why at www.vocalink.com Data Explorers Limited, a specialist and independent company, offers impartial quantitative measurement of securities lending performance services to the global securities financing industry. We help our clients monitor and understand the relative performance of their lending activity and risk, and turn raw lending, borrow- ing and collateral data into useful, actionable information. We also provide proxies for short selling information. Working with the industry we ensure information flows are appropriate and peer groups relevant. We are not involved in transactions. All of our services: Performance Explorer, Transaction Explorer, Risk Explorer, Index Explorer and Report Explorer are web based and available to clients over the internet. EquiLend Holdings LLC was formed by a group of leading financial institutions to develop a global platform for the automation of securities finance transactions. The EquiLend platform is designed to increase efficiency by standardizing, cen- tralizing and automating front and back office processes, while delivering global access to liquidity, reduced risk and scalability. The EquiLend platform is designed to process equity and fixed income securities finance transactions on a global basis. Investors include: Barclays Global Investors; Bear, Stearns & Co. Inc.; Credit Suisse; The Goldman Sachs Group, Inc.; J.P. Morgan Chase & Co.; Lehman Brothers; Merrill Lynch; Morgan Stanley; Northern Trust Corporation; State Street Corporation; and UBS. eSecLending is a leading global provider and administrator of customized securities lending programs and they have grown to become one of the largest lending agents in the marketplace. Their program has been adopted by some of the world’s largest and most sophisticated asset gatherers including pension funds, mutual funds, investment mangers and insurance companies. eSecLending’s approach has introduced investment management practices to the securities lending industry, offering beneficial owners an alternative to the custodial lending model. Through eSecLending, beneficial owners have achieved optimal returns, greater transparency and increased control over their program as compared to traditional lending models. eSecLending maintains offices in Boston, London and Burlington, Vermont. Securities Finance Trust Company, an eSecLending company, performs all regulated business activities. Additional information about eSecLending is available on the company’s website, www.eseclending.com. INVESTOR SERVICES JOURNAL 75 Securities Lending . Payments & Settlements . T: +41 (0)44 218 14 14 F: +41 (0)44 218 14 18 E: [email protected] A: COMIT AG, Buckhauserstrasse 11, CH-8048 Zurich, Switzerland W: www.finacesolution.com FINACE® is the only fully integrated solution today which supports the future busi- ness model within the area of Securities Finance and Collateral Management. The architecture of FINACE® is based on a stable, leading edge technology platform, which was developed with performance and robustness as the focus of design. With flexibility at its core, customer-driven extensions and modifications can be quickly and easily applied to the standard component set. 76 INVESTOR SERVICES JOURNAL JPMorgan's Securities Lending program is unparalleled due in no small part to the Firm's breadth of capability, financial strength, professional expertise and seamless operations. Our program enables investors to access a broad spectrum of lending markets, with a diverse borrower base, offering a broad indemnification against borrower default, while achieving very competitive bids for their securities - all of this in an environment designed not to compromise the activities of their fund managers. As one of the founding members of EquiLend, a global automated platform for borrowers and lenders, JPMorgan is at the forefront of technology and is ideally placed given its integrated lending, custody and accounting platforms. New York: William Smith T: 212-623-5664 E: [email protected] London: Michael Fox T: 44 207 742 0256 E: [email protected] Sydney: David Brown T: (61-2)92504606 E: [email protected] W: www.jpmorgan.com/wss W: www.gruposantander.com T: (3491) 289 39 42/54 E: securitieslending@ gruposantander.com Pirum provides a full suite of automated reconciliation and straight through process- ing (STP) services supporting Operations within the global securities finance industry. The company's on-line SBLREX service encompasses daily contract compare, monthly billing comparison, mark-to-market & exposure processing, pending trade comparison, income claims processing and custody reconciliation. Subscribers to Pirum’s services significantly increase their operational efficiency and reduce their risk by using Pirum’s solutions, as staff are able to focus on fixing the exceptions instead of using their time to check and process routine business. These automated processes are more scalable and risk controlled too, allowing significantly higher volumes to be managed without corresponding increases in operations headcount. Around the world, USD9 trillion in securities financing is managed on SunGard’s proven solutions for international and U.S. domestic securities lending and repo for over 250 clients. Through our Loanet, Global One, Martini and Astec Analytics prod- ucts and services, we provide comprehensive business solutions and information with worldwide reach for equities or fixed income securities financing. These solutions – all in an integrated, exception-based processing architecture – includes order rout- ing, pre-trade analytics, trading, position management, operations, accounting, set- tlement and reconciliation. T: +44 20 7220 0961 F: +44 20 7220 0977 C: Rupert Perry E: [email protected] A: Pirum Systems Limited 37-39 Lime Street London, EC3M 7AY W: www.pirum.com Email: securities.finance@sun- gard.com Contact: Switch board: +44 (0) 208 081 2000 Marketing: +44 (0)208 081 2853 Visit: www.sungard.com/loanet www.sungard.com/globalone www.sungard.com/martini www.astecgroup.com Santander is the only Spanish financial institution with a team exclusively dedicated to securities finance & with the purchase of Abbey in 2004 has expanded its capacity on a Global basis with trading teams in London (UK) & Connecticut (USA). Santander's leading local capabilities in Spain, Portugal, UK, USA & Latin America, along with its solid balance sheet & combined with the state-of-the-art technology, provides its clients with the broadest range of solutions in securities lending & financing, including availability across all assets classes, as well as access to uncommon emerging markets. Securities Lending . Annette Lindinger [email protected] T: +49 69 21 93 66 600 F: +49 69 21 93 66 650 Mainzer Landstr. 199 60326 Frankfurt am Main Germany W: www.aquin.com Aquin are the market leader in investment compliance software with MIG21® pow- ered by Aquin LawCards® for global compliance including UCITS III and SEC 1940. The company has built its reputation on solid compliance and IT experience in long term relationships with its clients. Aquin services a blue-chip client base of the world’s leading investment management companies, hedge funds, fund administrators and custodians. These include Citi, State Street, BNP Paribas, Credit Suisse, CACEIS Investor Services, Allianz Global Investors, Pioneer Investments and Commerzbank. The company has its headquarters in Frankfurt, Germany with subsidiaries in Boston, London, Paris, Dublin, Luxembourg and Zurich. Advent Software EMEA, established in 1998, provides trusted solutions for the front through to back office operations, based on a true real-time fund/portfolio accounting platform, to the investment management community throughout Europe, Middle East and Africa. Advent has an established network of offices across the region serving a growing client base of asset managers, hedge fund managers, prime brokers, fund administrators, wealth managers, private banks and family offices who continue to improve their businesses using Advent’s suite of integrated investment management solutions. Advent Software EMEA is part of Advent Software Inc. (Nasdaq: ADVS), a global organisation that has been providing solutions to the world's leading financial professionals since 1983. Firms in more than 50 countries using Advent technology manage investments totaling more than US $8 trillion. T: +44 (0)20 7631 9240 F: +44 (0)20 7631 9256 E: [email protected] A: One Bedford Avenue, London WC1B 3AU, UK W: www.advent.com Technology . Broadridge Financial Solutions The ISIS Building 193 Marsh Wall London E14 9SG UK T: +44 (0) 20 7551 3000 E: [email protected] W: www.broadridge.com Broadridge Financial Solutions, formerly ADP Brokerage Services Group, with nearly $2.0 billion in revenues and more than 40 years of experience, is a leading global provider of technology-based outsourcing solutions to the financial services industry. Our integrated systems and services include international securities processing, investor communication and outsourcing solutions. We offer advanced, integrated systems and services that are dependable, scalable and cost-efficient. Our systems help reduce the need for clients to make significant capital investments in operations infrastructure, thereby allowing them to increase their focus on core business activities. Proxy Edge – comprehensive solution for institutional global proxy voting management. Gloss – leading international STP system which automates the trade processing lifecycle from trade capture through confirmation, clearing agency reporting and settlement. Tarot - a UK retail and private client stockbroking, custody and fund management solution. Securities Data Management – outsourced data services for securities operations. DST International is the world’s premier vendor of technology solutions to the global investment management community with over 700 clients in 55 countries, and 1500 employees in 19 of the world’s leading financial centres. Our wide range of asset management solutions meet the needs of fund managers, dealers, settlement staff, custodians and record keepers operating as international asset managers; from front office simulation, opinion management and modelling functions, through data management, dealing and settlement to custody and corporate actions. The suite of products can be used either as stand-alone applications or brought together in flexi- ble combinations according to specific needs. Eagle Investment Systems LLC is a global provider of financial services technology, serving the world's leading financial institutions. Eagle's Web-based systems support the complex requirements of firms of any size including institutional investment managers, mutual funds, hedge funds, brokers, public funds, plan sponsors, and insurance companies. Eagle is committed to providing enterprise-wide, leading-edge technology and professional services for investment accounting, data management, and performance measurement. Eagle’s product suite is offered as an installed application or can be hosted via Eagle ACCESS, Eagle’s application service provider. Eagle Investment Systems LLC is a division of The Bank of New York Mellon Corporation. To learn more about Eagle's solutions, contact [email protected] or visit www.eagleinvsys.com. T: UK +44 (0)20 8390 5000 Boston +1 617 482 8800 Hong Kong +85 225 812 880 F: +44 (0)20 8390 7000 E: [email protected] A: DST House, St Mark’s Hill, Surbiton, Surrey, KT6 4QD W: www.dstinternational.com W: www.eagleinvsys.com T: +44 (0) 20 7163 5700 F: +44 (0) 20 7163 5701 A: Mellon Financial Centre 160 Queen Victoria Street London, EC4V 4LA W: www.f-tradeware.com T: +44 (0)20 7493 2773 F: +44 (0)20 7495 4858 C: GrahamBright E: [email protected] A: 31 Dover Street London W1S 4ND UK Financial Tradeware provides integrated solutions for medium to small sized Investment Management firms, Fund Managers and Hedge Funds, covering the full trade life cycle. It is part of the Dharma Group of companies and benefits from the joint contributions and experiences within the group of market traders, business ana- lysts, financial services professionals and skilled Microsoft Certified programmers. The company has developed a suite of applications that integrate and Straight Through Process (STP) real-time trading, back office administration, accounting and compliance. Ultra.net®, S-Messenger® and H-Fund® are the company's flagship products all based on Microsoft.NET infrastructure. The company also offers a Member Concentrator for hosted SWIFT connectivity and Member Administered Closed User Group (MA-CUG) services for Corporates and Hedge funds. For more information see: www.f-tradeware.com INVESTOR SERVICES JOURNAL 77 A: BI-SAM Ltd 1 Cornhill London EC3V 3ND T: +44 (0)20 3008 5834 F: + 44 (0)20 3008 5831 E: [email protected] W: www.bi-sam.com BI-SAM is a leading provider of analytics software, client reporting and data manage- ment solutions to the investment management community. Our integrated and innovative solutions have already been adopted by many renowned asset managers in France, Belgium, Luxembourg, UK, Hong Kong and Singapore who have assets under management ranging from 10 to 450 billion Euros. The B-One suite of products covers: performance measurement, performance attri- bution (equities, balanced and fixed income), risk attribution (ex-post and ex-ante), as well as multi-lingual client reporting and factsheets. This suite of products can be used either as stand-alone applications or ASP hosted solutions. The Company has approximately 45 employees in offices located in Europe (Paris, London, Luxembourg). Offices in Asia and North America are under consideration. The Company is headquartered in Paris. Elemes NM is your partner in global agent bank custodian network management pro- viding a global view of your relationship network in a powerful and easy to use pack- age. It includes diary, invoice verification, document management, multi-entity views, reporting, account information incorporating fee and rate structures, contacts, notes and supports eFee – electronic fee invoicing technology. Unrivalled extensibility allows you to develop your own functionality with your in- house development team. Flexibility does not stop with the software, our commercial terms offer adaptable pricing to suit present and future requirements for all sizes of organisation. Fingertip Developments Ltd Curtain Court 7 Curtain Road London EC2A 3LT UK T: +44 (0)20 7100 9280 enquiries@fingertip- developments.com 78 INVESTOR SERVICES JOURNAL Lombard Risk is an innovative and established provider of financial trading systems, risk management software, regulatory software and independent valuation services. Our software solutions include Colline, a market leader in collateral management, and STB-Reporter, a market leader for regulatory reporting. We also provide enter- prise-wide trading and risk management solutions that allow you to value and man- age risk proactively across a broad range of financial instruments. Other solutions include sophisticated anti-money laundering and financial crime detection software. Lombard Risk is a global company with offices in London, New York, Shanghai, Hong Kong, Singapore and Johannesburg. For more information, please visit www.lombardrisk.com Lombard Risk 21st Floor Empress State Building Lillie Road London SW6 1TR UK T: +44 (0)20 7384 5000 F: +44 (0)20 7384 5140 www.lombardrisk.com Building on over twenty years of experience in capital markets and cross-asset software solutions, Murex introduces Mx Asset Manager - a unique cross currency, cross asset fund management solution capable of handling the full range of products, from plain vanilla to the most complex derivative products. Coupled with a high degree of flexibility and customization, Mx Asset Manager features a multifaceted design catering to the needs of both service providers (prime brokers, administrators, asset servicing providers) and direct clients (portfolio managers for mutual, pension or hedge funds, insurance companies). With so many new challenges presented to buy-side managers when integrating increasingly-complex derivatives into their portfolios and funds, Mx Asset Manager represents a strong and reliable ally for dynamic position keeping and multi-dimen- sional risk management in a thriving market. peterevans is a leading provider of front to back office solutions for the financial services sector. With 23 years experience peterevans takes a sophisticated and dynamic approach to assist customers in reducing costs and witnessing an increase in margins by seamlessly replacing costly and restricting legacy platforms. peterevans works in a col- laborative manner and sees clients as partners to help meet all the demands in today’s marketplace. The xanite product suite offers a highly configurable, flexible and fully integrated, browser based, comprehensive front to back solution that complies with mes- sage standardization and settlement harmonization. Deployed as a single application or integrated as components into your existing platform. Each of the xanite modules can be delivered via an ASP or self-hosted. Covering: wealth management, custody corporate actions clearing and settlement private client and on-line stock broking Clients contin- ue to retain all control with their portfolio, fund and relationship managers, brokers, middle and back office operation – on line anywhere in the world. C: Hélène Desbiez Business Development Manager T: +33 1 44 05 32 00 E: [email protected] W: www.murex.com peterevans New Broad Street House 35 New Broad Street London EC2M 1NH T: +44 (0) 29 20 402200 E: [email protected] W: www.peterevans.com For more than a decade, administrators, managers, and advisors have relied on KOGER for dependable software tools backed by extensive industry experience and expertise. Now, for those who want to reduce costs and streamline business processes, Koger offers Fully Integrated Fund Administrator, a vertically integrated suite serving the back-office software needs of the fund industry. Fully Integrated Fund Administrator consists of three core programs: ~ NTAS, the New Transfer-agency System ~ E*TAS, Electronic Transfer Agency System ~ GRID, Global Reach Interface Daemon Other programs, such as PTAS, KIT, and KORS available separately, complement the core competency of Fully Integrated Fund Administrator. T: 001-201-291-7747 F: 001-201-291-7808 C: Mr Ras Sipko E: [email protected] KOGER USA 12 Route 17 North Suite 111 Paramus New Jersey, NJ 07652, USA W: www.kogerusa.com London Office: Martin House 5 Martin Lane London EC4R 0DP U.K. T: +44 (0)20 7621 5800 F: +44 (0)20 7621 5899 E: [email protected] W: www.odyssey-group.com Odyssey Financial Technologies is an industry leader in the global provision of wealth and asset management solutions and services to the Private Banking, Mass Affluent and Retail Banks as well as Institutional and Fund Managers. More than 180 finan- cial institutions in 30 countries have chosen Odyssey solutions. Odyssey focuses on providing a comprehensive range of components for portfolio management (PMS), advisory process, customer relationship (CRM), compliance, risk, analytics and Enterprise Data Management (EDM). The components are deployed on a single scalable wealth and asset management platform, facilitating the enterprise-wide implementation of solutions and data management. Founded in Luxembourg in 1995, Odyssey today has offices in the key financial centers, includ- ing London, New York, Singapore, Zurich, Frankfurt, Brussels, Geneva, Madrid, Toronto and Tokyo. Odyssey’s operational head office and main development centre is located in Lausanne, Switzerland. Throughout this knowledgeable network Odyssey employs over 600 professionals. IGEFI is the foremost provider of software solutions for international fund promoters, third-party service providers and fund managers. Its prestigious client-base is testi- mony to our commitment, service and quality with more than 200 expert staff sup- porting clients from seven offices worldwide including Bangalore, Boston, Frankfurt, Geneva, London, Luxembourg and Paris. MultiFonds is operational in more than 20 countries worldwide and support investment funds assets in excess of US$ 2 trillion. MultiFonds Fund Accounting and MultiFonds Transfer Agency are developed on a "one system-one database" philosophy and provide significant advantages including reduced overhead and IT support costs and single look and feel reporting for global clients. A:IGEFI Group Sàrl - 7, Rue des Primeurs, L-2361 Strassen T: +352 26 44 211 F: +352 26 44 21 44 E: [email protected] W: www.igefi.com C: Mr. Jesper Steiness - Head of Business Development, Europe & Asia E: [email protected] INVESTOR SERVICES JOURNAL 79 T: +44 (0)20 7826 4470 F: +44 (0)20 7826 4480 C: Nick Stevens E: [email protected] A: Singularity 4th Floor, 101 Moorgate London EC2M 6SL UK Further Contacts: US T: +1 212 946 2685 Singapore T: +65 9616 7732 T UK: +44 (0) 8452 303 065 T US: 1-888-650-1831 F: +44 (0) 8452 303 064 E: [email protected] A: FinTuition Ltd 1 Berkeley Street London W1J 8DJ United Kingdom W: http://www.fintuition.com Over 100 Capital Markets firms worldwide rely on Singularity to achieve step-change improve- ments in efficiency and cost-effectiveness. Across front, middle and back office operations, Singularity's clients are improving performance by automating process and leveraging their human capital most effectively. Our process automation solutions combine deep knowledge and long-standing capital markets experience with award-winning technology. Clients include JPMorgan, Bank of Tokyo Mitsubishi UFJ, Raymond James, Prudential, Invesco, BNPParibas, Morgan Stanley, American Express and M&G. -By cutting latency in securities processing, our clients are recognising new efficiencies, reducing costs and increasing throughput -By streamlining their customer on-boarding processes, our clients are gaining faster access to fees, increasing customer satisfaction, gaining greater cross-sell opportunities. -By automating their KYC & other compliance processes, our clients & reducing risk. -By improving collaboration in their client reporting cycle, our clients are providing more timely and insightful investment performance information. FinTuition is an international training company based in London specialising in the securities finance business: securities lending, equity finance, hedge funds, prime brokerage, repo and collateral management. FinTuition offers a regular schedule of open-enrolment courses from introductory to advanced levels as well as tailor-made in-house training and consulting. We have course locations in Asia, Europe and North America. FinTuition training relies heavily on exercises, role plays and case studies to pro- mote a better understanding of securities financing and trading concepts through contextually reinforced learning. For more information about our courses, course dates and course directors, please visit our website www.fintuition.com Princeton Financial® Systems, a wholly owned subsidiary of State Street Corporation, is a leading provider of investment management and accounting systems and ASP services for global institutional investors. Its flagship PAM® investment management systems provide comprehensive STP- ready functionality that can be licensed for in-house use or accessed via the Internet. PAM® systems are currently used worldwide by over 275 leading invest- ment managers, insurance companies, mutual funds and unit trusts, pension funds, hedge funds, endowments, banks and corporation, which manage combined total assets over US $3 trillion. Princeton Financial has offices located throughout the United States, United Kingdom, Belgium, Australia, Singapore, Amsterdam and Canada. Form more information, visit Princeton Financial’s website. T: +1 609-987-2400 F: +1 609-514-4794 C: Lorne Whitmore, Vice President, Global Sales & Product Management E: [email protected] A: 600 College Road East, Princeton, NJ 08540, USA W: www.pfs.com SimCorp Dimension is a powerful, comprehensive and truly seamless investment management system. It can handle NAV and other calculations, with complete relat- ed accounting, for a huge variety of fund structures and product types, including regional specialities. SimCorp Dimension has been designed from scratch as an enterprise-wide system, handling all aspects of the investment management process and related administra- tion functions, consistently. Data is recorded once into a core database so that reporting is made easy, there is no reconciliation of data and no duplication of pro- cedures. T: +44 (0)20 7260 1900 F: +44 (0)20 7260 1911 C: Elizabeth Gee, sales director of SimCorp Dimension E: [email protected] W: www.simcorpdimension.com A: SimCorp, 100 Wood Street, London EC2V 7AN With annual revenue of USD5 billion, SunGard is a global leader in software and processing solutions for financial services, higher education and the public sector. SunGard also helps information-dependent enterprises of all types to ensure the con- tinuity of their business. SunGard serves more than 25,000 customers in more than 50 countries, including the world’s 50 largest financial services companies. Visit SunGard at www.sungard.com Training and Education . Founded in 2002, Redi2 Technologies is a leading provider of fee billing solutions to the global financial services industry. Redi2 offers flexible, feature-rich solutions that help firms streamline operations, improve cash flow, reduce costs, enhance client service and meet compliance obligations. Redi2’s flagship fee billing and revenue management solution Redi2 Revenue Manager helps financial professionals more easily manage the fee billing process, including client setup, multi-currency fee and accrual calculations, invoice and advice generation, accrual reconciliation, adjustments and reversals. Our open APIs and support for industry-standard relational databases ease integra- tion with third-party solutions, including accounting, performance measurement and CRM systems. Redi2 Technologies, Inc. 1771 Broadway St. Oakland, CA 94612 T: +1 (510) 834-7334 E: [email protected] W: www.redi2.com SimCorp Dimension is a powerful, comprehensive and truly seamless investment management system. It can handle NAV and other calculations, with complete relat- ed accounting, for a huge variety of fund structures and product types, including regional specialities. SimCorp Dimension has been designed from scratch as an enterprise-wide system, handling all aspects of the investment management process and related administra- tion functions, consistently. Data is recorded once into a core database so that reporting is made easy, there is no reconciliation of data and no duplication of pro- cedures. T: +44 (0)20 7260 1900 F: +44 (0)20 7260 1911 C: Elizabeth Gee, sales director of SimCorp Dimension E: [email protected] W: www.simcorpdimension.com A: SimCorp, 100 Wood Street, London EC2V 7AN 80 INVESTOR SERVICES JOURNAL FORESIGHT structure to take advantage of the investment. But it will absolutely become an important part of hedge fund investing for 20-30 years probably. The other side of this, which I think is kind of interesting, is that as commodities become more expensive people are obviously going to try to fill the gap with new technologies. Across the commodities spectrum there’s going to be a lot of new technologies that are developed. I think this will be another way that hedge funds will benefit too, by watching these substitute alternative technologies that will replace some of the metals and commodities. For example rhodium is used in catalytic converters and in cars to prevent pollution. This is one of the platinum group metals, PGM metal group. As platinum increases in price, it’s reached some- where in the 2,200USD range recently, and has just gone up exponentially in the last couple of years, Rhodium, adds a sig- nificant cost to the price of a car. So in China, they are develop- ing substitute technologies to replace rhodium. I Greg Froese is Head of Investor Relations at Lionhart, a global, multistrategy arbitrage fund with USD 800m undermanagement, with offices in London, New York, Singapore and Toronto. FORESIGHT Analysts are suggesting alternative managers are learning from traditional managers, with the adoption of strategies such as 130/30. Can alternative managers learn from traditional managers? I think there’s always a cross fertilisation between traditional managers, alternative managers, and private equity managers. If you are not aware of what’s going on in all the different fields that you are tied to then you may miss something. How will the emerging markets and particularly China affect the hedge fund space? Emerging markets is a big term. Overall, the effect will be huge and China is certainly a great opportunity. The demand that comes from China for commodities and natural resources is huge, for example and that certainly drives up prices. If you are involved in the supply side you will certainly benefit from that. The key thing that we feel is that to do well in emerging mar- kets you have to have a local presence. It strengthens relation- ships in the region, which is paramount to ensureing that you know which markets, at which times, are more favourable or less favourable. Also there are so many regulatory changes going on out there that you really have to be on top of it. You can’t do that from New York or London. You really have to have an office there which, in the long run will mean more hedge funds setting up offices abroad. How will the commodities boom affect the fund arena? At Lionhart we think that the bull market has really just start- ed. We are about 20% of the way into a long-term commodity boom. I think more and more hedge funds will certainly become involved but it takes a local presence in a lot of these cases. A lot of this market is in sub-Saharan Africa, in the more remote regions. I would guess that in the future there would be a select group of hedge funds that will become fully committed and be able to fully understand commodities and natural resources and take advantage of it. For example in Africa we get involved in projects where we may need to build the infra- Greg Froese © UBS 2008. All rights reserved. The most important bcncht a Iund scrvIccs µartncr sIouId oťcr" Conhdcncc. You ò Is At Fund Services, with more than 50 years experience behind us, we understand the importance of fund administration to your business. Whether you manage traditional or alternative investments, our teams can develop a customised and flexible solution. With a comprehensive range of services and products, leading edge technology platforms and superior client service, we work in partnership with you to meet your every need, from simple to complex. It’s a long term and disciplined approach, but your peace of mind deserves nothing less. Find out more by visiting www.ubs.com/fundservices or e-mail us at [email protected] 16135A - ISJ FS Ad September 2031 1 06/03/2008 17:19:14