VOLUME 3 No. 18 - 2006 ISJFORUM.

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SPECIAL REPORT - 2007 PREDICTIONS

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 Hard Copy

INVESTOR PENSION TENSION

S ERVICES The hole in the pocket of pension funds is
widening. In the past few years there has
been an increase in the number of media
JOURNAL stories relating to huge ‘black holes’ in
retirement assets and a lack of sufficient
VOL 3 No. 18 - Dec 2006 funds in the piggybank to guarantee a com-
fortable retirement for today’s working pop-
ulation. Yet the pennies keep slipping away.
Increasing life expectancy, an aging popu-
lation and poor performing stock markets
have all been attributed as reasons for the
stifling of pension monies, however, increas-
ingly aggressive investment strategies will
need to be employed by those at the helm
of these funds, if they are to be dragged
back towards the black.
A number of local authority pension fund
chiefs have recently ordered ‘investment
shake-ups’, with a stronger emphasis on
bond exposure, and while this approach
protects against interest rate and inflation
risk it is anything but aggressive. Instead,it
enforces the conservative approach that
fund managers are taking to manage their
pension investments. A bolder modus
operandi is needed.
As with other European countries, pen-
sion reforms in France have been put in
place to stymie the ever-spiralling pension
deficits. With a number of pension funds
changing their investment strategies, the
value-added services of the custodial offer-
ing may be increasingly tapped, however,
there are gaps between pension funds and
the custodian that still need to be bridged.
Our article on French custody includes
insight from the major custodians in the
French market on the key developments
over the last year and the opportunities for
local custody providers in the years ahead.
We analyse how the market is embracing a
move towards a pan-European securities
landscape and what strategies French
custodians are employing to make sure
they stay ahead of the pack.
Huge losses resulting from hedge fund
collapses have been headline news recently
and our panel discussion this month delves
into the depths of hedge fund services;
covering issues to do with risk and regula-
tion whilst also looking at the future devel-
opments in the industry.
The technology revolution marches on,
with the proxy voting process moving
towards electronic access. In this issue,
Giles Turner looks at the possibilities
behind the growth of electronic proxy
voting and the move away from traditional
voting methods.
Seeing that Christmas is just around the
corner, ISJ has graciously provided a couple
of presents for you to unwrap. Two wonder-
ful new sections have been added to the
magazine; a Payments section, addressing
issues to do with payments and the Single
Euro Payments Area; and a News Analysis
section that covers green investments, the
cost of MiFID, and replicated hedge funds.
So it’s with a ho-ho-ho and a ding-dong
merrily on high that I bid you all a merry
Christmas, and Happy New Year. And
seeing that the festive season is upon us,
please don’t be strangers, especially as we
at ISJ are very partial to a warm glass of
mulled wine and a few mince pies!
Alan Duerden
The team
congratulate
Alan Duerden
on his appoinment
as Editor of ISJ.

Managing Editor: Mark Latham (Mark.Latham@ISJforum.com)

Editor: Alan Duerden (Alan.Duerden@ISJforum.com)
2006 PPA MAGAZINE AWARDS Reporters: Giles Turner (Giles.Turner@ISJforum.com), Vanessa Nicholson (Vanessa@ISJforum.com)
PUBLISHER OF THE YEAR Contributing Editor: Brian Bollen. Contributors: Keith Ford, Michelle Price, Christine Senior
HIGHLY COMMENDED
MEMBER - PERIODICAL PUBLISHERS ASSOCIATION Account Managers: Ben Katzler (Ben.Katzler@ISJforum.com), Monique Theart
(Monique.Theart@ISJforum.com) Directory Sales: Daniel Ryder (Daniel@ISJforum.com)

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Systems Developer: Jon Gunnarsson (Jon@ISJforum.com)
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TOTAL NET CIRCULATION 11,188 Publisher: Justin Lawson (Justin.Lawson@ISJforum.com) investor

Analysis for the Audit Issue Vol 3, No 14 distributed June 2006. Chairman: Mark Latham (Mark.Latham@ISJforum.com) intelligence partners
Source: AUDIT BUREAU OF CIRCULATIONS, www.abc.org.uk
INVESTOR SERVICES JOURNAL
37-38 Margaret Street, London W1G 0JF
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 Contents

VOL 3 No. 18 - Dec 2006

19 Panel Discussion Technology
- Hedge Funds 52 Analyze This
- Transfer Agency
Special Report
27 Payments 56 Proxy Voting 16 Caribbean
- Swell Times
- Thought leadership & - Dancing to the tune
SEPA of Proxy Music.

Pensions 56 Reference Data

34 Pensions Profile - Fi-fi-fo-FIMA.
36 Covered - British Airways:
France has had a chal Flying HIgh? Regulars
lenging year, ISJ looks 62 Meet the Future
back at how the
domestic custodial Custody - International talent
machine is challenging 35 Company Profile with international
France’s socio-eco
nomic make-up. - BNP Paribas: 125 aspirations.
years down under
10 News Analysis
1 Hard Copy 63 Disaster Recovery - Jolly Green Giants
- Pension Tension 36 French Custody - Giving Big Brother
4 Letters - Tower of Power. the Finger.
Dear Sir... French domination in
European custody. 64 Mandates
News
6 Global Snapshots 40 USA 65 Dating & Letters
- Roundup of securities - Custodial
services headlines Thanksgiving. Is the 66 People Moves
from ISJforum.com domestic plate clean?
68 Recruitment
10 News Analysis Securities Lending
- examining the issues 44 Data Explorers 40 USA
behind the headlines. - Statistical data out- ISJ Directory - Custodial Thanksgiving
look in Securities 70 The Directory of
Funds Lending. Securities
14 Domicile Reports Services Providers
- Jersey, Bahamas and Special Report
Ireland, give us the 50 Predictions for 2007
lowdown. - Insight into Asset Hindsight/Foresight
Management, Custody, 80 Aberdeen Asset
16 Fund Regulation Securities Lending Management; Quality
- Swell times for the Technology Beef.
Caribbean.

2 INVESTOR SERVICES JOURNAL 56 Reference Data

- Cocktails at FIMA
Letters to the Editor
If you are affected by,
or have an opinion on, any
aspect of investor services
write to us...
Alan.Duerden@ISJforum.com
MIFID: SETTING THE STANDARDS?
With only a year to go until the
November 2007 deadline for MiFID, I
am amazed at the lack of clarity,
consistency and commitment amongst
investment firms.
This seems particularly significant in
the area of agreement to standardize or
not on protocols, message content and
instrument identification. The recent
publication of the consultation paper
from CESR highlights some of the differ-
ences of opinion.
It is, in my view, most important that
the market recognises two things and
then forges ahead, without delay, to
formulate and implement technical
strategies for compliance. They are;
firstly to accept that it is very unlikely
that pan-European agreement will be
reached on definitive standards in the
MiFID could impose
unmanageable loads and
may force smaller players
out of the market.
near term. Therefore, measures should
be started immediately to adapt,
enhance and integrate existing tech-
nology with flexible publishing systems
from firms that will be able to respond
rapidly and reliably to whatever emerges
from the MiFID melee.
Secondly, notwithstanding the above,
now is a very good time to take notice of
recommendations, such as those put
forward by the MiFID Joint Working
Group. These propose models and stan-
dards that could be worked towards to
reduce the complexities and costs of
MiFID. In time these would reduce the
costs of market entry and participation,
allowing money to be spent on innova-
tion and adding value, rather than on
complex compliance measures within a
framework that contains no regulatory
mechanisms for monitoring.
Without such a trend MiFID could
impose unmanageable loads that will
increase costs and may force smaller
players out of the market.
Andrew Miller, Managing Director,
Arcontech Ltd.
4 INVESTOR SERVICES JOURNAL
WEAK FOUNDATIONS.
With less than a year before the
implementation of the Markets in
Financial Instruments Directive (MiFID)
it is estimated that more than a third of
buy- and sell-side firms in the EU don’t
have an adequate framework in place to
meet its best execution requirements.
One bank embarrassingly said last
week that their MiFID plan so far
amounts to: “We’ll plan in Q4 06 and
deliver it in 07.” Nothing more.
Investment firms will have to prove to
their clients that they have complied
with their best execution policy, for each
trade, for a period of five years. This rep-
resents a huge challenge for technology
and workflow, as few firms hold market
conditions (i.e. tick data) or even post-
trade costs.
MiFID poses both a
strategic threat and
opportunity for
investment firms.
Demand for real-time trading tech-
nologies that are easily integrated, able
to aggregate information from multiple
sources and support many publishing
formats has grown significantly.
However, while MiFID has been a driver
for new vendor solutions, there isn’t a
single solution or application that is able
to meet all its requirements and IT
systems need to be remodeled, as a
result. MiFID solutions should be based
on Service Orientated Architecture and
provide a best of breed approach;
enabling firms to orchestrate existing
components to deliver business services
and answer questions such as: “Did that
trade meet best execution policy?”; or
“Was that trade within MiFID or outside
MiFID terms of business?”
MiFID poses both a strategic threat
and opportunity for investment firms.
Some will pull out of European
securities because compliance costs will
be too high. In turn, this will create
opportunities to acquire new business
and to provide outsourced trading, clear-
ing and settlement facilities. While tier
one investment firms have been techno-
logically proactive in addressing how
they will manage their obligations, tier
two and three firms are still burying their
heads in the sand. It is now time to
decide whether they will be able to con-
tinue delivering services in compliance
with the Directive, whether they will look
to outsourcing their business or sell up.
David Field, Managing Director,
Rule Financial.
MIND THE GAP.
2006 has seen a further widening in the
gap between the technological capabili-
ties of the front and back office. In the
main, this is because firms have limited
IT budgets and need to feed a lot of
mouths. After the front office is fed, little
remains for the back office.
Compounding this is the quest to exe-
cute trades in multiple asset classes –
budgets get spent on areas that will
directly impact a client’s needs, so there
is often little left over for the “behind-
the-scenes” back-office to ensure the
trades are processed efficiently.
Having said that, a large part of the
volume growth that we see in today’s
markets can be attributed to the ongoing
development of operational IT (albeit at
a slower pace then front office technolo-
gy). The buy-side has long talked about
actively trading in small sizes and now,
because of sophisticated OMS’s and
embedded middle-office STP it can.
The gap between front and back office
is at its widest where products are heavi-
ly customized and non-exchange traded,
such as OTC derivatives. Certainly, in
the front office, technology is becoming
a key competitive differentiator. The rise
2007 is likely to be the
year when regulators wake
up to operational
efficiency issues.
of electronic and algorithmic trading is
the clearest representation of this
through the confluence of complex tech-
nology and diverse trading strategies.
The markets in financial directive
(“MiFID”), due to come into force in
November 2007, has to some extent
perpetuated the continued focus on front
office technology versus back office. At
the same time, many industry commen-
tators believe that the directive will help
to promote greater trade lifecycle pro-
cessing through a focus on post trade
transparency.
2007 is likely to be the year when reg-
ulators wake up to operational efficiency
issues. MIFID will be in implementation
mode and the clearing and settlement
industry will be in the honeymoon phase
of its Code of Conduct. The complex and
less-understood area of post-trade, pre-
settlement could be the next area of
scrutiny. Let’s hope that in 2007, back
office technology sophistication starts to
play catch up with front office systems
Tony Freeman, Director, Industry
Relations, EMEA, Omgeo.
(Letters continue on page 65)
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News - Global Snapshots
Funds & Administration
London - Mellon Financial
Corporation’s Mellon
Transition Management
Services (MTMS) group has
completed a successful transi-
tion management mandate in
respect of a £680 million glob-
al equity portfolio for the
North Yorkshire County
Council Pension Fund.
Hong Kong - Prudential has
chosen Citigroup Global
Transaction Services to provide
securities services, fund
accounting and related fund
administration services to its
insurance funds and unit-
linked products in Asia, follow-
ing an extensive five-month
search. Citigroup will provide
domestic and global custodial
services to the insurance funds
and unit-linked products of
Prudential’s operations in
Hong Kong, Indonesia,
Malaysia, South Korea,
Philippines, Singapore, Taiwan,
Thailand and Vietnam.
Luxembourg - Dalton Strategic
Partnership (DSP) has
announced the launch of the
Melchior Selected Trust
Canadian Opportunities Fund
(MSTCOF), which invests in
opportunities created by
Canada’s natural resources
and healthy economy.
Interward Asset Management,
a specialist Canadian invest-
ment company based in
Toronto, is the advisor to the
Fund. The Fund was launched
6 INVESTOR SERVICES JOURNAL
on 02 November 2006 with
USD9.1 million under manage-
ment provided equally by
DSP and the management
team at Interward. DSP
will consider closing the
fund once it reaches
USD500 million.
Market Infrastructure
Zurich - AIM Software,
provider of reference
data management solu-
tions teamed up with
Reuters to offer an auto-
mated reference data serv-
ice for corporate treasury cus-
tomers. Reuters Pricing &
Reference Data will now feed
its foreign exchange, swaps
and interest rates information
into AIM Software’s proven
reference data management
platform GAIN.
Helsinki - State Street has
appointed Skandinaviska
Enskilda Banken AB, Helsinki
Branch as its new
sub-custodian in Finland.
Assets were transitioned from
Nordea to SEB, Helsinki on 20
Nov 2006.
London - London Fulcrum
Limited, global administrator
for the hedge fund and
alternative asset management
industry, has opened a
representative office in
London.
The office will be led by Tim
Thornton, who has been pro-
moted to Managing Director,
Global Client Acquisition
Group and Director of Risk,
while Luke Ehgoetz has been
promoted to Director, Global
Client Acquisition Group
Guangdong - Citigroup led a
consortium to acquire China’s
Guangdong Development
Bank for USD3.06bn (¤2.4
bn), their biggest deal in China
to date, beating a rival bid
from Société Générale, and
taking advantage of China’s
new liberalization measures.
Citigroup will own 20% of
GDB, with IBM holding 4.74%,
keeping to within the 25% cap
on foreign ownership of
Chinese banks.
New York - Citigroup
Corporate and Investment
Banking has announced the
introduction of fiduciary transi-
tion management services for
North American clients.
Citigroup’s transition manage-
ment service currently offers
fiduciary transition manage-
ment in both Europe and Asia.
The fiduciary transition service
is a joint venture of Citigroup’s
Global Capital Markets divi-
sion and Global Transaction
Services division.
Massachusetts - Korean finan-
cial IT vendor, Koscom, has
selected the Progress Apama
Algorithmic Trading Platform
to enable algorithmic trading
on the Korea Exchange (KRX).
The Korean financial market
community’s interest in algo-
rithms has increased signifi-
cantly. Progress and partner-
ship will develop a localized
version of the Apama platform
for distribution in Asia; making
the Apama platform the first
commercial algorithmic trad-
ing system available in Korea.
New York - ADP Investor
Communication Services
(ICS), of Automatic Data
Brokerage Services Group,
launched an enhanced version
of its ProxyEdge proxy voting
tool for institutional investors
and investment companies,
featuring vote recommenda-
tions and research from Glass,
Lewis & Co., independent
provider of global proxy analy-
sis. It provides ProxyEdge
users with a turnkey, web-
based solution for the auto-
execution of ballots according
to one or more specially
designed governance policies.
New York - Global agency bro-
ker Instinet will become a
wholly-owned subsidiary of
Nomura, offering agency exe-
cution services internationally
to institutional clients.
Purchased from private equity
firm Silver Lake Partners in an
undisclosed all cash transac-
tion by Nomura Holdings, the
Japan-based global financial
services firm, completion of
the transaction is subject to
regulatory approvals and
expected in the first quarter of
2007.
New York - JP Morgan spin-off
financial risk management
firm, RiskMetrics Group, will
acquire Institutional
Shareholder Services (ISS),
provider of proxy voting and
corporate governance solu-
tions to the institutional mar-
ketplace. Combined they will
generate over USD200 million
in revenue per year with
approximately 800 employees
across 23 offices serving over
2,400 clients worldwide.
"Corporate governance is now
being recognized as a vital
fiduciary responsibility," said
RiskMetrics Group board
member, Arthur Levitt.
Chicago - Penson Worldwide,
securities trading and process-
ing outfit, will acquire Chicago-
based futures broker
Goldenberg, Hehmeyer & Co
(GHCO) for an undisclosed
sum. Privately-held GHCO, the
registered futures commission
merchant and broker dealer,
will be renamed Penson
GHCO. The firm's co-chair-
men Ralph Goldenberg and
Chris Hehmeyer will respec-
tively become vice chairman
and CEO after the merger.
Legal & Compliance
London - A bill to be intro-
duced concerning the potential
National Pensions Saving
Scheme to reform pensions in
the UK, has been welcomed by
the Investment Management
Association. “Our view
remains that the NPSS holds
out the prospect of significant-
ly boosting savings, but criti-
cally its success will depend
on getting the detail right,”
commented Richard Saunders,
Chief Executive of the IMA.
London - The Futures and
Options Association (FOA) has
urged the FSA to copy-out
MiFID’s ‘principles-based’
approach to best execution
and allow firms the discretion
to determine the process and
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News - Global Snapshots
the factors
relevant to measuring the
quality of execution in dealer
markets. It also challenged the
primacy given by FSA to price
“benchmarking” as a preferred
methodology in certain mar-
kets.
Tokyo - Mizuho Securities filed
a compensation claim against
the Tokyo Stock Exchange
(TSE) for USD350 million, fol-
lowing losses incurred in last
December’s infamous fat-fin-
gered botched trade, when a
trader attempted to sell one
share of J-Com for YEN
610,000. Mizuho has filed a
lawsuit after the exchange
turned down any possibility of
compensation. TSE President,
IT head and Managing
Director have all been shown
the door. The case continues.
Brussels - The European
Commission has welcomed
the clearing and settlement
industry's new Code of
Conduct, considering it an
important first step towards an
integrated and efficient post-
trading market in the EU. The
measures detailed in the Code
aim at enhancing transparency
and increasing competition in
the post-trading sector. "This
new Code of Conduct shows
the clearing and settlement
industry's firm commitment to
transparency, interoperability
and competition. It is an
important first step,” said
Internal Market and Services
Commissioner McCreevy. "The
8 INVESTOR SERVICES JOURNAL
industry now needs to ensure
proper implementation of the
Code and remove the
remaining barriers in the
market. And everyone
involved – Commission,
Member States, infra-
structure providers and
users – must work
together to enable an
efficient and safe post-
trading market in the
EU."
Technology
New York - In a new report,
IT Spending Trends: A Global
Financial Services Review,
Celent estimates that global
information technology spend-
ing by financial services insti-
tutions stands at USD317.7 bn.
This represents an increase of
8% over 2005. Although the
US economic forecast is rela-
tively upbeat, the growth in IT
spending by financial services
firms is expected to curtail
starting in 2007. The financial
services community is antici-
pated to spend USD351.2 bn
on global IT products and
services in 2008, or a growth
rate of 5.1% per annum.
Financial services institutions
in Asia-Pacific are expected to
increase their investments in
IT at a significantly faster rate
compared to firms in other
parts of the world from 2006
to 2008, a compound annual
growth rate of 11.4%.
Sydney - Bravura Solutions
Limited, supplier of applica-
tions and professional services
to Investment Management,
will acquire all AB Prodata’s
shares, marking the sixth
acquisition for Bravura since
its establishment at the end of
2004. AB Prodata
Luxembourg-based financial
software vendor, is a major
provider in the automated
financial messaging market.
Geneva - TEMENOS Group,
provider of integrated core
banking systems, has
announced that Jih Sun has
gone live with TEMENOS T24.
Previously, Jih Sun was operat-
ing on a locally developed
mainframe system, which
required continued and costly
customization to suit its needs.
Lombard - SunGard has
announced that it has acquired
Integrated Business Systems,
Inc. (IBSI), a NY-based provider
of software solutions and relat-
ed services to hedge funds.
IBSI’s primary product offering,
Visual Portfolio Manager
(VPM), is a portfolio account-
ing solution used by more than
50 hedge fund managers and
processing more than USD135
bn in assets. Michael
Alesandro, President, IBSI, said:
"As part of SunGard, we will
gain an opportunity to further
VPM’s growth by expanding
into new geographic regions,
continuing to enhance our plat-
form and broadening our serv-
ice capabilities.
Custody, Clearing &
Settlement
New York - The Teachers’
Retirement System of
Oklahoma selected JPMorgan
Worldwide Securities Services
to provide custody–related
services for its USD8 bn asset
portfolio. Employees of more
than 600 local school districts,
career technology schools,
public colleges and universi-
ties are enrolled as members
of the TRS.
London - ABN AMRO Mellon
Global Securities Services B.V.
has been appointed by
Cambridgeshire County
Council Pension Fund to pro-
vide global custody, invest-
ment accounting (SORP) and
securities lending solutions for
assets worth £1.2bn.
Cambridgeshire County
Council appointed consultants
Thomas Murray to conduct a
formal review to ensure the
Pension Fund would continue
to benefit from best market
practice in respect of its custo-
dial arrangements.
London - Northern Trust has
won the mandate to provide
custody services to the 2,090
million NOK (approximately
US$320 million) Oslo
Pensjonsforsikring’s (OPF)
global fixed income portfolio,
managed by investment man-
ager Rogge Global Partners.
“This is the first time we have
used a global custodian,” says
Håkon O. Wister of OPF.
Tokyo - The Japan Securities
Depository Center (JASDEC)
has excluded US Samurai
bonds (yen-denominated
bonds issued by US-based
entities) from the book-entry
conversion, pending confirma-
tion on the treatment of with-
holding tax of such bonds. The
JASDEC has recently
announced that the US
Samurai bonds will be convert-
ed to book-entry form at the
depository beginning March
2007. The decision was taken
after clarifications by the US
Internal Revenue Service.
Hong Kong - HSBC is not
considering making any
future acquisitions in South
Korea or Taiwan, but is looking
to further expand its
businesses in the two
countries as well as other
emerging markets in Asia.
Stephen Green, group
chairman of HSBC, in a media
briefing, said: "I don't think
acquisitions are necessary in
Taiwan and South Korea
because there are other things
that you can do that don't
involve acquisitions in those
two places, as well as in other
countries."
As China's economy grows at
a strong pace, the financial
sector will grow further and
give better returns, and this in
the process will create more
opportunities for investors."
HSBC group finance director
Douglas Flint went on to say
that returns on investments
on emerging markets, includ-
ing China, Brazil and Mexico
have been higher generally
compared to the group's
investments in other parts of
the world.
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News - Analysis
Wager Me This
What influence will replicated hedge
funds have the back office?
Over the last ten years hedge fund
investment has become extremely popu-
lar. Such problems as due diligence, liq-
uidity, capacity and transparency have
been offset by double-digit returns. From
accountants, to lawyers to IT staff, the
hedge funds back office employees often
come freshly poached from investment
banks and law firms, lured by high
salaries and a new adventure. Most of
the time, these moves are highly prof-
itable and they have to be as this new
wave of employee’s has to be able to
deal with complex asset situations and
risk management. However the comfort-
able salaries in both the front and back
offices may not last for long due to the
possibility of replicated hedge funds
because the mystery surrounding dou-
ble-digit returns may not be so mysteri-
ous after all. A new wave of academic
studies has purported that hedge fund
returns can be replicated because it
might not be all about the fund man-
agers ability but more to do with the rise
and fall of the markets. Put simply, a
The Cost of Compliance
A figure has finally been put on how much
MiFID will potentially cost. Again, the
questions has to be raised; Are we ready?
The Financial Services Authority (FSA)
last month published a paper setting out its
assessment of the overall costs and benefits
for the financial services industry of imple-
menting the Markets in Financial
Instruments Directive, a delicate mouthful
known as MiFID.
The paper attempts to quantify, where
possible, the benefits of MiFID in the UK,
and sets these alongside the costs of imple-
mentation.
The directive is the foundation of the
European Unions plan to move towards a
single market in financial services and the
catalyst behind a transformation of securi-
ties trading in Europe. Although much of
the directive is complex and opaque, it is
billed as the most important piece of legis-
lation to ever affect the European securities
landscape; aimed to create a greater degree
of harmonization through pre- and post-
trade transparency requirements; facilitate
cross-border business, by extending a ‘sin-
gle passport’ for financial firms to do busi-
10 INVESTOR SERVICES JOURNAL
replicated fund will simply copy the
trends of other hedge funds, The time
lag involved from observing the trend
and implementing it may only lose a few
percent in profit. If this is true, then the
possibility of high yield returns might be
available to more investors.
The main obstacle preventing replicat-
ed hedge funds is the higher amount of
capital needed to start up a hedge
funds. Another problem is that once
your money is in a hedge fund then it is
increasingly difficult to remove your cap-
ital and transfer it to another account.
Hedge fund mangers often demand an
extra 5% just to free up your capital, a
process that often takes a couple of
months. This however is theoretically
needless. The transfer procedure is not
as complex as it is made out to be, nor
should it take this long. If replicated
funds start to become a viable alterna-
tive, lower fees, greater liquidity and no
possessive fund manager’s means that
there will be a greater choice and there-
fore competition amongst hedge funds.
Whilst these replicated hedge funds may
not be able to make a greater profit as
the original funds, the small percentage
difference is more than made up for the
ness across Europe; and imposes require-
ments on investment firms to achieve best
execution for clients.
Despite this, the legislation has received a
mixed press, with many European financial
firms not understanding the full nature of
the directives consequences, let alone hav-
ing fully planned implementation strategies
(see letters page). In addition to this, a
number of countries, including Germany
and France, have indicated that they are well
behind meeting January 2007 target; by
which time national regulators are expected
to have woven the EU directive into their
own laws.
Until now, the FSA have steered clear of
engaging in exactly how much complying
with the directive will cost, with Callum
McCarthy, Chairman of London’s Financial
Services Authority adding fuel to the fire last
year when he indicated that it was unclear
whether the costs of implementing MiFD
would outweigh its benefits.
The new paper indicates that under “cer-
tain assumptions”, MiFID could generate
some £200 million per year in quantifiable
ongoing benefits, which will be attributable
mainly to reductions in compliance and
transaction costs.
The quantified one-off cost of implement-
lack of 20% profit cut usually taken by
hedge fund managers.
Increased competition will therefore not
allow the back office such comfortable
salaries; it might even be able to dis-
pense with front office managers alto-
gether. If the number of hedge funds
increases, be they original or cloned,
then there may be a knock on effect of
wages throughout the industry. Because
the original hedge-funds performed so
well, they could afford to cherry pick the
best staff. If hedge fund performance is
wavering, the possibility of cloned funds
is arising and rumour has it that there
aren’t any skilled fund managers left,
how can you afford paying your staff
such extravagant wages? If the cloned
funds ethos is efficiency and profitability,
it is also unlikely they will pay their
employee’s such high wages.
Custodians and other firms will also no
longer have to protect their staff from
poaching with high salaries and also
drop their wages. Of course this trickle
down effect in wages may not arise, but
the possibility remains nonetheless.
Kat,HarryM.andPalaro,HelderP.,"WhoNeedsHedgeFunds?ACopula-Based
ApproachtoHedgeFundReturnReplication"(November23,2005).AlternativeInvestment
ResearchCentreWorkingPaperNo.27AvailableatSSRN:
http://ssrn.com/abstract=855424
ing MiFID however, is estimated at between
£870 million and £1 bn with ongoing costs
of around an extra £100 million a year.
Commenting on this, Hector Sants, FSA
Managing Director Wholesale and
Institutional Markets, said: “As we have
already foreshadowed, it is clear that imple-
mentation of MiFID represents a substan-
tial cost to industry particularly in the
upfront years, but it does create the poten-
tial for revenue opportunities over the
longer term. We would encourage firms to
focus on these opportunities.”
This is all very well and good, but with
analysts at JPMorgan last month predicting
that commercial and investment banks
could see their earnings cut by up to 7%
next year as a result of MiFID, Mr Sants’
reassurances are a little hard to swallow.
The FSA stresses that aggregate figures
are used in the survey and it is likely that
the distribution of costs and benefits will
vary among firms depending on exactly how
MiFID affects their business.
Good news then, considering that with
just twelve months to go until implementa-
tion is due to be completed, a recent
Sungard report estimates that two thirds of
European financial services firms have not
yet fully budgeted for MiFID.
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News - Analysis
The Green Dream
Embracing ‘greener’ types of investment.
Whats in it for the back- and middle
office?
Hermes, USS and the LPFA; UK pension
fund heavyweights, are using their muscle
to encourage business and governments
onto greener pastures.
As part of the Institutional Investors
Group on Climate Change's (IIGCC) they
sponsored a statement this Autumn on
global warming, joining together to urge
companies and governments to cut global
carbon emissions.
The statement adheres to the United
Nations Principles for Responsible
Investment, which was signed by some of
Europe's largest pension funds and asset
managers; BNP Paribas, Insight Invest-
ment, Morley Fund Management and
Prudential Property Investment Managers
among them.
The statement includes an emphasis on
governmental response to climate change
through providing emission targets and
legislation; asset managers and invest-
ment consultants incorporating climate
change risks and opportunities in analysis
and selection, and pension funds agreeing
to weigh environmental issues when
choosing asset managers. Consultants are
seeing an increase in Socially Responsible
and Sustainable Investment (SRSI) fund
management, linked, no doubt, to the
environment's increasing media profile
that is hotting up hand-in-hand with the
climate.
This constitues at least a symbolic move
by UK pension towards greener fields eco-
logically, though not necessarily financially.
Time will distinguish the rhetoric from the
reality of commitment. The IIGCC stresses
that they take a concerned, but not cam-
paigning approach. Green it appears, is in,
but looking fanatical is not.
The London Pension Fund Authority and
the Universities Superannuation Scheme
have already built the suggested IIGCC
requirements into their investment manage-
ment strategies. Environment fund mandates
are hot property, in terms of prestige, as well
as bulk. The Environment Agency, advised by
Mercer Investment Consulting awarded a
total of USD440 million this November to
Informed Portfolio Management.
USS signed a commitment to the SRSI
approach in 1999. They are actively
engaged in the companies whose shares
they hold and keen to use their influence
to encourage widespread responsible cor-
12 INVESTOR SERVICES JOURNAL
porate behaviour and good standards of
corporate governance. They recently set up
a competition together with consultantcy
firm Hewitt, Bacon and Woodrow, where
participants are invited to respond to
"Managing Pension Funds as if the Long-
Term really mattered."
This will become key if the Sterns Report
(in which Sir Nicholas Sterns presents an
apocalyptic ecological and economic fore-
cast) is accurate.
Though it is unlikely custodial risk man-
agment will get to the point where faxes
are shunned because of their expulsion of
energy or paper, rather than their scope for
error, all investor services will have to con-
sider the risks. Climate change is the
greatest environmental risk facing the
companies that investors invest in. There
is an ultimate responsibility, urgently and
internationally, to safeguard funds from
crashing in the next decades, by managing
funds for the long-term now and by taking
responsibility for the environmental costs
of their investment strategies. Sir Nicholas
warned that the repurcussions of contin-
ued climate change would be financial
meltdown as governments foot the bill of
an increasingly hostile environment.
One area of the financial landscape gird-
ed for the potential changes is carbon trad-
ing. Technology and custodians have met
the challenges of processing carbon trad-
ing, and the trading of other pollutants
since the 1970s when the US decided to
trade sulphur dioxide and nitrous oxide to
tackle acid rain. The Kyoto protocol was
the first scheme that included global trad-
ing in greenhouse gases.
New legislation has been proposed by
contending government parties in the UK,
to reach the Stern Report's tagets, and to
dress their parties up in shades of green.
Funds and their asset manager may see
the neo-liberal market become more puni-
tive in terms of ecological legislation and
prescriptive requirements.
Whilst widespread shareholder activism
and external pressures on funds to ‘green
up’ are at bay, they are not impossible in
the foreseeable future. Asset Managers
and pension funds will be relying heavily
on consultants in this area. Risk managers
have and will be factoring long and short-
term environmental probabilities and fund
structures will undergo the necessary re-
allocations to maintain their positions. Not
all bad news for the back and middle-
office; as the shifts and pressure in the
front-office and pre-apocalyptic frenzies
may prove a palleatable carcass.
Funds - Domiciles Report
Jersey
Jersey’s Funds sector received yet another
boost this month with the publication of
Lipper Fitzrovia’s 12th annual Jersey Fund
Encyclopaedia, which recognised significant
growth in the sector over the past year.
The Encyclopaedia reported in particular
on the record level of funds under adminis-
tration achieved by the industry. With prop-
erty and real estate funds and private equi-
ty funds constituting the majority of total
assets and Jersey-domiciled Hedge Funds
still on the increase, the publication illus-
trates how Jersey is concentrating on
remaining competitive through offering
more specialised fund products alongside
its strong traditional fund base.
This recognition has been accompanied
by a number of regulatory developments,
with the Jersey Financial Services
Commission issuing a consultation paper
on the Listed Funds Guide and introducing
a revised Expert Fund Guide.
The Listed Fund Guide, which was pro-
posed at a recent seminar held by Jersey
Finance and the Jersey Funds Association
in London, intends to introduce a more
streamlined process to authorise listed
closed-ended funds. The Guide is currently
open to consultation until mid December.
A Listed Fund under this Guide would be
subject to a three day authorization
process, be closed-ended, be a Jersey com-
pany and be listed on a recognized
exchange. In addition, the investment
manager and the constitution of the board
of directors would have to meet certain cri-
teria to prove their good standing.
Meanwhile, the revised Expert Fund
Guide has now been issued following a
period of public consultation.
Key objectives of these revisions include
clarification of the required amount of ini-
tial investment and of the criteria that an
Expert Fund must meet for listing on a
stock exchange and transferring interest.
Due diligence responsibilities relating to
the Jersey functionary and professional
intermediaries are also updated and a
clause has been introduced recognising
that there may be cases where exceptional
circumstances justify a degree of relaxation
from the Commission’s normal policy.
These proposed and enforced changes
will assist the Regulator in processing funds
as efficiently as possible and continue to
help promote Jersey’s Funds Industry out-
side the Island, ultimately helping the Island
achieve further international recognition.
Graeme McArthur, representative of the
Jersey Funds Association and Managing
Director of Northern Trust in Jersey.
14 INVESTOR SERVICES JOURNAL
Ireland
In early October the Dublin Funds Industry
Association (DFIA) changed its name to
the Irish Funds Industry Association (IFIA),
reflecting the growth of the industry nation-
wide. An Taoiseach (Prime Minister) and
Bertie Ahern, T.D., was present at the
announcement alongside the IFIA chief
executive, Gary Palmer and the IFIA chair-
man, Noel Moynihan. Reflecting the
growth the investment funds industry has
experienced and as a result of provisions in
the Finance Act 2000, industry companies
have started to expand their operations by
establishing secondary and tertiary offices,
outside the IFSC and Dublin with firms
now based across the country; AIB/BNY
Securities Services (Ireland) Ltd and Citco
Fund Services in Cork, BISYS Fund Services
(Ireland) Ltd in Waterford, International
Funds Services (Ireland) Ltd in Naas and
Drogheda, PFPC in Wexford and Navan,
State Street International (Ireland) Ltd in
Kilkenny, and Northern Trust in Limerick.
To continue and sustain the growth in
the industry, the increased demand for
resources needs to be satisfied and the
extension of industry company activities
outside of Dublin will assist in addressing
this. According to the recently released fig-
ures of the IFIA Employment and Staffing
Survey, there are currently about 950 peo-
ple employed in industry companies out-
side of Dublin and this figure is set to dou-
ble over the next few years. It is estimated
that employment in the industry will grow
by a further 16% over the next year.
The Government recognizes the impor-
tance of the funds industry to Ireland as is
evident in the recently published
Department of the Taoiseach’s strategic
report on the international financial servic-
es industry, ‘Building on Success’, which
included a number of provisions specifical-
ly designed to ensure the development of
the funds industry, like the decision to
establish a fund for specialist financial edu-
cation and a dedicated centre of high-level
training in the sector. The funds industry
welcomes such provisions. The industry
also participated in a Government led ini-
tiative to New York in mid-October to high-
light the growth and development of the
funds industry as well as highlighting the
job opportunities available.
Growth in the Irish industry continues
apace with the net asset value of Irish
funds recording a 17.4% increase as of
September 2006 to EUR687 bn.
Deirdre Norris is Director of Marketing &
Communications, Irish Funds Industry
Association.
Bahamas
In the past ten years, market volatility and
slowdown have created a much greater
focus on wealth creation with clients who
are more sophisticated and private clients
who are prepared to take informed risks.
This change has occurred in both the asset
management and estate planning character-
istics of High Net Worth Individuals
(HNWI).
Similar to institutional investors, HNWIs
are increasingly altering their investment
allocations to better balance their portfolios
and follow market movements, while contin-
uing to be more diversified in their invest-
ments –a trend that will likely becoming
even more pronounced in 2007.
They will continue to look for alternative
investments as mainstream investment
vehicles while demanding open architecture
from their advisors.
At the same time, they are taking a much
more active role in their investments, focus-
ing on higher returns, emphasizing wealth
accumulation over wealth preservation and
accepting more risks to achieve their goals.
Recognizing these developments, the
Bahamas has taken measured steps over the
past few years in differentiating itself from
other jurisdictions by creating a mechanism
to establish different types of funds with
more flexibility for innovation and tying them
into its highly developed and well regarded
private banking and wealth management.
With its innovative SMART Funds
concept introduced several years ago The
Bahamas has created an attractive risk
based fund regime.
Four SMART Fund templates were part of
the introduction and a fifth template (for
lightly-regulated funds) which is particularly
well suited to family office arrangements,
was introduced early in 2006.
For an international financial centre like
the Bahamas, family offices are now supple-
menting traditional providers such as global
financial institutions in providing independ-
ent advice for asset management and estate
planning needs.
Bahamian asset managers and fund
administrators have also positioned them-
selves to meet the needs of family offices
and other HNWI investors. The country’s
asset managers have the experience and
global connections to provide the advice
and planning to meet investment objectives.
There are also a wide range of global fund
administrators and specialized niche players
providing services from The Bahamas.
Wendy Warren
CEO & Executive Director
Bahamas Financial Services Board.
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Fund Centres - Caribbean
Giles Turner looks at
how the Caribbean has
blended regulation
Just Swell
with its ‘quick-and-easy’
reputation.
Offshore financial centers (OFCs) are essentially jurisdictions
that oversee a high level of financial activity by non-residents.
The Caribbean hosts a number of these jurisdiction;
The Bahamas, Cayman Islands, British Virgin Islands (BVI),
Curacao, for example, yet these jurisdictions are often viewed
with suspicion by those outside the industry. A recent study by
academics Andrew Rose and Mark Spiegel entitled ‘Offshore
Financial Centers: Parasites or Symbionts?’ examines the trade-
off between the positive and negative externalities of offshore
financial centers. They concluded that “countries identified as
tax havens and money launderers are likely to be the OFCs,
encouraging tax evasion and nefarious activity in neighbouring
source countries. Nevertheless, OFCs still provide substantial
offsetting benefits in the form of competitive stimulus for their
neighbours financial sectors.” Many involved in the fund indus-
try in the Caribbean would be too pleased with the idea that
they encourage ‘nefarious activity’ in neighbouring countries.
However in 2000 the OECD published a report entitled
“Towards Global Tax Co-Operation” where the countries listed
were seen as engaging in harmful tax evasion practices and given
a deadline to comply. Every Caribbean jurisdiction managed to
comply with the new regulation and avoided sanctions. Andorra,
Liberia, Liechtenstein, the Marshall Islands, and Monaco were
the guilty parties who failed to comply.
It would have been surprising if the Caribbean fund centers
had failed to comply. The Offshore framework is not exactly
new to the region; some offshore jurisdictions have been in
place for around 50 years. There are around 70 OFCs globally
and the size of the industry ranges between USD6-7 trillion yet
the Caribbean takes into account well over a third of this
money and is well placed to be at the forefront of any global
OTC change. Ruth Chadwick, Director of Investment Business
for the British Virgin Islands Financial Services Commission,
who until recently Chaired the Offshore Groups Collective
Investment Scheme Supervisors commented that the scheme “is
predominantly represented by regulators in the Caribbean juris-
16 INVESTOR SERVICES JOURNAL
dictions. So for instance, we would
have representatives from the
Caymans, St Lucia, Trinidad and
Tobago, Barbados, Antigua, Anguilla,
BVI, all around the Caribbean and
without exception they are at different
stages in drafting legislation to cover
hedge fund business.”
Regarding size, the Cayman Islands
are way ahead of every other jurisdic-
tion in the region, with close to 60-
70% of investment located there. The
islands open up around 35 funds a
month and close around 8. The graph
below shows the growth of funds,
most notably registered funds.
The region now prides itself on
respectability. Investor Services
Journal was told: “If you went the
Cayman Islands in 1975 and picked
up a dollar bill you’d soon feel pretty
good about yourself.” It is this Miami
Vice image that many of the jurisdic-
tions have worked hard to rid them-
selves of and the Cayman Islands have
made themselves into the fifth largest banking center in the
world. Attempting to be perceived as respectable can be a dou-
ble-edged sword however, and some have mentioned that
overstating the desire to be seen as respectable has its
downsides. For the Bahamas, it might be a case of the lady doth
protest too much.
Following closely behind the Cayman Islands are the BVI and
Bermuda (included regionally for convenience rather that literal
truth). Interestingly, Bermuda has pursued a different path to
other jurisdictions in the region, leaning more towards a regu-
lated approach rather than a rapid fund set up approach
favoured by the other jurisdictions.
But what really sets these domiciles apart from their rival
OFCs and European competitors? According to Dermot Butler,
Chairman at Custom House, it is about simplicity and cost.
“You can still set up a fund in the Cayman Islands which is still
the most expensive island in the Caribbean for less than
USD30,000. This includes legal fees, preparation of documenta-
tion, incorporations, and you can do it all in a couple of weeks.
Mutual Funds: Cayman Islands Monetary Authority
Successful Hedge
Fund Administration?
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of experience in administering hedge fund assets now totaling over
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flexible, bespoke, draws on a breadth of services and accesses state
of the art technology. But more importantly, it’s delivered through
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Fund Centres - Caribbean
Any delays beyond a couple of weeks will
usually be caused by the service providers
such as the prime brokers or the banks
doing their due diligence. The fast track
system in the Channel Islands will still
cost USD55,000 to USD65,000. In Ireland
and Luxembourg it would take months
rather than weeks. You’ve got to employ
local lawyers and the operating cost in
those jurisdictions are higher because the
cost of directors and auditors are greater.”
Purely from a global cost perspective,
with the interesting exception of Malta
which is somewhere between BVI and the
Cayman Islands, the Caribbean wins
hands down.
However, being the quickest isn’t always
enough, and you have to keep adapting to
maintain pole
position.
According to “Being the quickest isn’t always enough, and you
Sabrina Leacock of
Appleby Hunter
have to keep adapting to maintain pole position.”
Bailhache: “The
Cayman Islands Monetary Authority
("CIMA") intends to implement an elec-
tronic reporting system ("E-Reporting")
for all funds regulated under the Mutual
Funds Law. Under the system each fund
would be required to file electronically
with CIMA, through its Cayman Islands
based audit firm, key data about itself
and its audited accounts. It is expected
that this system will enable CIMA to
carry out its existing supervisory respon-
sibilities more efficiently and cost-effec-
tively and allow CIMA to regulate an
increasing number of regulated funds
without a proportionate increase in staff
18 INVESTOR SERVICES JOURNAL
and other resources. As an additional
benefit, electronic reporting should
improve the quality of CIMAs data on
the funds industry and enable it to pro-
vide meaningful aggregate statistics on
the industry to stakeholders, governments
and international bodies.”
There is a keen desire to combine funds
set up speed and regulatory efficiency.
Although European jurisdictions are
attempting to copy this formula the
emphasis is still on high regulation. This
means that unless the hedge fund is of a
significant size, it is unlikely that you will
be willing to set up camp in Ireland for
example. Mr Butler states that “the big
brothers of the banking world have
imposed a minimum fund size they want
to handle of at least USD100 million and
often USD200 million upwards. However
70% of all hedge funds that are launched
are under USD100 million, if you’re run-
ning a hedge fund of USD50 million or
less then the running cost of a hedge fund
will be about USD75,000 a year and in
Ireland it will be around USD120,000.
Whilst this difference isn’t important if
your fund is around USD200 million it is
important if it only USD20 million.”
“The BVI rode a profitable wave until
the mid 1990’s when mutual fund legisla-
tion was introduced and the mutual fund
growth slowed down. Prima facie there
was nothing wrong with the legislation
that provided the recognition of different
classification of funds into private and
professional or the requirement to regis-
ter public finds. As expected, the jurisdic-
tion has done very well for the incorpora-
tion of professional funds which is what
we were expecting.” said a source experi-
enced in the jurisdiction.
The main drive behind the regulation
increase has come from the anti-money
laundering legislation following 9/11. Rob
McIntyre from Maples and Calder states
that: "Caribbean funds have had to recog-
nise that the playing field has changed
since 9/11 and every jurisdiction has to
be seen to be cooperating with onshore
regulators."
Investment
managers and
administrators
have to be regulat-
ed somewhere to a
greater or lesser
extent and the OTCs have taken this into
account. Interestingly the US still does
not regulate hedge fund managers despite
the best efforts of lawmakers, including
Charles Grassley, the chairman of the
Senate Finance Committee, who have
been ramping up their demands of late
for more transparency in the hedge fund
industry following the implosion of the
Amaranth Hedge Fund.
The increased global regulation regarding
hedge funds has benefited the BVI, as Mr
McIntyre explains: "After the OECD start-
ed scrutinising the Caribbean jurisdic-
tions, the BVI negotiated its position with
the OECD rather well and, as a conse-
quence, moved into the bracket with the
Cayman Islands and Bermuda in terms of
perception, instead of being lumped
together with many of the other
Caribbean Islands." This perception is of
vital importance due to the increased visi-
bility and efforts made in fund ‘brands’,
therefore the region has managed to turn
the difficulties of regulation into a unique
selling point. Initially, the area was
renowned for speed rather than legitimacy.
Now it offers both speed and clean bill of
moral health.
The paper “Offshore Financial Centers:
Parasites or Symbionts?” by Andrew K.
Rose and Mark M. Spiegel can be found at
http://faculty.haas.berkeley.edu/arose/
RecRes.htm#IntFin

Hedge Fund Services Panel Debate
Black and White? Our Panel of experts from the hedge fund services
industry examine the contrasts...
Anthony Cowell Dan Moalem Kim Hoibye Greg Froese
KPMG LETT LAW LETT LAW LIONHART
Nicholas Butcher John Burchenal Don McLean Daniel Abitbol
MAPLES & OMGEO UBS SOPHIS
CALDER
Anthony Cowell, Audit Partner, Alternative Investments Practice, KPMG.
Mr. Cowell is a Partner with KPMG's Alternative Investments Practice in the
Cayman Islands where his portfolio of clients includes hedge funds, com-
modity pools, private equity funds and venture capital funds. His experience
in the area of capital markets includes audit and accounting services involv-
ing a wide variety of financial derivative products and complex structured
investment vehicles.
Dan Moalem & Kim Hoibye, Lett law firm.
Mr. Moalem is a partner at Lett law firm specialised in
securities and capital markets law providing advice to both hedge funds,
investment funds and their management
companies on capital market transactions.
Mr. Høibye is an associate at Lett law firm specialised in securities and
capital markets law, focusing on Danish and international contracts. Mr.
Høibye has, both as a private practitioner and as an in-house counsel, con-
siderable
international experience in establishing and operating investment compa-
nies and investment funds as well as
collective investment schemes (UCITS, hedge funds, etc).
Greg Froese, Manager, Investor Relations, Lionhart.
Mr. Froese joined Lionhart in May 2006. Prior to Lionhart, he ran a Family
Office for ten years and before that was responsible for corporate financing
vehicles at Chiron for six years. Mr. Froese has a Masters of International
Management (MIM) from Thunderbird, The Garvin School of International
Management, and a BA from The Colorado College.
Hedge Fund Services - The Debate
Nicholas Butcher, Partner, Maples & Calder. Mr. Butcher
was articled in the City of London firm Speechly Bircham
and qualified as a solicitor in 1995 before joining the City of
London office of Hammonds in 1996 where he specialised
in all aspects of corporate law including mergers and
acquisitions, listings, admissions and secondary issues and
public takeovers as well as advising on financial services
law. Mr Butcher joined Maples and Calder, Cayman Islands,
in January 2004.
John Burchenal, Managing Director, Asset Class Expansion
& Global STP Partners, Omgeo. Mr Burchenal serves as
managing director of Omgeo's asset class expansion
strategy and Global STP Partners. He is responsible for
driving the company's efforts to expand into additional
asset classes on a global scale, beyond equity and core
fixed income trade processing, to provide clients with
access to a wider variety of instruments for their post-trade,
pre-settlement operations.
Donard McClean FCCA, Head of Fund Services, Ireland,
Executive Director. Mr. McClean is responsible for the
development and management of the Fund Services
business in Ireland and is a member of the Fund Services
Management Board. Prior to joining UBS in May 2006, he
spent nine years at Fortis Prime Fund Solutions Ireland.
During his career he has worked at Rudolf Wolf Fund
Management Ireland, Strachans Management Services and
Coopers and Lybrand Jersey.
Daniel Abitbol Business Development Manager.
VALUE is Sophis' cross asset, front-to-back solution for
the buy-side. Daniel brings a total of 18 years experience to
Sophis. Prior to joining Sophis, Daniel co-founded Trading
Screen, a trading services platform for institutional
investors, and was Managing Director of Instinet, the
global agency broker.
INVESTOR SERVICES JOURNAL 19
Hedge Fund Services - The Debate
Where will the next stage of growth in
the hedge funds industry come from?
Butcher: Institutions and high net worth
individuals. The increasing acceptance
of hedge funds by mainstream investors
such as pensions funds is a clear trend.
As the hedge fund market matures,
consolidation can be expected with
single managers capitalising on special-
ities and niche areas, such as tech-
nology and energy. Exchange traded
funds are also likely to become in-
creasingly common, especially for
funds based in Europe.
Froese: To be successful, hedge funds
need to look beyond those strategies
that were once
opportunistic but “There are significant opportunities to be made
have now become
the norm. There for those managers who can capture the imagina-
will always be new
ways to make
tion of pension fund trustees.”
money, particularly as it becomes easier
to find investment opportunities around
the globe. As new financing vehicles are
invented or evolve, they will create
opportunity and funds that are willing
to look into prospectuses will be able
to find imbalances and value in a
bottom up approach.
Cowell: Institutional capital will ulti-
mately transform the industry in the
next 3-5 years. The latest research
predicts allocations by US endowments
of around 9% by next year. Alternative
investments are becoming mainstream
and I believe we will begin to see
specialist hedge fund consultants
working alongside pension fund
trustees to offer hedge fund advice and
allocations. This will be the gateway to
institutionalisation of the industry.
Moalem/Hoiby: Primarily, involvement
of a greater range of asset classes.
Burchenal: The evolution of hedge fund
investors to include public and private
pension funds will be the biggest driver
of industry growth in the next few years.
Recent research from Greenwich
Associates claims that 24% of UK
pension fund schemes say they
will increase their exposure to
hedge funds by 2008.
Abitbol: The next stage of growth in the
hedge funds industry is in derivatives
20 INVESTOR SERVICES JOURNAL
strategies. The broadening acceptance
of alternative investments coupled with
the willingness to decorrelate returns
from market direction and hedge
themselves against sharp market
downturns is driving the demand for
hedge funds amongst global institution-
al investors. Hedge funds are increas-
ingly looking at complex, innovative
strategies in order to distinguish
themselves in a crowded market.
This explains their growing interest in
complex products such as equity basket
derivatives or CDOs, as well as more
varied trading strategies, for example,
volatility arbitrage, credit risk arbitrage,
commodities and hybrids.
The industry is also facing consolida-
tion with hedge funds being acquired
by banks; therefore in order to
continue to be successful, it’s even
more critical that hedge funds
differentiate themselves.
McLean: It is difficult to predict within
the hedge fund business from where the
next alternative strategy will emerge.
We have seen large sums of capital
moving into emerging markets in the
last couple of years and are currently
seeing an increased focus on private
equity and venture capital.
It could be, however, that growth in
the industry is driven through increased
distribution to new markets and more
institutional investors (including pen-
sion funds) rather than through the
offering of new and more diversified
investment strategies.
These opportunities present
challenges. As an illustration, the
hedge fund tax reporting considerations
in Germany will have to be addressed
before wide-scale distribution of hedge
funds into that market can be attained.
These challenges are constantly
being tackled and the market is
beginning to open up.
Pension funds are become a primary
source of capital for hedge funds, how
will this shape the industry?
McLean: Pension funds have, for some
time, been investors in hedge funds.
This will continue to grow as pension
funds need to diversify and invest a per-
centage of their portfolio into ‘alterna-
tives’. As hedge funds become an
increasingly important source of capital,
a number of changes may occur.
Hedge funds may find themselves
subject to increased regulation which
affects pension funds rather than hedge
funds. As pension fund trustees per-
form their fiduciary responsibilities to
ensure best value for the fund, this may
lead to pension funds arranging their
own managed accounts, with lower cost
structures. There is an argument to say
replicated funds, with transparency,
liquidity and lower costs are a more
suitable investment vehicle than hedge
funds themselves
for pension funds
to achieve their
desired exposure.
For reasons of
independence, a
third party administrator becomes more
important when institutional investors,
including pension funds, invest into
hedge funds. As increasing numbers of
pension funds invest into hedge funds,
increased regulation will follow.
Cowell: Insititutional investors have dif-
ferent risk and return characteristics.
They expect robust operational process-
es with transparent front to back office
systems, clearly defined governance and
compliance policies and an independent
oversight. Transparency and customer
centricity will be the buzz words for the
industry in the future. Customer centric-
ity is a relatively new concept for hedge
funds, but its key to growth. The indus-
try as a whole is not adapting as expect-
ed to the influx of institutional capital.
Pension funds don’t just need alpha,
they need VISIBLE ALPHA – an under-
standing of the way in which the fund
makes money!
On the other hand, pension funds
also need to appreciate that alpha is
never found on the street! Whilst con-
servative strategies play into the hands
of institutions, small allocations to
emerging strategies will ensure that
pension funds obtain access to ‘pure’
rather than ‘diluted’ alpha. But pension
fund structures really need to change so
that asset allocation can be made far
more effectively. Flexible decision mak-
ing at the pension fund level is key.
There are significant opportunities to

be made for those managers who can
capture the imagination of pension
fund trustees - it is a long term
partnership which will result in a
significant restructuring of the typical
hedge fund model.
Moalem/Hoiby: Above all, pension
funds as well as other institutional
investors have to abide by the place-
ment rules under their national financial
legislation including as regulated by the
EU harmonization directives. Until now
many hedge funds have failed to realize
that the way they are "selling" and
structuring their funds are making it
quite hard for such investors to invest
considerably, since placement rules
will not allow
more than small
parts of the insti- “Investment in technological infrastructure will be
tutional investors
assets under man-
an important differentiator for administrators.”
agement to be
placed in such funds.
And greater transparency. Not only in
terms of strategy, but in terms of expo-
sure towards counterparts, markets and
instruments. The better opportunities to
do an efficient due diligence of the risk
profile and exposure, the institutional
investor can get investment decisions
through their decision hierarchy
(investment committees).
Standardized transactions - institu-
tional investors spend a lot of energy
investigating and ensuring that
Standardized fund structures: for the
same reasons as above: Fund structures
can help achieve greater transparency in
evaluating risk profiles, as the mere
(legal) structure of funds can influence
the risk profile profoundly. As well as it
can improve performance of certain
strategies considerably.
Liquidity: one way of the other, if neces-
sary by placing the fund on a regulated
market. if no liquidity is ensured, only a
small part of the institutional investors
AUM can be placed in the fund.
Froese: Hedge funds that wish to take
advantage of the USD1 trillion projected
to come online will need to find ways to
satisfy the requirements that come with
pension fund demands. These are
expected to be transparency, strict due
diligence procedures and the various
internal reporting and other require-
ments of individual pension funds.
Strong, often purpose-built technology,
Hedge Fund Services - The Debate
will be necessary in order to meet these
new standards. As a result it’s possible
that only larger hedge funds will be able
to satisfy the pension funds demands
and smaller funds will have to rely on
other sources of investment.
Abitbol: A recent study conducted by
The Bank of New York and Casey, Quirk
& Associates LLC estimates that the
global institutional demand for hedge
funds will triple by 2010, from USD360
bn to over USD1 trillion. Attracted by
improved investment returns and lower
correlation with traditional asset class-
es, pension funds will likely account for
the largest percentage increase overall.
Hedge fund investment requires a great
deal of due diligence on behalf of pen-
sion funds as it is essential to under-
stand the funds’ portfolio, strategy and
risk profile. This will lead to wider use of
systems and controls (for position keep-
ing, risk management, reporting).
Rating companies have an increasingly
important role to play.
Butcher: The due diligence demands of
the pension institutions can be expected
to increase transparency in the hedge
funds market. Investment managers will
need to be able to respond to increased
demands for accountability. This in-
fluence may be most keenly felt in the
fund of funds sector which historically
has been the preferred investment
choice for pension managers. European
based pension institutions seeking a
local "passport" may spur the increas-
ing emergence of offshore exchange
traded hedge funds through, for exam-
ple, a Dublin listing. Finally, hedge fund
pension funding products may become
increasingly popular as pension
mangers seek more imaginative ways to
meet their shortfalls.
Burchenal: Hedge funds will need to
invest in middle and back office technol-
ogy to win pension fund mandates.
Pension fund investors have strict due
diligence processes that require evi-
dence of robust trade management and
trade processing systems, that deliver
both efficiency and transparency. At
Omgeo, we have already seen the
start of this trend with well over 100
top hedge fund clients looking to
improve the automation of their
trade processing systems.
With the number of hedge funds
continually growing, the hedge fund
administration business is becoming
increasingly competitive. What
strategies will hedge fund service
providers (law firms, administrators etc)
use to keep their competitive edge?
Froese: The demands from politicians
and investors will be for ever higher lev-
els of visibility and control. The back
and middle office as well as administra-
tors, auditors and
legal teams will
need to become
ever more vigilant
in providing
quality, accurate
services and advice. Proprietary, in-
house software is a tool some hedge
funds are using to adapt as regulations
and investor requirements change.
High levels of compliance, bespoke risk
management, customized modelling
and tools for traders, coupled with
strong levels of oversight are possible
with in-house solutions.
Cowell: The development of hedge fund
administration is equally as important
to the industry in order to support insti-
tutional capital, and we’re beginning to
see the start of the outsourcing revolu-
tion, where hedge fund managers are
able to concentrate on their core busi-
ness of making money. Having a
focused business is the difference
between doing the business and run-
ning it. Investment in technological
infrastructure will be an important
differentiator for administrators. In
order to keep a competitive edge, some
hedge fund service providers such as
the larger administrators will be inte-
grated more and more into investment
banks existing capabilities, in order to
offer a seamless service to clients.
Butcher: The response from service
providers will be tailored to their role.
For example, administrators and prime
brokers will need to ensure they are able
to keep pace with the technological
development of the hedge fund busi-
ness both in terms of back office
INVESTOR SERVICES JOURNAL 21
Hedge Fund Services - The Debate
transaction management and seamless
settlement processes and control of
investment management strategies.
Lawyers will need to be able to advise
accurately and responsively in respect
of emerging trends as the market
matures and becomes more competi-
tive. Top hedge fund lawyers will be
those who can provide legally robust,
but commercially viable, solutions to
issues such as the increasing use of
side letters and side pockets.
McLean: Retaining a competitive edge
means continually remaining focused
on clients’ needs and delivering
solutions to help them achieve their
financial goals.
What differenti-
ates UBS from
other service “Hedge funds are innovative vehicles always
providers is client
focus delivered
looking for new ways of delivering alpha.”
through our sin-
gle point of contact model. At UBS the
client is at the centre of what we do.
We build solutions with and around
the client rather than providing an
off the shelf service.
Continuing to further develop straight
through processing techniques is also
key to remaining a top tier hedge fund
administrator. It is likely that, in the
near future, administrators will be called
upon to service clients differently in
terms of the production of information,
with more clients requesting the
calculation of their NAVS on a more
frequent daily-basis.
From a processing point of view, it
has been predicted that hedge funds
will follow the mutual fund business in
terms of this daily processing. There
will always be some differentiating fac-
tors between hedge funds and mutual
funds which prevents wholesale
automation, such as the pricing of OTC
instruments and difficult to price securi-
ties. Recent reports in the media sug-
gest industry participants (such as
investment managers and banks) are
responding to regulators’ concerns
regarding transparency in the OTC mar-
ket by getting together to form a quasi
exchange type mechanism referred to as
‘centralised warehousing’ which will
facilitate trading and pricing in the OTC
market. As the industry matures, or as
certain parts of the industry mature,
manual processes will continue to be
replaced by automated (STP) solutions.
22 INVESTOR SERVICES JOURNAL
Burchenal: The key issue for service
providers is to keep up and try to get
ahead. By that, I mean that hedge funds
are innovative vehicles always looking for
new ways of delivering alpha. Service
providers have to be able to move at the
same pace. For example, some hedge
fund administrators have struggled with
the pricing of complex CDO trades. It is
those providers that can evolve with the
hedge fund industry that will win out.
Moalem/Hoiby: Fund structures! The
right structure of the fund for the specific
asset class, investor, strategy and type of
underlying transaction cannot only pro-
vide the best performance but also the
best “environment” granting easier
access for the large investors.
Outsourcing of back office tasks and
efficient reporting – allowing investors
to focus on the investment decisions,
tactical asset allocation and ultimately
their performance. This is achieved by
administrators focusing on systems,
cooperation with custodians and prime
brokers as well as fund providers.
Has hedge fund industry growth eroded
opportunities in the market?
Froese: It has certainly changed the
opportunities in the market. Many of
the sectors that were available 10 years
ago have become overcrowded and are
therefore less profitable, so you could
describe these opportunities as having
eroded. However for those willing to
look for new opportunities, to dig into
the nuts and bolts of a business and
explore new areas of investment, or to
investigate overlooked or new sectors
there will always be a way to generate
investment opportunities and income.
Cowell: The explosive growth in the
industry over recent years has eroded
some opportunities at the strategy level.
However, lets be clear – hedge funds
have started a chain reaction that
extends across the fund management
universe and alpha is not finite. New
products and strategies will emerge to
match the risk return profiles of
investors. Institutional investors appear
more interested in diversification rather
than double digit returns – as such,
the nature of products are likely to
change to incorporate structured ele-
ments, guarantees and conservative
strategies. The move by some hedge
funds into Principal Protected notes
is a good example.
Moalem/Hoiby: Probably for some
investors. For larger investors
with resources it will not have
significant consequences.
Butcher: The question here is whether
the huge growth in hedge funds since
the early 1990's has resulted in over-
exploitation of the markets such funds
seek to take
advantage of. The
answer has to be
"yes" and "no."
"Yes" in that
inevitably in
active hedge fund markets growth will
crowd-out newcomers as existing funds
capitalise on contradictions and mis-
pricings, but "no" in that there remain
comparatively under-devolved hedge
fund markets. There are also hedge
fund strategies which have stood the
test of time; equity long/short and
event-driven strategies, for example.
With $66 billion being placed under
hedge fund management in the first
half of 2006 alone, there is clearly
capacity left in the market.
Burchenal: No, it has created opportuni-
ties for service providers that can inno-
vate at the same speed as the hedge
funds. For example, as pension funds
become a primary source of capital for
the hedge fund industry, funds will need
service providers such as prime brokers
and administrators to assist them in
meeting the individual reporting
requirements of those clients.
McLean: Hedge funds of 20 or so years
ago were very much a boutique offering
for sophisticated high net worth
investors. There were opportunities for
trading in illiquid investments, with low
volumes, therefore arbitrage in most
markets could be achieved. As the
industry grew and hedge funds became
more mainstream, the potential for
arbitrage and boutique investment
diminished.
What were considered complex hedge
 Hedge Fund Services - The Debate

funds in the past have become more
mainstream today, resulting in the
alternative investment industry having to
seek out new, more esoteric instruments.
With this continued development, growth
has not eroded opportunities in the mar-
ket - rather opportunities are being created
for new investors in different markets and
the appetite for new investment types and
strategies is never ending.
Abitbol: It is increasingly difficult to make
money with long/short only strategies,
there are lots of other opportunities in the
market. Successful managers are turning
to sophisticated strategies such as con-
stant proportion portfolio insurance (tech-
niques used
to protect
investors’
principal on
“The use of technology is inevitable in an industry
equity-based which is model driven.”
structured prod-
ucts by dynamically
rebalancing cash between risk-free assets
like governments bonds and risky assets
such as equities) and complex instru-
ments like second generation credit
derivatives e.g. CDO and CDO_ as well
as hybrids that combine equity and
commodities derivatives.
Hedge funds are ramping up their use of
technology. Comment on the current levels
of automation and STP within the industry.
Abitbol: Automation and STP levels are
very disparate in the industry.
Some hedge funds run their operations
on Excel, whereas others are almost as
well equipped as banks. The more sophis-
ticated a hedge fund is, the more likely it
is to have a system to automate its
operations. In terms of automation,
three factors are critical:
Considering that currently there is no
unique electronic trading platform or
real-time data feed offering best of breed
service across all instrument classes, it is
fundamental to use a centralised and
flexible portfolio system with the ability to
connect to all platforms and data feeds.
The ability to manage front-to-back
office workflow for both trade validation
and enrichment.
The reconciliation of trades and
positions has to be automated between
this platform and the prime brokers.
Moalem/Høiby: Main rule is greater
efficiency and reliability. Advantages are
the better possibilities of interfacing
with administrators, custodians,
prime brokers etc.
Butcher: The use
of technology is
inevitable in an
industry which is model driven. It is also
appropriate to be control driven as the

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Hedge Fund Services - The Debate
industry competes to maintain efficiencies
and to cope with higher scrutiny levels. In-
house developed or bought applications
should enable both enhanced manage-
ment controls and audit transparency.
Trading systems can similarly be employed
to monitor data, implement investment
strategy and police compliance with
investment restrictions. With the potential
to contribute to both profitability and con-
trol, technology solutions are a permanent
fixture and can be expected to have a
knock on effect for service providers, espe-
cially prime brokers and administrators,
who will also be required to increase their
efficiencies in order to support their tech-
nology driven hedge fund clients.
Froese: Our fund
has relied heavily “There is general agreement, through research,
on the use of pro-
prietary technology that replicated or ‘cloned’ hedge fund returns do
and software since
our inception over
not match actual hedge fund returns.”
10 years ago. It has been a key part of our
growth and gives us the capacity to devel-
op to more than 10 times our current size.
There are a number of advantages to
automation and STP. It creates a strong
risk management capability by allowing
close monitoring of trading activity,
moment by moment oversight of the
entire portfolio, modelling and analysis of
strategies and potential strategies, ease of
use for back and middle office, strong
accounting and auditing programs and
the ability to improve the system if neces-
sary. This is coupled with the ability to add
off the shelf packages if required.
Burchenal: Overall, hedge funds are
sophisticated users of technology.
Most of them do not have to contend with
ten or twenty year old legacy
systems, unlike some of the traditional
money funds. Having said that, there
is still a lag between the level of
sophistication in the front versus
the back office.
Typically, the biggest investment
is made in front office technology
with the back office lagging some way
behind. Again, as pension fund
money pours into hedge funds, robust
back office systems could be an
important differentiator between
competing hedge funds.
McLean: To service single manager
hedge funds which are relatively easy to
price, STP is already industry standard and
24 INVESTOR SERVICES JOURNAL
easily achievable. For more complex
products such as OTCs, automation
is more difficult.
However with the coming together of
investment managers and investment
banks to provide a solution to this, the
entire hedge fund business will benefit.
Within a fund of funds set up, it is still
largely a paper driven exercise, with the
investment manager reporting through
to their custodian on a monthly basis.
The custodian performs the trade as a
paper-based transaction which involves a
paper mountain moving back and forth
around the globe between custodians
and administrators. There are initiatives
currently in development to provide a
solution to this, looking to bring together
administrators, custodians and transfer
agents to put technology in place to
automate this process.
The pricing of fund of funds is also
being addressed through vendor providers
specialising in this area, with the aim of
creating a STP solution. The bones of a
solution are in place and, with on-going
development, this could result in a far
higher degree of automation.
Ultimately, Straight Through
Processing is the key to stability of
hedge fund administration.
To what extent do you feel ‘replicated’
hedge funds are a viable option for
investors in the near future?
McLean: There certainly has been much
debate about this topic but even strong
supporters of replicated funds agree that
the argument is relevant only for exchange
traded, liquid securities and does not hold
true for less mature markets or any ele-
ment of discretionary based trading.
There is general agreement, through
research, that replicated or ‘cloned’ hedge
fund returns do not match actual hedge
fund returns. The arguments for and
against will continue. In the meantime
investment managers will no doubt experi-
ment with elements of replication for parts
of hedge fund portfolios.
Butcher: If by "replicated" we are talking
about synthetic or passive hedge funds,
and noting the studies which predict that
it is possible to capture the dynamics of
a successful actively managed hedge
fund and transport those to a portfolio,
it is difficult to see where the demand for
such a product immediately arises in the
context of institutional investors seeking
bespoke strategies and access to the top
fund managers. However, as the
hedge fund market matures over time
and competition between managers
increases, investors looking for lower
fees and increased liquidity could form
a natural partnership with managers
squeezed out from the top table of
actively managed funds.
Burchenal: Enabling a wider group of
investors to access the alpha created by
hedge funds with
good performanc-
es can only be a
positive move.
Having said that, a
synthetic replica-
tion undermines the whole essence of the
hedge fund industry which is creating
returns through unconstrained, unfettered
skill. A hedge fund manager can nimbly
evolve his investment strategy to reflect
market conditions and this is more
difficult for a replicated fund.
Froese: It’s all about generating alpha.
Synthetic hedge funds, often created as
factor replicating portfolios, can be con-
structed, tested, and modelled readily – in
many circumstances they will accurately
replicate hedge funds or hedge fund index-
es. However, there are some values which
cannot be captured or easily modelled and
measured. I suspect that, like the major
ETFs or Index tracking mutual funds,
some, if not many of the investors, would
be better off adopting a passive approach.
On the other hand, experienced managers
who can define, quantify, and capture the
edges the markets present will continue
to outperform in a consistent manner.
Moalem/Hoiby: This remains to be seen
in our market.
Looking at some of the recent hedge fund
blowups, what measures need to be taken
to identify what should be considered early
warnings of potential trouble?
Cowell: If you look at some of the recent
blow ups, they have been largely a result
of operational issues. It is therefore
important that there is a three way posi-
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or David Blair (david.blair@customhousegroup.com).

C H I CAG O
Chicago Administration & Corporate Services LLC.
372 West Ontario, Suite 1N,
Chicago, IL 60610.
Tel: + 1 (312) 280 0330; Fax: +1 (312) 280 0333
D UB LI N SI N GAPORE
Custom House Administration & Corporate Services Ltd. Singapore Administration & Corporate Services Pte.
25 Eden Quay, 180B Bencoolen Street,
Dublin 1, Ireland. #09-03 The Bencoolen, Singapore 189648.
Tel: (353) 1 878 0807; Fax: (353) 1 878 0827 Tel/Fax: Opening January 2007

Custom House Administration & Corporate Services Limited is authorised by the Irish Financial Regulator under Section 10 of the Investment Intermediaries Act 1995.
Hedge Fund Services - The Debate
tion and valuation reconciliation between
the prime broker, hedge fund manager
and administrator – this is a key control
to prevent and detect investment opera-
tional issues. It is also important that
investors regularly review the strategy of
the funds in order to be able to detect
evidence of style drift.
Much has been written about the sys-
temic risks of leverage. Limited leverage
in itself is not necessarily the risk – it is
in the nature of the underlying securities
where risk should be monitored closely.
Funds which hold highly complex,
illiquid securities for example, with
significant leverage are far more
difficult to value. Transparency of
strategies and
investor education
are paramount.
“One of the most important aspects about
Independent investing in a hedge fund is making sure that
administration is
therefore so comprehensive due diligence is undertaken.”
important in order
for the industry to continue to
develop to match the needs
of institutional investors.
Moalem/Hoiby: Transparency in strategy
and fund structure in order to access
risk profile more accurate. The funds
have an interest in raising the bar in this
area as risk margins can be lowered as
transparency is better.
Also management; staying focused and
not abandoning the agreed investment
strategy despite the fact that quick (and
substantial) profits are to be made.
Froese: I don’t think we need to take any
further measures. We already have a
strong academic community researching
new ideas for the industry; we have due
diligence procedures in place; and we
have experienced managers, processes
and regulation. But I suppose, as an off-
shoot of conflicting views in the invest-
ment world, one not so obvious sign of
potential trouble is excessive profits.
Profit and loss are on one axis while risk,
often correlated as it may be, is on the
other. Large losses and profits imply (but
do not guarantee) larger risks. If you
consider the case of some recent events,
it seems that the profitability of certain
positions may have initially overshad-
owed the risk of obtaining those returns.
While it’s the excess losses that catch
the attention of many, the risk levels
used to generate excess profits can be of
equal interest.
26 INVESTOR SERVICES JOURNAL
Butcher: From a legal perspective pre-
vention is better than cure, especially
when the cure effectively means killing
the patient, albeit in the interests of
creditors and investors. A hedge fund
does not enter into crisis when the
winding up petition is served, but rather
at perhaps several stages before that
when the matter giving rise to the cause
of action arose. Control measures are
required to identify crises as they
develop and to determine mitigating
action. In the context of trading activi-
ties all of the following are examples
which could trigger crises and require
immediate and active management:
poor service from the investment man-
ager (whether or not amounting to a
breach of stated investment strategy or
restrictions); significant or urgent
redemption requests, disputes relating
to side letters, significant use of side
pockets, mis-stated NAV or service
provider misfeasance. Early consultation
with professional advisers, and especial-
ly auditors and lawyers, is vital.
Abitbol: From a technology perspective
there are four key elements of risk
management that can help:
1. A cross-asset perspective capable
of consolidating all market exposure.
2. A consolidated view of all trading
activity, enabling full transparency
across all levels of management.
3. The use of multiple risk method
ologies to provide a more complete
approach to risk management, includ-
ing stress testing, Monte Carlo and
historical simulations.
A risk management system must have
a good reputation in the industry and
have the ability to produce comprehen-
sive reports, providing investors with
accurate and transparent view of the risk.
Burchenal: Robust risk management
systems are an important component
in the early identification of problems.
In most cases, technology provides
the backbone of an effective risk
management system. For example,
in the post trade space, affirming a
trade on the same day the trade is
conducted can assist a firm in the clear
identification of its trading positions.
Also, through the institutionalization of
hedge funds, investors such as pension
funds require a greater level of risk
management and transparency out of
hedge funds as a means of self-policing.
Technology can greatly help hedge
funds demonstrate this.
McLean: One of the most important
aspects about investing in a hedge
fund is making sure that comprehensive
due diligence is
undertaken.
Using an external
administrator is
a very important
part of ensuring
that good
controls
and independence are in place.
Undertaking due diligence on the
administrator, investment manager and
directors of the fund, and ensuring
good corporate governance are all
fundamental requirements.
Sophisticated investors need to
observe and anticipate the expected
returns of their hedge fund and have
a good idea as to what the strategy
should deliver. If performance is
consistently different, this could be
considered as a potential warning.
There are a number of factors that
could be considered potential early
warnings including changes to the
investment strategy with the investment
manager investing in a new type of
product not historically their area of
expertise, investing in less liquid
positions, trying to introduce lock-up
periods or extended redemption notice
periods or demonstrating brilliant,
market-bucking performance when the
expectation is that the manager should
be more in line with the market.
Keeping in touch with press and
industry reports is important, as is
ensuring that the administrator is
independent and performs robust
pricing checks and ultimately a belief
that the investor trusts the investment
manager to do what they say they are
doing, There is not one single warning
sign – rather a number of potential
early warnings that would need
to be explored further.

Looking at back office payment processing. ISJ launches a new section ...
The Case for Portable
Account Numbers
Ian Dunning, Founder & Managing Director,
CB.Net.
1. What is a Portable Account Number?
In its simplest for-
mat, a portable
account is very sim-
ilar in concept to a
portable telephone
number. The
account number
provides all the
information needed
to allow the banking
system to direct
payments to you.
The payee has no
Ian Dunning need to know where
you hold your
account, in the way that anyone making a call
to your telephone has no need to know which
telecom company provides you your tele-
phone connection service.
2. How do Portable Accounts work?
Portable accounts are managed through the
appropriate Automated Clearing Houses
(ACHs). The owner of a bank account num-
ber enters into an agreement with their local
ACH, registering the bank accounts they wish
to become portable.The owner of the account
number then has an online connection allow-
ing them to manage the details relating to
that account number.
These details are (at the simplest level):
a. Name of bank where the account is
held.
b. Branch details (including local sort
code) where the account is held.
c. The account number details of where
the account is held.
Changing Role of Banks in the
Evolving Payments Landscape
Francesco Vanni d'Archirafi, Chief Executive
Officer, Europe, Middle East and Africa,
Citigroup Global Transaction Services.
The role of technology in the payments
landscape should be a core focus for all banks
in the year ahead. The technological revolu-
tion upon us illustrates the need for banks to
change in order to compete for the future.
Retail customers today are demanding
convenience, mobility, control, and immedia-
cy. This same expectation applies in the cor-
porate space. Corporate objectives related to
In an initial loading of data these details
could well be the same as those for the bank
that originally issued the account number.
From this point on, every time that the
ACH processes a payment destined to the
portable account number, it checks the details
registered by the account number holder and
routes the payment accordingly. These details
can now be changed by the portable account
number holder at any time.
It is important to note that it is not neces-
sary for the portable account number holder
to close the original account when the routing
details are changed at the ACH. It simply
means that any payment routed for the origi-
nal account number via that ACH will be sent
to the new bank account. At any time, the
portable account number holder can change
the details held at the ACH back to the
original settings.
3. How do Portable Accounts bring increased
levels of flexibility?
When the filters are in place with the ACH,
allowing it to check account numbers against
routing details provided by the bank account
number owner, it is a relatively trivial task to
increase the number of filters that the
account number owner can amend:
a. Currency – should the payment be in
a certain currency, route to bank account
B, if in another currency, then route to
bank account A
b. Amounts – should the payment be
equal to or less than X, then route to
bank account D, if more than Z, then
route to bank account E.
c. Dates and times can be set for when
changes should take effect
4. How would corporates benefit from
portable account numbers?
Corporates would no longer be locked into
particular banking relationships. Portable
account numbers would allow corporates to
the expansion of e-commerce with real-time
access to transactions and information, the
desire for paperless
workflows, cheaper
and faster means of
managing their busi-
ness processes, and
the integration of
commercial and
financial supply
chains are putting
more pressure on
banks to standardize,
integrate and commu-
nicate with one
Francesco Vanni another seamlessly.
d'Archirafi We are entering a new
Payments
easily move their accounts to benefit from
improved or cheaper services. Currently, the
costs and logistics of advising clients that
bank account details have changed are
such that they constitute a major barrier to
competition.
Secondly, corporate treasurers would have
more immediate control over their cash flows,
directing incoming payments to the accounts
where the cash can be best utilized.
5. How would ACHs benefit from portable
account numbers?
The value added service would generate a
new revenue stream from the corporate
sector. SEPA is having a centralizing effect on
the payments industry as a whole. Portable
account numbers would facilitate the offering
of cross-border services to corporates, which
in turn would find it easier to rationalize their
banking relationships.
Furthermore, by opening up new, direct
relationships with the corporate sector, they
have the opportunity to develop other servic-
es and increase their revenue from this sector.
6. How would banks benefit from portable
account numbers?
Not all banks would benefit from portable
account numbers. Niche banks offering spe-
cialised services would probably be unaffect-
ed. Those banks which offer competitive serv-
ices will find it significantly easier to attract
new business away from the more inefficient,
higher cost banks – to the benefit of the
wider economy.
7. What is needed to implement portable
account number schemes?
All that is needed is for an ACH to have the
will and the means to implement a scheme.
Indeed, local schemes have been in place in
much of Scandinavia and the Netherlands
for some time. The challenge is to widen this
– and to make it cross-border within SEPA.
age of ‘anytime’, ‘any place’, ‘anywhere’ and
any way banking.
While our customers’ needs are changing
and their adoption of new innovation is
accelerating, we in the banking industry con-
tinue to grapple with the legacy issues in our
banking systems, and focus on technology
investments needed to meet the growing
number of regulatory deadlines that will give
the market a safer, more robust, inter-
operable banking infrastructure. This is
our burden of responsibility, but at what
competitive cost?
The pace of innovation and new technolo-
gy adoption is accelerating. Many of the new
non-banking players that have emerged have
INVESTOR SERVICES JOURNAL 27
Payments
greater agility to innovate and take advan-
tage of emerging opportunities, unencum-
bered by the burden of responsibility to
ensure the underlying banking framework is
efficient, secure, robust and a vital
control point in the battle against fraud and
anti-money laundering.
We need to re-think our end game and re-
visit our value proposition. For banks to
retain our leadership in the payments indus-
try, we need to take a fresh look at where we
collaborate, and where we compete.
Together with the market infrastructures, we
must collaborate in our efforts to modernise,
so that we can respond efficiently to our cus-
tomers’ rapidly changing needs.
We must re-tool and re-engineer to attack
fragmentation. Systems fragmentation exists
within our own institutions: from bank-to-
bank or bank-to-customer, from geography-
to-geography.
SEPA Direct Debits –
Compliance is not enough
Mark Hartley, Vice
President Strategy,
Clear2Pay
Mark Hartley
Direct Debits under the Single
European Payments Area (SEPA) is one of
the corner stones of European payments
standardization. It promotes the larger
European harmonization process with
simplified and value-added financial serv-
ices directly benefiting European enter-
prises and citizens. SEPA Direct Debits
(SDD) and parallel SEPA initiatives for
credit transfers, card processing and clear-
ing/settlement, facilitate direct progress
towards greater European financial inte-
gration with very real benefits on the
ground for all within the SEPA scheme.
The issue for the banking community is to
define the most appropriate and profitable
strategy while conforming to the new stan-
dards. This implies meeting the obligatory
ompliance rules while maximising the cus-
tomer service offered, but the most impor-
tant issue remains ensuring the inevitable
costs justify the anticipated returns.
Banks are currently in a position where
28 INVESTOR SERVICES JOURNAL
This raises our costs and makes meeting
customer expectations mission
impossible. In many cases, common stan-
dards and seamless interoperability does not
exist within a single bank, let alone across
the industry or geographies. This is not a
simple problem with straightforward
answers, but we need to apply ourselves to
this challenge through collaboration and
partnership if we are to maintain industry
control and leadership in the new age.
Instead of continuing to apply
proprietary fixes to the legacy deficiencies in
our systems, we should borrow from each
other, forge partnerships to share
networks and capabilities, and, most impor-
tantly, reach agreement on a set
of common standards and achieve far
more inter-operability across our
backbone systems.
If we do not collaborate and accept
they need to formulate their response to
SDD quickly. Banks typically fall into two
camps; tactical-compliers and strategic-
embracers. A tactical-complier bank sees
SDD as a hurdle to be overcome with the
least pain; doing the minimum to comply
with the rules but not offering any value
added services beyond obligated function-
ality. The resulting lower investment is
matched by the minimal functionality and
reflected in the corresponding low return
and low uptake of any entry level
pan-European services. A strategic-
embracer bank on the other hand fully
grasps direct debit rationalization,
recognizing its importance and the scale of
the new market opportunity.
Compliance is not enough in itself, the
benefits come from the potential to offer
value added services. A customer perspec-
tive is needed to define the service offer-
ings to the wider European-wide customer
base of corporations and individuals.
Uptake of all optional elements from SDD
must be satisfied to make the business case
attractive and successful. Even considering
the optional elements, SDD still does not
match the capability of the various nation-
al schemes across Europe. The investment
needed for such strategic offerings is
understandably higher than for basic SDD
compliance alone. But, and this is the
essence of the decision, the extended func-
tional offerings to customers will offer a
vastly expanded potential customer base
across the continent with the accompany-
ing high return. Traditional IT
economies of scale benefits are also
anticipated with the opportunity to con-
solidate infrastructure into a single EU
platform, thereby centralizing diverse and
change, the new entrants to the broader
payments space will continue to lead the
way, and it will be increasingly difficult for
banks to reclaim control of this space. We
need to recognize that even with collabora-
tion, there will be many areas of differentia-
tion, be it in the quality of customer service
or product innovation or simply how we
deliver our services to our clients.
We are in an environment where the only
constant is change, and that change is accel-
erating.
We need to be open, creative and collabo-
rative as an industry in tackling our chal-
lenges.
We cannot take the eye off the ball in
protecting our client franchise and giving
our customers – retail and corporate – what
they need and want.
disparate architectures.
This presents financial institutions with
a quandary. In order to justify the business
case, how can a scheme that meets the
SEPA objective also embrace all the useful
elements of national schemes? The only
logical answer is that SEPA needs to incor-
porate all elements of the national schemes
as optional features. It is misleading to say
that SDD cannot satisfy the more flexible
requirements currently enjoyed by corpo-
rate customers under domestic schemes;
the issue is that the obligatory steps for
basic compliance do not. Banks that
implement the optional SDD capabilities
are empowered to offer value added serv-
ices thereby increasing corporate uptake.
The critical elements missing from basic
SDD compliance include sophisticated
Mandate Management, Aggregated Views
on direct debits, extensive Credit Advice
and flexible Notifications Management.
The stark reality for the financial sector
is that legislation to augment the SDD
rulebook beyond version 3 with current
national direct debit capability is not
expected anytime soon. Banks are forced
to take the lead themselves and add
optional national services. This involves
more flexible and open infrastructure to
facilitate the managed inclusion of various
domestic standards as bank strategy dic-
tates. With a more comprehensive direct
debit capability, banks can expect to gain a
growing international customer base;
without it their existing domestic
customers are anticipated to dwindle,
along with the revenues. Ultimately, the
winners in the SDD space will be the
innovators; SDD is only the stating point,
not the final destination.

Equens: European focus and
decisiveness
Ben Haasdijk,
Chairman, Equens.
Equens is a fact.
The merger
between the Dutch
Interpay and the
German
Transaktions
institut has
resulted in the first
pan-European full-
service payment
Ben Haasdijk
service provider
with a market share of well over 10%.
Whoever wants to be big in Europe has to
think European, i.e. in scale and volumes.
It is now time to concretise the European
philosophy with European decisiveness.
Interpay and Transaktionsinstitut are
the first payment service providers to
have actually joined forces in Europe.
This has enabled Equens to claim a
strong position in the European process-
ing market, especially with regard to the
Single Euro Payments Area (SEPA).
Equens provides pan-European market
coverage for the processing of both euro
and non-euro payments. ‘We are prepar-
ing ourselves for Europe by offering
extremely competitive rates, a distinctive
service portfolio and collaboration in the
field of interoperability.’
Competitive rates
Equens processes approximately 7 bn
transactions per year, making it one of
the largest players in Europe. We will
Byzantium, Payments and the
Back Office
Andrew Walton-Green, CEO, Gresham
Computing plc.
Front office trading systems have had
investment lavished upon them and no
wonder. E-Trading, prime brokerage and
now algorithmic trading systems repre-
sent an easy business case and obvious
magnet for front office investment. User
friendly real-time dealing systems ensure
more trade and now the latest develop-
ment is personalised real-time data deliv-
ered to mobile devices which is proving a
differentiator in the brokerage market. In
essence, the front office makes the
switch to a single integrated processing
platform that can easily be adjusted to
suit the specific requirements of
European clients. This platform is scala-
ble and format-independent and can
process both the current domestic and
SEPA transactions. By processing all of
our transactions via a single platform we
can realise the economies of scale and
competitive rates that are crucial for a
successful future in Europe.
Distinctions in the service portfolio
The product requirements for SEPA
have been set down in the EPC
Rulebooks and Cards Framework. There
are currently major differences in the
quality of payment processing between
the various euro countries. The SEPA
standards are based on the current aver-
age situation in Europe. For some coun-
tries SEPA will represent an improve-
ment. But there are also countries in
which the SEPA requirements fall short of
the high quality standards of their
domestic situation. This certainly applies
to the Dutch market. Consequently,
Equens has compiled a modular market-
oriented package for both payments and
card processing services. ‘This enables our
clients to choose from various compo-
nents of the basic SEPA services and sup-
plement these with additional services for
additional quality. Our flexible approach
and additional, optional services will
enable clients to maintain, or even
upgrade their current service levels with-
in SEPA. SEPA must simplify payment
transactions, but not dismantle them.’
money and hence
gets the investment
to keep on making
it.
But while real-
time is everything
in the front office,
the “Byzantine”
back office batch
processing practis-
es and systems are
Andrew Walton- at best a bastion of
Green inefficiency and at
worst, a disaster
waiting to happen. Very simply, if the
front office is real-time and the back
office is batch, the potential for exposure
to discrepancies is obvious. There is gen-
Payments
Collaboration for interoperability
Interoperability is one of the major
prerequisites for the success of SEPA.
Obtaining systematic and consistent
access to payment institutions and
processors is important in order to
guarantee the reachability of every
account number within the euro zone.
Equens considers collaboration crucial
for achieving interoperability and
reachability. ‘Interoperability demands
collaboration. SEPA can only be a success
if collaboration takes place in the field of
interoperability. Open standards for
routing, tracking and tracing and
connectivity are a necessary condition. To
this end we actively participate in inter-
national standardization organizations.
For example, we put interoperability on
the agenda within the European
Automated Clearing Houses Association,
in which we hold an executive position.
We are also the first payment service
provider within Europe to have
implemented a SWIFT MI-CUG in order
to be able to provide services to clients
from the entire EU via SWIFT.
Furthermore, we are a member of the
Berlin Group.’
With a view to the future, Equens is
casting its eye beyond 2007. 2008 is
approaching rapidly. ‘Throughout 2007,
Equens will focus on the large-scale
changes that will take place during
that year. 310 million consumers and
almost 18 million corporates in 17
European countries expect a smooth
and timely transition to SEPA on 01
January 2008. Our clients must be ready
for that market. Our task is to ensure
their smooth transition.’
erally a huge time-lag between front and
back office investment. Let me give you a
few typical examples of the mismatches
that will continue to occur between front
and back office unless and until some
basic problems with current practise, sys-
tems and payment systems are resolved:
- If the front and back office systems are
not on one platform or at least share
common data, multiple dealers could be
doing multiple deals from a single credit
database intraday whilst the back office
are aware of a non receipt, on a different
database, from a specific counterparty.
Dealing should of course stop or be cur-
tailed, however, too often, it isn’t because
the left had doesn’t know what the right
is up to!
INVESTOR SERVICES JOURNAL 29
Payments
- In an efficient organization, the front
and back office systems are in perfect
synch. But, on how many occasions does
an ‘efficient’ treasury operation pay
before receipt? It shouldn’t happen in the
post Allsopp new electronic world, how-
ever, as most operations people are
aware, all to often it still does.
- The round sum transaction is the norm
when dealing with institutions and inter
bank dealing. The problem occurs when
trying to match a specific intraday pay-
ment to a specific transaction. Typically,
the payment information received intra-
day is too brief to identify just which
round sum transaction has been
received. Don’t worry, you will find out
tomorrow when the remainder of the
information arrives in overnight batch!
The internal risks can be categorised into
the following silos:-
Poor Design:
A failure to address the inherited legacy
systems to enable front and back office to
work in unison is a failure of management
at the highest level. This unnecessarily
exposes the business to risk and those risks
could potentially sink the whole business.
Once built, the systems need constant
SEPA – the changing face
of payments
Jerry Norton,
Director, Strategy,
Global Financial
Services,
LogicaCMG
Jerry Norton
The initial implementation of Single
Euro Payments Area (SEPA) compliant
schemes and the migration from national
schemes will affect a broad
spectrum of companies from banks
to small businesses as well as public
administrators, consumers and, of
course, market infrastructures.
A critical business issue arises when
those different parties are expected to
interpret new requirements and specifica-
30 INVESTOR SERVICES JOURNAL
tweaking to ensure that the ever expand-
ing list of instruments offered by the front
office have their counterpart covered off in
the back office.
Poor implementation:
If the systems and information are avail-
able but the dealers or treasury depart-
ments are still allowed to disregard the
exposure, this is again a failure of man-
agement at the operational level and as
well as poor design.
The external risks are more difficult to
address.
Lack of real-time payment data:
One of the biggest blocks to risk reduc-
tion; better use of liquidity and real-time
account management and hence prof-
itability is the lack of real-time payment
information. Internal systems can only
ever be as up to date as the external
information delivered to them.
Too often payment data is neither real-
time nor of sufficient quality to facilitate
real-time reconciliation.
There are exceptions. Some payment
exposures are dealt with through
bespoke solutions for the investment
tions. There is a need for feedback and
alignment between the many designs that
are created. This issue is exacerbated
when the designs are developed in differ-
ent countries and where a different body
owns the migration process.
From the European Commission per-
spective national central banks and coun-
try banking associations have the respon-
sibility to manage the SEPA initial imple-
mentation and migration. Although not
necessarily part of its formal responsibili-
ties the EPC is expected to provide in
essence a function to monitor and report
progress, maintain a risk register and
coordinate a SEPA-wide testing strategy.
The EPC has a roll-out committee which
is examining the practical issues around
implementation and is looking at scheme
testability and co-ordination.
The practical responsibilities for inter-
pretation are organized and managed at
three different levels: the European
Central Bank, national country commu-
nities and individual banks or credit
institutions, not forgetting the CSMs
and the corporates, small and medium
enterprises (SMEs) and public bodies.
On a basic, pragmatic level, the very
market such as PvP settlement, available
in the FX market. However, these solu-
tions tend
to be limited in scope since they only
covers a specific membership and
specific currencies, for example.
Today, however, a huge amount of
trade is done on open account where the
reliance for payment information falls on
the general global banking market. There
are a mixture of bespoke solutions
offered by banks but the essential prob-
lem is that cross border transactions tend
to get slowed up by multiple banks batch
processing systems. Further, even when
intra-day payment information is avail-
able, the level of detail on intra-day noti-
fication means that too often, it is
impossible to match a payment to a spe-
cific trade. Over and above this, the lack
of common reference data is still a major
stumbling block.
Gresham is working with over 30 glob-
al banks to try and address some of these
payment issues. It requires a collabora-
tive approach since solving it is a global
problem. However, the prize, as I think
you will agree, is well worth the effort.
large communities of banks, corporates,
public administrators and consumers
will, if left to their own devices, converge
on the last moment for implementation
and testing. That will lead to a great deal
of replicated effort, spent on proprietary
test harnesses and test data. But it will
also lead to a peak demand for resource
and help and all exactly at the same time.
Gridlock is not inconceivable.
To meet its monitoring responsibility,
the EPC itself requires transparency of
progress of the initial implementation
so that the overall status of the SEPA
programme can be reported.
If that wasn’t enough financial institu-
tions are facing many further challenges
in 2007. The first wave of TARGET 2
countries are expected to go live in
November and the Basel II regulations
come into force. In the UK there is an
additional payment scheme to manage,
with the introduction of faster payments,
which will also take effect in November.
Aimed at making telephone and internet
payments quicker and reduce the clearing
cycle for standing orders, this is a radical
change which banks cannot, and should
not, underestimate. Not only will this
 SEPA Direct Debits
One of the first SEPA deliverables is the much debated SEPA Direct Debits, or
Pan-European Direct Debit as it was previously known. In the midst of heavy investments,
SEPA Direct Debit is not just that, it is much more. It is an enormous opportunity for
banks to recap some of the revenues lost, in particular by offering much needed services
to the business and governmental sector.

As a company dedicated to the delivery of innovative “best in breed” payment technology,

Clear2Pay has embarked on the delivery of key value add solutions that embrace the
European banking community’s SEPA needs. Clear2Pay’s SEPA Direct Debits (SDD)
solution is targeted to fulfill participant banks’ direct debit processing requirements and
will be available to coincide with the launch of the EBA’s extension to STEP2 for the
clearing and settlement of Direct Debits.

SEPA impacts every aspect of direct debit processing (from the processing of ‘unpaid’
transactions to the management of mandates). The Clear2Pay SEPA Direct Debit solution
mirrors that requirement, covering all aspects of direct debit processing.
Features and functions include: acquisition from customer channels; ”on-us / off-us”
routing, and processing of “on us” transactions; mandates verification, stop payment and
exception management (Returns, Reversals, Rejections and Refunds), PE-ACH interfacing
(STEP2), and verification of compliance with direct debit scheme timeline rules.

Headquarters Clear2Pay’s SDD solution is based on the Open Payments Framework (OPF). The Open
Schaliënhoevedreef 20A Payment Framework (OPF) from Clear2Pay is a library of component building blocks from
B-2800 Mechelen, Belgium which payments solutions can be derived. The Open Payments Framework is built entirely
P: +32 15 79 52 00 on a Service Oriented Architecture (SOA) delivering common, reusable services consisting
of a comprehensive data model, choreographed payment business processes and
F: +32 15 79 52 01
configurable services including parsing, validation, cost-based routing, warehousing,
E: info@clear2pay.com
security, auditing and many more.
W: www.clear2pay.com

We would like to invite you to start the dialogue with us today. We invest like you do; we
will have SEPA Direct Debit available as and when you turn on the tap: mid 2007. Our Early
Offices:
Adopter Program enables you to begin implementation as early as January 2007, so why
Amsterdam, Brussels, Boston,
wait, contact us now.
London, Melbourne, Madrid,
San Francisco, Singapore, We would be delighted to learn about your specific requirements and look forward to
Shenzhen, Sydney, Warsaw hearing from you.

Download the SEPA Direct Debits Brochure on www.clear2pay.com

Payments
represent a technological challenge for
banks as it requires 24/7 crediting and
debiting of accounts but also a business
challenge. How and in what volume
customers will use these new services is
uncertain. What new financial products
will be demanded is unclear. Whether
faster payments will replace existing
payment volumes is not known either.
However what will inevitably lead to cost
savings for the customer will almost
definitely lead to a reduction in margins
and a drop in revenue for banks.
But it doesn’t stop there - 2008 and
beyond brings even more challenges as
institutions face the business fallout of
these changes. The SEPA requires
SEPA opportunity
Martin Wilson,
Chief Commercial
Officer, Voca.
Martin Wilson
The Single Euro Payments Area (SEPA)
project will significantly reduce revenue
for banks while at the same time adding
new costs. Mr. McKinsey estimates that
USD9 bn of payment-related revenue is
threatened and banks can no longer
charge cross-border premiums. Banks in
Europe will need to adopt progressive
payment processing and marketing
strategies to emerge as winners in this
radically changing landscape.
Clearly banks will seek efficiencies in
migrating to the new environment. The
changing landscape will need efficient
and flexible payment processors to play
a significant part in achieving a timely
and seamless inter-bank payment system
for SEPA.
So how can banks gain advantage in
this evolving arena? The answer lies in
the critical decisions they will have to
make over the short and medium term.
There is no longer a one-size-fits-all
answer but a much wider range of pay-
ments processing options.
The principal benefit for banks part-
32 INVESTOR SERVICES JOURNAL
migration from existing national schemes
to the new instruments so that no nation-
al schemes are in use by early in the fol-
lowing decade. The cost benefits and
overall service improvements of this may
well be overwhelming for the end cus-
tomer through the transformation of the
payments leg of any business transaction
but, it is the bank that will face the
challenge, not only of compliance, but
also of making money in the new world.
Thus banks will need to think clearly
about how to improve services whilst los-
ing margin, introduce new payment
products, and transform existing financial
products to reduce the dependency on
making money from the payment element.
nering with centralised payment pro-
cessing providers, such as Voca, will not
come in the inter-bank clearing and set-
tlement space. Historically this accounts
for less than 15% of total payment pro-
cessing costs and recent data suggests it’s
now as low as two to five per cent.
Getting the SEPA inter-bank space work-
ing well is a step forward therefore, but
it’s not transformational.
The real benefits will come when
banks leverage the full capabilities of the
new options available to them. Every
bank in Europe will soon have a wide
choice of how they process their pay-
ments. Up until now, they have generally
had to adopt the processing model of
their national communities. If the func-
tionality of the centralized infrastructure
has been limited to simply clearing and
settling transactions (or if there is no
centralised infrastructure), then they
have generally had to conduct the other
elements of the payment processing
value chain in-house.
Fifteen years ago, the situation in the
securities clearing and settlement market
was similar. The liberalization of the
securities market in the 1990s resulted in
consolidation, both vertical in the case
of Deutsche Borse, and horizontal, in the
case of Euronext. The changes that
MiFID will bring next year have encour-
aged seven of the biggest investment
banks to create a new platform for pan-
European trading. In the same way,
SEPA will create a competitive market-
place with alternative options for pay-
ment processing.
The extra choice in payments systems
will become one of the main benefits of
Ultimately it is about how to offset the
savings that will be made by the customer.
In the shorter term, banks might find
that they are scrambling to get ready for
the changes ahead. If they are to main-
tain competitive advantage and not lag
behind their competitors, banks and
financial institutions alike need to ensure
they are fully prepared for the coming
months. Getting ready now will ensure
that it is not only the customer who will
benefit from the changes. Thorough
preparation is the only way for
companies within the financial services
sector to ensure that payments remain a
sustainable business offering.
SEPA for banks, allowing them to design
their payment infrastructure to suit their
particular needs. Banks will have a
greater choice and flexibility of
processing models and can use their
chosen processor to add value or reduce
cost in different parts of their payments
value chain. With a functionally rich
payment processing capability, working
alongside or inside a bank, institutions
can start to realize economies of scale,
reduce the overhead of maintaining
multiple correspondent relationships
and multiple memberships of central
infrastructures, whilst introducing
new, innovative and competitive services
to win new customers and greater
market share.
Clearly there are a variety of factors
influencing bank decisions and they will
vary from bank to bank. For example,
if a bank does not have a fully integrated
platform, or has to manage its payment
business across a number of geographic
regions then a partnership with a
provider of payment services may be a
more attractive option.
SEPA represents a once-in-a-genera-
tion opportunity for banks to transform
their operating models for payments
processing. Like MiFID in the securities
markets, SEPA provides an opportunity
to change the fundamental division of
labour in the payments industry, lower-
ing costs for banks, enhancing profitabil-
ity and introducing innovative and
improved services. The choices banks
make around their sourcing and part-
nering strategies will be a key influence
on how successfully they manage that
transformation.

ISJ reports on how SEPA hopes to tackle the
fragmented payments infrastructure.
Helter-Skelter Payments
Over the last four years, the European
Commission (EC) has been a hive of activ-
ity. Preoccupied with the economic inte-
gration of Europe, it has progressively mas-
terminded a series of regulatory initiatives
intended to forge a single, pan-European
marketplace. Key to realizing this grand
vision will be the process of cross-border
standardization, which will enable the cur-
rent helter-skelter of disjointed systems by
which European financial players currently
do business, to become interoperable and
more efficient.
It is within this wider context of pan-
European harmonization that the EC first
turned its attention to the European pay-
ments infrastructure in 2002. Historically,
each country’s payment systems have
developed over time to serve the needs of
each nation’s particular currency, banking
habits and economy. Transferring money
cross-border is consequently more costly
than transferring money domestically,
because the administrative processes asso-
ciated with translating the conditions of
the payments from one country’s payment
system to another are greater.
Following the introduction of the euro in
2002, it rapidly became obvious that this
highly fragmented European payments
infrastructure would prove unworkable in
the pan-euro era. This issue was brought
into particularly sharp relief, the EC later
explained, when the latter began receiving
letters from everyday citizens, complaining
about the costs of transferring money
cross-border, despite the fact the transac-
tion was now operating in a single curren-
cy. As the EC’s Irmfried Schwimman was
to later comment, citizens have to be ‘pretty
desperate’ to petition the EC.
In the face of popular disgruntlement,
and lamentable inefficiency, it became clear
that Europe’s payments infrastructure had
to be transformed to match the economic
purpose and philosophy of the single
European currency itself. As a result, the
EC envisaged the Single Euro Payments
Area; better known as SEPA. This initiative
was launched in 2002 under the joint
sponsorship of the EC and the 12 national
central banks of the Eurosystem (which
Payments - Single Euro Payments Area
represents each Member State included in
the euro), led by the European Central
Bank (ECB).
In theory SEPA, as it is currently under-
stood, will form a blanket of standardiza-
tion across the payment processes within
the euro area. This means in practice, all
European citizens (that is citizens within
the 25 Member States of Europe) will be
able to make payments in the euro area as
securely, quickly and efficiently as pay-
ments made within national borders. As a
necessary consequence, consumers and
companies will no longer have to
negotiate the procedural and conceptual
distinction between ‘domestic’ and
‘cross-border’ payments, which will
subsequently be dissolved.
All the above will be achieved, the EC
hopes, in two neat phases. Currently,
Europe is in the middle of the first stage,
which will be completed in 2008 when the
‘instruments’ (as the EC dubs them) of
SEPA compliance will be available. By this,
the EC means some form of direct debit,
credit transfer, or card payment, by which a
payment is transacted, that complies with
the EC’s determined standards. The second
stage will be completed in 2010, when
these SEPA payment ‘instruments’ will
replace all national payment ‘instruments’.
Evidently, SEPA will prove beneficial for
the every day citizen, who will no longer
have to swallow the exorbitant fees
attached to the seemingly humdrum
process of moving money. But what does
this all really mean for the banking
community at large?
As the EC has been at pains to point out,
these ‘instruments’ are not an end in them-
selves but are deployed to pay for some-
thing. It is for this potentially obvious, but
crucial reason, the EC hopes the long term
structural and economic changes SEPA will
bring, impacting as they will the banking
community and corporations, as well as
everyday citizens, will prove overwhelm-
ingly positive. If money can be transferred
more cheaply and quickly, this should, at a
basic level, improve cash flows, free up liq-
uidity and thus stimulate commerce and
economic growth overall.
But as with all initiatives that demand
investment, as well as the irksome task of
major administrative change, SEPA is not
proving unanimously popular in all camps.
At its heart, SEPA embodies a strikingly
simple and positive concept, but one
requiring a depth of long-term vision on
the part of the banking community, which,
currently, is in distinctly short supply.
For the banks, there is little incentive to
whole-heartedly embrace SEPA, which
demands significant investment in their
payments technology architecture.
According to a recent survey issued by
international consultancy Accenture, SEPA
is expected to cost Europe’s top 90 banks
around EU3 billion in total – expenditure
that will only be rewarded with lower rev-
enues, not higher. It is a cost-benefit analy-
sis even the most arithmetically challenged
would find unpersuasive.
And the problems are not just a question
of money, although naturally, this is
playing a significant role. The banks are
currently attempting to wade through an
ever-thickening quagmire of regulation, in
an already highly regulated environment.
Further initiatives, however noble and
grandiose in their ultimate goal, cannot be
welcome at this stage, and it is for this
reason the EC has already had to publicly
admit that SEPA has been a slow grind.
Furthermore, fundamental business
models are at stake. For many banks, it is
not just a question of dusting down their
technology and making more of a concert-
ed effort. If they cannot provide the ‘added
value’ services around the payment, and by
extension the entire supply chain related to
that payment (this is all the administration
that surrounds the very thing or product
for which the payment accounts), it is
unlikely many banks will be able to remain
in the payments business. The ramifica-
tions will thus prove wide-ranging, with
many banks having to outsource their
entire payment function.
Nevertheless, the EC, despite a few
omissions, remains undeterred. It will not
be able, politically, to backtrack on its
initiative, the stewardship of which it
originally granted to the banks themselves.
But now it is ready and willing to flex its
muscles. Full-scale legislation could follow
if the banks do not get their collective act
together. It is highly doubtful the latter
would want this precedent to be set, but
how soon, and at what pace they will
eventually grumble their ways into
compliance, time will only tell.
ISJ
INVESTOR SERVICES JOURNAL 33
Pension Profile - British Airways
The BA Pension Scheme has garnered press
coverage recently with reports of arrangements
agreed to tackle its funding deficit.
The deficit which today stands at £2.1bn, is
more than double its 2003 level of £928 million.
Christine Senior reports.
Flying High?
In November a provisional agreement
was reached between the company and the
pension fund trustees for the company to
pay £800m into the scheme this year, a rise
on the £500m initially proposed, and then
to pay £50m a year for the next three
years, subject to two conditions, first that
BA’s cash balance remains over £1.8bn and
secondly, which is potentially a source of
conflict with the unions, that staff accept
changes to the benefit structure. This
includes a rise in the retirement age to 65,
a lower accrual rate, inflation capped pen-
sionable pay increases and capped pension
increases for retirees.
“The £800m cash payment into New
Airways Pension Scheme is a very signifi-
cant injection into the fund, relative to the
company’s market capitalisation,” said BA’s
chief financial officer Keith Williams. “To-
gether with the benefits changes, more than
half the deficit will be tackled immediately.”
British Airways New Airways Pension
Scheme (NAPS) a defined benefit scheme,
was closed to new members in 2003, when
it was replaced by the British Airways
Retirement Plan, a defined contribution
plan for new recruits. The NAPS has
33,794 active members, 20,269 deferred
members, and 15,185 pensioners.
Trustees
The board of trustees, chaired by Roger
Maynard consists of 12 members, six of
which are company appointed, the rest
elected by members.
Asset Allocation
At the end of March 2006 the fund was
valued at £5.85bn, and at that time, its
34 INVESTOR SERVICES JOURNAL
actual asset allocation was 69.1% in equi-
ties, 9.9% in index linked bonds, 9.4% in
fixed interest securities, 6.9% in property
and cash deposits of 4.7%. Its equity port-
folio was split between 33.8% in the UK
and 35.3% international, while the bonds
were split 17.1% UK and 2.2% overseas.
The three yearly actuarial valuation took
place this year, using asset liability model-
ling to determine the right asset allocation,
but as a result of that few changes are
expected. “A thorough review of invest-
ment strategy was carried out as part of
the valuation process,” said a spokesman
for the trustees. “The ALM indicated that
the current strategy will remain appropri-
ate for the medium term and the addition-
al cash to be received from BA will be
invested in line with that strategy,”
Asset Management
All assets are managed in-house by British
Airways Pension Investment Management
Limited (BAPIML) through a team of 40
investment professionals.
Securities lending
The fund engages in securities lending.
“With the agreements we have in place
with State Street it is a low risk activity and
raises modest additional funds for the
schemes,” said the spokesman.
Alternatives
In 2005 the trustees conducted a detailed
review of alternative investment classes
including private equity, venture capital,
high yield bonds, hedge funds and proper-
ty. Previously the alternative investment
portfolio had been limited to property and
some kinds of private equity. But the
review led to a decision to make a one per
cent allocation to commodities (through
the use of derivatives or funds) and to
increase the property allocation to 8%
from 2006 and to 10% from 2007.
Changes are already well under way.
“The fund has invested in commodities as
well as continuing to develop the existing
alternatives programme in private equity,
infrastructure, PFI and property,” said the
spokesman.
Changes to the allocation to alternative
investments have resulted in a change to
the current asset allocation policy, making
the benchmark allocation of 63% in
equities, 14% in index linked bonds, 13%
fixed interest bonds, 8% property, 1% in
commodities and 1% cash.
Performance
For the year 2005-6 the scheme
outperformed its benchmark, returning
24.94% against a benchmark figures of
24.54%, though over three years the pic-
ture was less rosy, with an actual return of
19.33% against a benchmark of 19.51%
Overseas equities performed particularly
well, with returns of 37.1%. Property also
did well compared to its benchmark, with
a 26% return against a benchmark figure
of 21.6%.
Advisers and custodian
The actuarial advisers to the scheme are
Greg Alexander and Watson Wyatt, and
the scheme’s custodian is State Street.
Earlier this year BA Pensions appointed
the Bank of New York to process payments
to members of its pension scheme in 46
countries across the world.
SRI and corporate governance policy
The investment management company is
required to maintain a dialogue with
companies it makes significant equity
investments in. This so called
responsibility discussion overlay engages
the investment managers to raise any
social environmental or ethical issues with
companies it invests in and report back to
the trustees on its activities on a yearly
basis. Nevertheless the overriding duty of
the investment managers is not to take any
investment action that could diminish the
performance of the fund. The fund is also
committed to vote its shares in UK and
overseas listed companies where
practicable, based on the NAPF frame-
work. Voting activity is reported back to
the trustees at least quarterly.

125 Years Down Under
This month marks BNP Paribas’ 125th
anniversary, as a presence in Australia,
supporting Australian enterprises.
Established in Australia in 1881, BNP
Paribas arrived as the Comptoir National
d'Escompte de Paris to finance the
Australia-Europe wool trade. Until the
deregulation of the Australian banking
industry in the early 1980's, the company
was in the fortunate position of being the
sole major foreign bank granted a banking
license to operate within Australia.
Historically, the Australian financial sys-
tem was tightly regulated through a range
of direct controls on the banking system. It
was virtually impossible for a foreign bank
to establish branches in Australia until,
after the Campbell Inquiry in 1981, the
Australian financial industry began to
deregulate in 1983. Additional changes to
regulation, following the Wallis Inquiry
Report in 1997, saw further establishment
of the financial industry in Australia.
“Deregulation in Banking in Australia
saw an influx of foreign banks entering
and leaving the market. Our long estab-
lished client relationships and local knowl-
edge were key factors in our continued sta-
bility and service excellence during that
period,” explains Jean-Marc Pasquet, MD
and Head of Asia-Pacific.
A result of legislation change has been
consolidation, which has occurred in the
superannuation and funds management
sector, and has caused activity in the cus-
tody space to increase. The influx of new
players into the market, taking advantage
of regulation change, has made the market
very competitive and areas such as super-
annuation funds are benefiting from very
competitive fee structures.
“Compulsory superannuation has been,
and will continue to be, a key driver of
growth for our clients in Australia.
Industry research shows that Australian
pension fund assets will represent more
than 50% of total pension fund assets
in Asia/Pacific by 2012.”
The market Australian market is not
only growing in size but also in
sophistication. Pension funds and
asset managers are increasing their
asset allocation in alternative assets
such as private equity funds, direct
Company Profile - BNP Paribas
properties and hedge funds, and these
trends will continue to be drivers for
growth for the BNP Paribas business in
Australia.
The Australian financial services sector is
also renowned for its cutting edge systems
and sky-high levels of STP; leading the
Asia Pacific region with its Clearing House
and Electronic Sub-register System
(CHESS), which facilitates the transfer and
settlement of market transactions from the
Australian Stock Exchange (ASX), and the
New Zealand settlement system
Austraclear.
These high levels of sophistication, and
the markets dedication to innovation in
financial services, have prompted the local
authorities to promote the Australian
financial services community as a poten-
tial hub for the Asia Pacific region.
So, in a fast moving market, how does
BNP Paribas set itself apart from the other
custodians who are located in Australia?
“During these last 4 years we have been
the fastest growing custodian,” believes Mr
Pasquet, “We differentiate ourselves in
terms of client servicing, and strongly
believe in our BNP Paribas model of ‘the
closer, the better’, which is translated in the
way we organise our operations, our prod-
ucts and systems.”
BNP Paribas has also been active in
adding to its armoury through acquisition,
when in 2002, it acquired Cogent, the
investment operations of AMP, the
Australian born wealth management com-
pany, and made it part of BNP Paribas
Securities Services. The deal brought with
it an investment operations outsourcing
platform in the UK, and Mr Pasquet
believes that the acquisition has been an
excellent success story, allowing BNP
Assets Under Custody & Administration at 31 Dec 2005 (AUD Bn)
Paribas to combine their local and global
expertise to differentiate themselves in the
Australian market.
“We were able to establish BNP Paribas
Securities Services in the Region thanks to
the Cogent acquisition,” says Mr Pasquet
“Since then we have grown our Assets
Under Administration from AUD94 bn to
AUD210 bn, and we expect to continue
this growth as we further leverage our
global expertise and invest in our local
business.”
The introduction of stricter licensing
requirements has led to a number of com-
panies have seeking to outsource the man-
agement of their funds, especially pension
funds, rather than meet the cost of com-
pliance.
“As an outsourcing provider we have
experienced increased growth in the num-
ber of clients opting to outsource to best
of breed service providers, choosing to
focus their attention on core services that
will drive their own growth,” says Mr
Pasquet
“We are also finding that increased
scrutiny by Regulators is putting pressure
on Funds to ensure that they are adminis-
tering members assets in a robust and pru-
dent manner. This has led many Funds to
seriously consider outsourcing as an
option, where they wouldn't have before,
and I think we will see even further growth
in outsourcing over the next 10 years.”
In Australia, unit pricing and the rela-
tionship that clients and investment man-
agers have with their outsourcing provider
is an important dynamic, and one which
BNP Paribas are investing in and develop-
ing. “We think that unit pricing regulation
will prompt many clients to rethink their
outsourcing arrangements which will in
turn provide growth opportunities for
custody providers,” says Mr Pasquet, and
also considers risk and control a true part-
nership approach and important in the
outsourcing arrangement.
Today, the Australian arm of the BNP
Paribas Banking Group has offices in
Sydney, Melbourne, Perth and Wellington
(NZ), and is the 9th largest foreign bank
by assets in Australasia.
INVESTOR SERVICES JOURNAL 35
 French Custody

Pillar
of
Strength
It has been a challenging twelve months
for France.
A seven-week protest against the
Contrat Premiere Embauche (CPE), a
‘first job contract’ for the under 26’s,
culminated on 28 March this year, when
more that 1.5 million people took to the
streets in the largest day of demonstra-
tions that France had seen for over a
decade. While, just over a year ago,
twenty days of riots engulfed suburbs
across the country and some 10,000
vehicles were torched and 233 public
buildings set alight.
There has also been a similarly shaky
political landscape of late. With Jacques
Chirac coming to the end of his 11-year
presidency, the majority of French
nationals share the same lackadaisical
attitude towards him that they believe he
has shown to his presidency, and most are
just watching the clock tick down until he
leaves, or is pushed, out of power.
France’s socio-economic
makeup is somewhat Custodians recognize
fragmented. that they have to
consolidate to survive.
Alan Duerden looks at Politically feeble, with declining
how the country’s productivity and high unemployment
rates, does the once European leader
custodial machine is in European economic integration find
challenging this and itself somewhat punch-drunk and on
the ropes?
driving ahead in Europe. While it is easy to focus on the negative
press that France has been subject to over

36 INVESTOR SERVICES JOURNAL


the past year, back in April, it was report-
ed that the Paris bourse had soared to its
highest levels since 2001 with the latest
financial results showing record profits
for the countries CAC 40 companies in
2005, up 50% on 2004. French companies
were also tipped to be the world’s third
biggest source of cross-border takeovers,
with the French market being character-
ized by different levels of consolidation.
“Five years ago there were a dozen or so
large players operating on the French
custody market,” explains Jean-Marc
Eyssautier, Managing Director, CACEIS.
“Today, only three major players remain
(CACEIS, BPSS, and Societe Generale),
the others have merged into, or partnered
up with rivals.”
Custodians
recognise that they
have to consolidate
“I’m not sure the word ‘French’ has a meaning
to survive and that anymore. We are talking about European strategies
a critical size is
needed for invest- now, so custodians need to grow, and the only way
ment in new sys-
tems and strategies,
to grow is to work throughout Europe.”
and for the best chance of adopting new
legislation and regulations. 2006 has been
a busy year for French custodians in the
area of cross-border acquisition with
Societe Generale and BNP Paribas both
wanting a piece of the action.
February saw Societe Generale acquire
the custody arm of Italy’s Unicredit
Group for USD690 million. This acquisi-
tion brought Societe Generale business in
custody, clearing and settlement, deposi-
tory bank, fund administration and
transfer agency for clients in Italy,
Luxembourg and Dublin.
Also, in August, BNP Paribas acquired
the third-party securities clearing and
settlement activity of Bankhaus Carl F
Plump in Germany, a private banking
and asset management firm that is part of
MM Warburg Group, seeing this as an
opportunity to expand into new markets
and develop new services.
As institutional and retail investors
become more aware of financial products
they can invest in that are marketed in
other EU states or globally, custodian
providers are looking for ways to build
their cross-border business, provide con-
sistent service in different countries and
capitalize on regulatory change.
“French providers are increasingly shift-
ing their focus from the basic custody
services to added-value services such as
securities lending, repos and OTC deriva-
tive processing where greater potential for
returns lie,” says Eyssautier. “Added-value
services also include a comprehensive
reporting service for clients and investors,
an area in which French providers have
concentrating on improving quality of
service.”
Of the largest three custodians in
Europe: HSBC, BNP Paribas and Societe
Generale, two of these are French, and
while they are doing a good job of
strengthening their hold on business
across Europe, their domestic dominance
is being proven also. “In the French cus-
tody market, the big US custodians only
have a small piece of the pie,” states
Eyssautier. “This is due, both to the effi-
ciency of local players, and to the protec-
tion afforded by France’s strong culture
that acts as a barrier, making the market
more difficult to penetrate.”
There are two sides however, to every
story, and whilst France’s strong cultural
identity acts as a barrier to ‘foreign’ custo-
dians entering the market, the egocentric
nature of the French financial regulators
has sometimes deprived the market of
potential growth and development
opportunities.
This is exemplified in the French regu-
lators approach hedge funds verses other
domiciles such as Ireland and
Luxembourg. The regulators attitudes
towards the role of the trustee depositary
bank in France are stringent and it has
been hard to find suitable agreements
between prime brokers and the deposi-
tary bank towards the servicing of hedge
funds. For a long while these issues have
slowed down the growth of hedge funds
in the French market, and a number of
French asset management companies that
were interested in launching hedge funds
have had to launch them abroad; in the
Cayman Islands and Ireland. What is
beginning to be seen however is the
French regulators understanding that
their point of view doesn’t necessarily
favour the growth of the French funds
industry, and slowly but surely they are
re-visiting issues that were previously
stranded in a no mans land of bureaucra-
cy. Agreements have been signed with
prime brokers and the beginning of the
French Custody
hedge fund industry in the French market
can now be seen.
“We come from a very different organi-
zation of the market,” explains Etienne
Deniau, Deputy Head of Investor
Services, Societe Generale. “Typically we
are a single market, because of the state,
and history, so the French have seen the
beauty of having a single market, with a
single order book, and with much more
transparency because there is a single
price for the securities.”
Historically, as with some other
European and Nordic countries, the
French market has developed under the
Continental Banking Model where this is
no distinction made between banks and
securities firms. Securities firms are seen
as banks, and a
single regulato-
ry authority
oversees all
banking activity.
This differs
from the Anglo-
Saxon financial
model that is seen in the United Kingdom
which distinguishes between banks and
securities firms. The Bank of England
supervises banks, and securities firms are
traditionally self-regulated.
It is easy to understand then how evo-
lution under different market conditions
has encouraged barriers to be put up
between countries, however, where the
French regulators have previously been
particularly egocentric, they are now are
realizing that they have to look further a
field than France if they want their
domestic market to develop.
“Im not sure the word ‘French’ has a
meaning anymore,” believes Deniau. “It
still has a meaning for post-trade, but has
less and less meaning for the market
itself. We are talking about European
strategies now, so custodians need to
grow, and the only way to grow is to work
throughout Europe.”
Eyssautier agrees with this saying: “A
considerable challenge for France’s custo-
dians is to seek growth opportunities out-
side of the French market by gaining
market share in Europe and further
afield.”
Despite the historical difference
between markets, pan-European legisla-
tion reforms such as the MiFID and
UCITS directives have helped open up
the market and facilitate cross border
activity by creating ‘single passports’
allowing financial firms to do business
INVESTOR SERVICES JOURNAL 37
 French Custody
across Europe. The establishment of
Euronext, the European stock exchange,
and Euroclear have also aided the move
towards European harmonization.
Euroclear Settlement of Euronext-zone
Securities (ESES) will provide the
Euronext-zone market Central Securities
Depository’s (Euroclear Belgium,
Euroclear France and Euroclear
Netherland) with an integrated settlement
solution and harmonised custody service
for stock exchange and over-the-counter
activities.
With this move towards pan-European
harmonization, French custodians are in a
strong position as a result of their acquisi-
tions across Europe and will be well
placed for the future development of cus-
tody services in the Euro Zone.
While on a European level French cus-
todians are strategically placing them-
selves to be able to deal with a range of
fund services for both retail and institu-
tional clients, on their home turf, issues
need to be addressed around institutional
investment strategies, following reforms
in French pension fund policy.
In 1999, the Charpin Report suggested
that French population ageing was due to
accelerate after 2006, and that if the
trends of population growth continued,
one French person in three would be over
the age of sixty by 2040. Radical reform in
pension law was called for, and the
defined length of pension fund contribu-
tion was extended from 37.5 years to 40
years, with the length of service to be
revised every five years, after 2008, to keep
up with life expectancy.
France’s pension deficit grew from
EUR75 million in 2004 to EUR 1.9 bn last
year and the government predicts that
despite further pension reforms in 2003,
expenditures will grow from 12.8% of
gross domestic product (GDP) in 2003 to
14.4% of GDP by 2020.
“One gap to bridge in the French market
is on the pension fund side. If you are
looking at the US or the UK they have
had a pension fund culture for years,
while in continental Europe it is quite
new. So we need to catch up with all of
this institutional investor culture,” states
Deniau.
In September this year, following a
report issued by the public-sector auditor
Cours des Comptes, the French govern-
ment recommended that pension provi-
sions for SOE (State Owned Enterprise)
employees should be aligned with public
pension programs to help reduce the
38 INVESTOR SERVICES JOURNAL
national pension deficit.
One can only expect, that now the mar-
ket for alternatives and hedge funds is
growing in France, institutional investors
and pension funds will follow a similar
strategic line to those in other European
countries and use the high alpha generat-
ing returns of these investment instru-
ments to try and manage the deficit with
greater success.
French custodians also see international
competition as a challenge to their domi-
nance in Europe but believe that their
ability to work well with one another
whilst also competing will give them the
competitive advantage. “France’s three
large custody providers, despite their
strong business rivalry, are able to cooper-
ate by sitting around a table together and
The day will come
when a US custodian
makes a serious effort
to set up in France.
discuss market place projects which are
seen as a benefit to the industry as a
whole,” explains Eyssautier.”
Among the main challenges to French
players, one can list international com-
petitors, and the day will come when a US
custodian makes a serious effort to set up
in France. Custodians are also seeing com-
petition from ICSD’s (International
Central Securities Depositories), which
are biting off chunks at the bottom end of
the business as their services start to com-
pete with custody offer of the custodian.”
It can be argued that competition is a
positive process in market evolution,
allowing for competitive fee structures,
greater differentiation in the services that
are offered and giving wider choice for the
servicing of funds. While this is the case,
and the threat of international competi-
tion may be on the horizon, French custo-
dians seem relaxed about this prospect,
basking in the warmth of their continued
success in Europe.
The French story seems to be a some-
what Jekyll and Hyde tale. While some
aspects of the economic, political and
social system cower in shadow of develop-
ment, in custody, the market is buoyant
and strong, dominating Europe and
marching forward into new territories.
It has been a challenging twelve months
for France, but the next twelve should be
even more so. ISJ
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USA Country Profile
US custodians are
still the heavyweights
but have they licked
their domestic plates clean?
Vanessa Nicholson reports.
Custodial Thanksgiving
America’s financial face is mature, to
say the least, but a new financial wave has
hit the States and the evolution of mar-
ket needs have increased demands on the
underlying financial services. Increas-
ingly complex financial vehicles,
particularly derivatives, are demanding
deft custody and investment services
handling. The back and middle-office is
gliding into the limelight for some long
overdue attention.
“Five to ten years ago the back office
was truly ‘the back office’- not a priority,”
says Rob Mancuso, senior vice president
of Investor’s Bank & Trust (IBT). “Today
it is top of mind. It is a priority. That’s
The nature of the administrative beast is changing and
custodians are offering a wider range of services.
where the issues are coming up and it has
evolved to be a much hotter issue and
decision-making point.”
Custodians and securities services
providers have been kept on their toes.
New pension laws, wiser investors,
successive negative financial publicity,
40 INVESTOR SERVICES JOURNAL
the potential implementation of costly
national schemes (like the heavyduty T+1
settlement system, on ice for now), a
plethora of new asset classes hitting the
stage or the familiar but forgotten classes
enjoying a comeback, and more, has forced
custodial evolution.
The market looks deceptively saturated
domestically; new services provider are
more likely to appear overnight than huge
new funds. However, look a little closer and
it is rife with new opportunities for growth
- beyond funds being passed around
providers, looking for
best service.
The nature of the administrative beast is
changing, and custodians are offering a
wider range of services, bowing to pressure
to branch into areas like record-keeping.
Jeff Conover, Head of North American
Institutional Asset Servicing for Northern
Trust, believes one of the key challenges
faced by asset servicing providers is provid-
ing solutions to the investment community
that streamline and facilitate the increas-
ingly barbed investment process. “The time
for the traditional custodian has passed,” he
says. “Clients are now relying on their asset
servicing providers to play a more
integral role in their own operations
and workflow.”
Also, hedge funds, for example, no longer
constitute loose change on the market, with
total hedge fund assets surpassing USD1.34
trillion in the third quarter of this year and
are set to grow 15-17% annually. They are
increasingly looking to outsource their
backstage processes for expertise and inde-
pendence, and to focus on their investment
decisions and the large custodians have lept
to aquire hedge administrators.
American custody muscle and infrastruc-
ture still attracts the maturing and emerg-
ing markets, being custodians of choice this
year to a number of large foreign funds
(see table). Cross-border trading no longer
means inter-state transactions to the
American financial world. Investors, are
globally-orientated and
the world favours cus-
todians who can ‘follow
the sun’. Despite inter-
national competition,
U.S custodians are still leading providers
globally; providing services to whom barely
brush with American securities.
A bee in the bank’s bonnet
“I think the U.S market is still a world
leader,” says the Boston headquartered Mr.
 USA Country Profile

Manusco. “80% of the leaders in global Cayman Islands or Dublin, in structures would rather use somebody who has got a
custody are based in the U.S and certainly that are being sold to investors in either single platform, a single focus, and has
from our experience, not just from a cus- continental Europe or in Asia- and those already conquered the complexity of hedge,
tody standpoint, but also from an account- structures may hold securities that are private equity and loan type products.”
ing and administration standpoint, our Australian, Japanese and U.S securities The single platform is clearly advanta-
capabilities are much stronger. Looking at simul- geous, and technology investment will con-
custodians and administrators based out- taneously. It is very, very much a global tinue in the States de rigueur. This is pri-
side the U.S I think our technology is remit; a global industry.” The twenty marily to create the integrated information
stronger; our ability to handle complexity year trend towards true globalisation shows infrastructure needed, but also to accom-
and to be flexible is just more mature and no signs of abating. modate the current asset diversification and
more built out from a technology stand- Mr. Curtin believes that though the U.S is burgeoning product choice requiring more
point.” clearly still the world’s largest capital mar- immediate reporting.
Mr. Manusco is not intimidated by his ket, from the perspective of those of in the “The explosion of the use of alternative
European rivals. “I know some European securities processing and custody industry investments is a clear indicator of a major
firms like Societe General are trying to build the U.S is ‘principally a mature market with trend in the U.S market as investors look
this business - but that is just it, they are try- some pockets of very significant growth in for ways to add alpha and mitigate risk,”
ing to build it, whereas many of the it’. “We view the markets in continental says Northern Trust’s MR Conover. It has
Americans already have a very sophisticated Europe and Asia as the higher growth mar- also brought to the forefront the demand
capability.” for the daily
And today,
sophistication
Even investment managers working with just the one risk and per-
formance
is everything, custodian are having to lift the skirts of their providers reporting that
as are the tech- these asset
nological to find out how integrated their systems are. types require.
resources and “The areas
supremacy to make the complex simple kets,” he says. “That does not indicate that of growth and focus within the U.S relating
and capitalize on the breadth of opportuni- the U.S market is one to be ignored or to securities processors and custodians are
ties for investors. Mr. Manusco’s colleague underestimated, simply because of its defined contribution plans; exchange trad-
Brian Coughlin, managing director of IBT, tremendous size and breadth.” Having the ed funds, which are growing much faster in
expands: “Investment managers have oper- systems to take on the globe and its prolif- the U.S than
ations in multiple domiciles, around the eration of new financial products is vital. anywhere else in the world, and hedge
globe and they are looking for consistently Today most clients are inclined, according funds. Though very much a global
high quality from a service provider, to IBT, towards single global platform phenomenon, the majority of the
regardless of the location or product they providers, who can service the full range of larger hedge funds which are growing
structure.” needs. Many of their competitors, often quickly are based in the U.S,” says the
Pat Curtin is Executive Vice President of those that have been in business the BNY’s Mr. Curtin.
the Bank of New York (BNY) and in charge longest, have fragmented solutions; systems “There continues to be extreme pressure
of the investor services business in the split by product type and geography. Even on investment managers to hit perform-
Americas region. He agrees that the indus- investment managers working with just the ance targets,” says Mr Coughlin. “Investing
try no longer views the world regionally, as one custodian and accounting agent are exclusively in long equities or fixed income
it did a decade ago. “The world is very having to lift the skirts of their providers, markets was not giving them the returns
much looked at through a global lens,” he to find out how integrated their systems they needed, so the more sophisticated
says. “By globalization, I mean more than a are. They are having to check whether, as investment managers historically went to
U.S investor investing in UK equities or a Mr. Manusco says, ‘getting data back con- the derivatives market to drive alpha. We
UK investor investing in Italian bond. I sistently in the same format will be next to are now seeing that trickle down to most
mean global investors investing globally. impossible.’ investment management shops, and there
For example, we have many U.S domiciled “Clients are no longer interested in trying continues to be an increasing reliance on
investment managers who are running off- to manage half a dozen different providers derivative instruments and alternative
shore funds out of Luxemburg or the around the globe,” says Mr Coughlin, “but investments.
“We also recognise,” he continues, “that
Acquisitions of Key Hedge Fund Specialist Administrators while there is the potential for a saturation
of a particular type of instrument, the lead-
2001 Hedge Fund Administrators are mostly niche, boutique firms based in ing minds on Wall Street, in London, Hong
the Cayman Islands and Bermuda. Kong and Tokyo will continue to create
2002 BSG purchases Hemisphere Management Ltd. new over the counter (OTC) instruments,
Citigroup buys Forum Financial Group new synthetics, so that there is a an oppor-
HSBC Private Bank acquires Bank of Bermuda tunity to continue to expand into that
JPMorgan Chase acquiresTranaut Fund Administration space.
2006 Mellon Financial Corps acquires DPM Mellon, providers of middle and He believes many of his investment man-
back office services to hedge funds. Two independent providers remain; agement clients will put their toes deeper
Investor’s Bank & Trust, and Citco Fund Services. into the water, “and as they do I think

INVESTOR SERVICES JOURNAL 41

USA Country Profile

they’ll find that their own in-house systems under transparency scrutiny, as well as the for the community to digest, but could prove
and operations are not really geared to the desire for appropriate risk management, fruitful to opportunist service providers.
complexity of these instruments and as will see hedge funds flock to out-source all “There certainly has been a lot of regula-
they ramp up they dramatically struggle but their core competencies to the experts, tion,” IBT’s Mr. Mancuso adds. “One of the
with the volumes. compounded by their colossal growth and positive impacts is a desire to outsource more
They are continuously looking for us to the dexterity needed to negotiate and risk- of the administration work because the envi-
take more of those operational processes manage the complexity of financial ronment is increasingly complex in terms of
off their plate so they can continue to focus products on offer. regulations to comply with, and also a grow-
on the investment management and the This year American President, George W. ing interest in the underlying shareholder or
selection of those types of instruments.” Bush, signed the most radical rewrite of the partners of the fund to be comfortable with
nation’s retirement law since 1974, and the the back office or middle office administrator
The Scarlet Starlets and the law
new pension reforms that will have a far- or custodian. It means significant growth
Another new part of the American finan-
reaching effect on the pensions industry. potentially in the future.”
cial markets flora and fauna custodians are
The reforms provide fresh opportunities The land of the free continues to provide
profiting from are hedge funds. An ama-
for service providers, especially in the space opportunities for custodians. Last year, JP
ranth is a flower that (according to legend
of defined contributions. Northern Trust Morgan was awarded the record-breaking
and the Oxford Dictionary) never fades. Its
has already invested in educating its clients Freddie Mac mandate, valued at USD700 bn.
financial namesake, the hedge fund
on the changes and providing them with Whilst these nuggets are rare, sifting for and
Amaranth Advisors, had a
adapting to other oppor-
legendary fall from grace
this September, losing
Pension reforms that will have a far-reaching tunities will keep the
USD6 billion on natural effect on the pensions industry and provide mature market’s appeal.
Capitalizing on the
gas trading. Whilst many
are keen to point to the fresh opportunities for service providers. industry’s vulnerability
in the regulatory and
resilience of the U.S mar-
solutions like liability driven investing creative asset class environment and supple-
ket and the inability to create over-arching
(LDI). The Pension Protection Act of 2006 menting with emerging market horse-power
hedge fund regulation, the headlines have
and new standards issued by the Financial should keep American-based custodians in a
attracted public and political concern. The
Accounting Services Board will take a while comfortable lead. ISJ
2002 Surbanes-Oxley (Sox) Act regulates
public companies and was the result of a
series of corporate scandals. Private com-
panies, like hedge funds, are regulated dif- Custodian Client Assets Held Location
ferently; currently less stringently.
“Headline grabbing events are going to AA Mellon Depfa EUR 115bn Europe
have a reverberating impact on all aspects F&C EUR 13bn Netherlands
of the financial markets. The custody and
securities processing has been no different,” BBH US Oil Fund n/a n/a
says Mr Curtin. “We have seen a tighter
regulatory and compliance environment BNPParibas SS Man Group n/a Germany
across the landscape of investing that has Martin Currie n/a UK
manifested itself in requirements put on
the custodian that in some cases had not BNY Azerbaijan Oil n/a Azerbaijan
existed before. There is a level of risk man- Fund
agement required, not just for investment Leeds Building USD 4bn UK
managers and fiduciaries, but in what cus- Society
todians are being asked to discharge.”
Amaranth followed in the wake of the JPMorgan HostPlus n/a Europe
Enron, Tyco International and WorldCom Cazenove GBP 4bn UK & Ireland
scandals, and the growing fear was the loss
of market confidence. Congress has begun Mellon AA Mellon USD 4bn Ireland
hearings into the industry and the US Provident USD 4bn USA
treasury is holding meetings to evaluate the
risk posed by the twenty-year old industry. Northern Trust Charities Aid GBP 430mil UK
The backlash has been a flurry of proposed Foundation
regulation, to help the investors and funds San Jose USD 1.6bn USA
feel more secure and sure-footed, and, as Retirement
with all regulation, implementation will Stitching Fonds EUR 7.5bn Netherlands
place a strain on resources where smaller
operators will be cornered into consolida- State Street calPERS USD 200bn USA
tion or riskier investments to survive. The Milk Pension GBP 280mil UK
desire to cost-save and appear unblemished Fund

42 INVESTOR SERVICES JOURNAL

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Indicators - Securities Lending

“It is a godlike thing to lend.” Rabelais

Top 10 Equites by Total Balance

Analysis of the key indicators on Rank Stock Description

1 ENI SpA
securities lending and borrowing 2 Total SA
statistics from Data Explorers. 3 AT&T
4 BNP Paribas
Group Data: Total Return to Lendable Assets has continued at a steady
pace since July, falling to just under 5%. The Securities Lending Fee has 5 Royal Dutch Shell PLC
mirrored this slight fall, dropping 10 base points from the seasonal high 6 Washington Mutual Inc
of July to around 22.5.
Utilization has also fallen although to a greater degree and although rally- 7 Telefonica SA
ing in August, it ends October 15 base points lower. 8 Banco Santander
9 AXA SA
Group Data 10 Sanofi-Aventis

Equity by Fee > 10< 100 mn

Rank Stock Description
1 Overstock.com Inc
2 Hythiam Inc
3 Northfield Laboratories Inc
4 Medis Technologies Ltd
5 Neurochem Inc
6 Eurotunnel SA
7 Cell Therapeutics Inc
8 True Religion Apparel Inc
9 Midway Games Inc
10 Pacific Ethanol Inc

Top 10 Corps By Total Balance Equity by Fee > 100 Mln

Rank Stock Description Rank Stock Description
1 European Investment Bank (6% 07-Dec-2028) 1 Fairfax Fiancial Holdings Ltd (Others)
2 European Investment Bank (3.625% 15-Oct-2011) 2 Fairfax Holdings Ltd (TSX Midcap)
3 European Investment Bank (5.625% 07-Jun-2032) 3 Novastar Financial Inc
4 Brazilian Government International Bond (11% 17-08-40) 4 PW Eagle Inc
5 Kreditanstalt fuer Wiederaufbau (3.5% 17-Apr-2009) 5 Uponor Oyj
6 France Telecom SA (8.75% 01-Mar-2031) 6 New River Pharmaceuticals
7 Telefonica SAEuropean Investment Bank (5.375% 07-Jun-2021) 7 NYSE Group Inc
8 Ford Motor Co (7.45% 16-Jul-2031) 8 La-Z-Boy Inc
9 European Investment Bank (4.625% 15-Apr-2020) 9 Odyssey Re Holdings Corp
10 Kreditanstalt fuer Wiederaufbau (3.5% 04-Jul-2015) 10 Fidelity National Title Group

44 INVESTOR SERVICES JOURNAL

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Risk Management Association - Composite Analysis

RISK MANAGEMENT ASSOCIATION SECURITIES LENDING COMPOSITE - Quarter 3 2006

Risk Returns... Below is a table showing a year-on-year snapshot of the industry worldwide. Lendable assets refer to the value of loanable securities. -
On loan vs. cash collateral refers to the value of securities on loan in return for cash. -On loan vs. non-cash collateral refers to the
value of securities on loan in return for non-cash collateral.

The latest securities

lending data from the
Risk Management
Association.

Pacific Rim equities on loan increased

sharply over the past year, most notably
Australia nearly doubling. The region is
growing so maybe it wasn’t all dancing and
partying for you at SIBOS this year.
Compare this to the European market
where every country, with the exception of
the UK, sufferd a hefty fall in the amount of
equities on loan.
The US continues to be the king keeper
regarding lendable assets and especially The Survey reflects data provided by the following institutions: Barclays Global Investors; Boston Global Advisors; Brown Brothers Harriman & Co.; Comerica
Bank; Credit Suisse; Frost National Bank; Investors Bank & Trust Company; JP Morgan Chase & Co.; M & I Global Securities Lending; Mellon Financial Corp.;
anything to do with cold, hard cash with MetLife Insurance Company; Metropolitan West Securities LLC; The Northern Trust Company; PFPC Trust Company; U. S. Bank, N.A.; Union Bank of California,
USD266,647 million on loan vs. cash N.A.; The Vanguard Group, Inc.; Wells Fargo Institutional Investments

collateral.

European Equities on Loan USD (mn) Pacific Rim Equities on Loan USD (mn)

46 INVESTOR SERVICES JOURNAL

 Indicators - Hedge Fund Performance

Fresh Hedge Fund Cuttings....

July to September Rate of Returns
The hedge funds
industry keeps quiet
in the summer
months.

Data from Hedge

Fund Research Inc.

The months of August and

September have lived up to their rep-
utation as being a quiet month with The Bigger Picture
perhaps the slow summer breeze
being the only factor shifting market
indicies.

With the exception of the MRFI Short

Selling Index which has crashed for
the second month in a row falling to
a rate of return of around -2 from an
August high of +1.

Year to Date Increase: August/September

INVESTOR SERVICES JOURNAL 47

Asian Securities Lending
Tortoise or Hare?
While it is undeniable that the Asia region is
growing, its securities lending markets are send-
ing out mixed messages. Brian Bollen reports.
Asia enters 2007 in good shape, and
held in strong regard by participants in
the securities lending markets there. The
horrors, hiccups and hiatus of the late
1990s are long gone, and even, whisper,
gradually being forgotten.
The major trends being reported by
those intimate with the region sound
nothing if not familiar, but are worth
reiterating, if only for the benefit of those
new to the industry. “There has been an
increase in supply of assets from major
financial institutions in Asia, reflecting
the accumulation of wealth in the
region,” says Lawrence Komo, Asia Pacific
Region Head of Securities Finance at
Citigroup in Singapore. “We are seeing
the emergence of a core middle class in a
number of Asian countries, and the
growth of domestic wealth for discre-
tionary consumption. In addition, there
has been huge growth in foreign exchange
earnings, and securities lending is one of
the products to have benefited from these
new funds. The broad development of
regulation on securiites lending has, in
effect, been shunned since the events of
the 1997/98 period, but global multina-
tional corporations are moving into
Asia to tap into its markets, and that
movement has reached the point where
it’s irreversible.”
In this account of recent history, China,
a sleeping giant for the bulk of this writer’s
lifetime, has finally awoken, and is now
attracting long-term stable foreign direct
investment, rather than the hot money
which suddenly developed cold feet less
than a decade ago. “The foreign direct
investors are creating capital, too,” observes
Lawrence. ”And that is money than cannot
be taken out of the country easily.”
“On the back of this, many exchanges
are working on finding ways to attract
and keep capital, and on developing
derivatives markets,” he continues. “They
are asking how they can make their mar-
kets more liquid, and what they need to
do to suit foreign investors better, and at
48 INVESTOR SERVICES JOURNAL
least some are recognising that securities
lending is necessary to promote stability
of pricing and liquidity.”
In short, then, some of the region’s reg-
ulators are beginning to see both the the-
oretical and the empirical benefits of
securities lending, but concerns remain
and there is no sign of a western-style
free-for-all just yet. “A lot of countries
still have foreign exchange controls but
they are gradually being dismantled and
the future is looking brighter for securi-
ties lending than it has done for some
time. Technology is a key to getting peo-
ple comfortable with the product, and in
that respect dematerialization has had a
massive impact. Let’s face it, securities
lending is an incremental, complementa-
ry product, and if you’re having trouble
settling your normal trades, securities
lending is not a priority, is it? Having said
that, the best thing for us as a supplier of
services is the emerging markets story.
Korea is very active for us, and we intro-
duced a programme into Taiwan in the
spring of 2006. These programmes have
taken two years or so to bed down, but
other markets will learn from their expe-
rience, and two
years is a very “Only when booking takes
short time in
the broader place in Asia can the market be
scheme of
things. The
regarded as fully fledged.”
next markets to adopt securities
lending will do it quicker, and will be
more stable.”
We must also bear in mind, of course,
that even in those markets that are fur-
ther down the road to full acceptance of
securities lending (say, for example,
Singapore), the markets remain relatively
small. Citigroup, incidentally, during the
writing of this article, was appointed by
Prudential Corporation Asia to provide
domestic and global custodial services to
the insurance funds and unit-linked
products of Prudential’s operations in
Hong Kong, Indonesia, Malaysia, South
Korea, Philippines, Singapore, Taiwan,
Thailand and Vietnam. In addition,
Citigroup will provide investment
accounting services for the assets and act
as the securities lending agent in markets
where it is permitted by local regulation.
Securities lending in Asia is dominated
by hedge funds looking to implement
new trading strategies, and by the major
international prime brokers who service
their requirements. Goldman Sachs,
Morgan Stanley, Merrill Lynch, Lehmans,
Deutsche Bank and UBS feature regularly
as houses that are active on the prime
brokerage front. “If you wanted to make
mischief, though, ask them why, if the
local markets are so developed, why do
people prefer to continue booking trades
not with a local entity, but with a
stronger, better capitalised unit back in
London or New York,” suggests one inter-
viewee. The clear implication is that only
when booking takes place in Asia can the
market be regarded as fully fledged.
“We have sought to take advantage of
the development of securities lending on
two fronts,” says State Street’s Francesco
Squillacioti, SVP, Regional Director,
Asia-Pacific.
“One, by working with local regulators,
and industry groups such as PASLA to
discuss effective frameworks for securities
lending. Part of this, of course, is also to
understand the needs of our global
clients, who are the beneficial owners of
securities from those markets. As we
work to develop such frameworks, we
want to make sure that we do so in such a
way as to safeguard our clients’ interests.
Two, by working with local institutions
who may
be inter-
ested in
lending
their glob-
al securi-
ties. It is equally significant to ensure
that we are able to lend the assets of the
various large institutions in the region in
ways that are consistent with regulation.
“Our view is that the various markets
are putting in place measures that make
the environment more conducive to secu-
rities lending. We see it as positive for us
as well as the institutions that engage in a
lending programme, and of course, the
markets that open up to lending. We see
this as part of a regional and market evo-
lution that started several years ago and
continues so, it is hard to confine it to the
past year. Besides markets such as Korea and
 Asian Securities Lending

Taiwan, there has been much discussion
about markets such as Malaysia, India,
Pakistan, Philippines, China, and Vietnam.
Our plans are to make sure that we are in
position to take advantage of these opportu-
nities. We need to keep an eye on what the
potential securities lending value of the par-
ticular market is, and weight that with the
timing of that market coming ‘on-line’. We
plan to continue to keep a close eye on these
markets, and to continue the work we do
with regulators, and with industry groups
such as PASLA.
“Of course, we always like to see restrictions
on securities lending eased, and we applaud
the work that the many progressive regulatory
bodies in Asia have done to lighten the
restrictions. We are very heartened by the
responsiveness and
openness of some
of these regulators
“The Asia market has been buoyant this year with
not only to study M&A, warrants, IPOs and placements, and all of
what the market
requires and to this has had an impact upon securities lending.”
speak to industry
players about what measures might be effec-
tive, but by their efforts actually to implement
some of these changes. Of course, we respect
deeply the different countries’ concerns and
we believe that they are all acting in a manner
that they feel is prudent. Each market will
implement the system that fits best for it, and
this process is going to take longer in some
places than in others. Our job is to provide
the assistance we can provide as the frame-
works are being developed, and then to work
to implement the model in a manner that is
optimal to our clients. And ultimately,
through the successful implementation of a
structured SBL model, we can help to get
some of the more ‘emerging market’ countries
into a more recognised ‘developed’ status.”
“The Asia market has been very buoyant
this year with M&A activity, warrants, IPOs
and placements, and all of this has had an
impact upon securities lending activity,” says
Andrew Gordon, Executive Vice President at
The Bank of New York, responsible for all the
bank’s business in North Asia, which includes
Hong Kong, China, Korea, Taiwan and Japan.
“We feel there has been a normalization of
lending requirements in Korea, bringing it
closer to the mainstream; there has certainly
been a greater familiarity with what works,
and with what doesn’t work, and it has
become easier to do business in Korea than
just a few years ago. Supply and demand are
the main driving forces, and as supply of
stock to lend has risen, prices paid by bor-
rowers have fallen. We’ve also seen positive
developments in Taiwan, India and the
Philippines, which are all moving closer to
setting securities lending standards for both
borrowers and lenders. A number of markets,
though, the likes of India, Malaysia and
China, are looking more to meet the needs of
onshore investors, rather than offshore
investors, and are not actively looking to facil-
itate the entry of offshore lenders. The lend-
ing community would prefer to see a market
environment that enables offshore lenders as
well as onshore lenders to participate; we’d
certainly like to see Malaysia re-opened and
the industry is engaged in dialogue with vari-
ous participants in the market.” A key factor
in changes affecting Asia, he believes, is the
increasing migration of the trading of Asian
securities to Asian financial centres. Other
items of note in 2006 include the last phase of
implementation of the agency disclosure ini-
tiative was successfully completed in October.
“The whole exercise went well, given the
enormous size of the multi-year task,” he
comments.
“Our hopes and expectations for 2007?
More of the same, with the continuing estab-
lishment of hedge funds driving demand for
a variety of trading strategies, and the contin-
uing interest of a number of markets in
embracing the rules that allow securities
lending to take place,” he continues. “We
would expect to see further liberalisation tak-
ing place. There’s also aways more technology
in the pipeline, helping to bring about an
enormous chances and improvements in the
industry, both in Asia and elsewhere. The
ability to exchange large volumes of data in
an is effectively helping to transform the way
we work, and the input from the likes of Data
Explorers is delivering an element of rate
transparency that simply didn’t exist before.
The impact of technology should not be
underestimated. The ability to embrace tech-
nology is the differentiator between the larger
and smaller players and we believe we will
continue to see a consolidation of the securi-
ties services business as a whole.” In April
2006, BoNY took another step into the future
swapping its retail banking and regional mid-
dle-market businesses in the US for JP
Morgan’s global corporate trust business, he
goes out of his way to remind us.
Northern Trust’s Sunil Daswani, Director
for Securities Lending (Asia) and also the
current chairman of the Pan-Asian Securities
Lending Association, remains consistently
bullish about the prospects for securities
lending in the region. We are seeing more
corporate actions and other events in local
markets that create demand for securities
lending,” he says, casting a forensic eye over
the bigger picture. “A
common theme in
Asia is that its mar-
kets are in a boom
cycle, which is help-
ing to create arbi-
trage opportunities.
“Putting on my Northern Trust hat for a
moment, one thing that has changed is that
clients are actively asking why we can’t lend
in certain markets, whereas in the past we
would have to convince them of the benefits
of lending. People are lending who didn’t
lend before.”
There is still a lot of work to do, though, he
cautions. “We can present the perfect model,
but you can’t expect markets to change
overnight. We are unlikely to see a securities
lending model adopted in countries like
Pakistan and Vietnam any time soon, but the
Philippines has just passed rules that could
enable securities lending there, onshore and
offshore, while India and Taiwan are working
hard to establish international standard mar-
kets. As they progress, they will attract more
international investment, which means there
will be a greater supply of assets and new
opportunities. This will help growth in Asia.
Malaysia will launch a model in early 2007,
allowing the local borrowing of local assets. It
remains very restricted, but we are pleased it’s
moving in the right direction, and we retain a
hope that it will open up to international
players. In Korea, PASLA estimates that
there could be USD50bn-100bn of lend-
able assets, of which 20% could be out on
loan in any one day,”he concludes. ISJ

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Predictions 2007
FUTURE PERFECT
Industry experts comment on their predictions
for the securities services landscape in 2007.
ASSET MANAGEMENT
After the market turmoil late in the first half
of this year, when an abrupt (but temporary)
tightening of liquidity caused a pronounced
sell-off, the principal global equity indices have
undergone a recovery. The Dow Jones has bro-
ken above the key 12,000 point level, which is a
comfort zone for investors, for the first time,
while the FTSE 100 has reached its highest
level for more than five years, buoyed by a con-
tinued rise in corporate earnings, falling oil
prices, receding concerns about inflation and
the prospect of a liquidity-enhancing reduction
of US interest rates during 2007.
Given that equities remain broadly underval-
ued in historical terms, next year could see a
continued rise in traditional indices. However,
a number of factors may arrest, or even
reverse, the recent rally. Key risks include:
- North Korea: October saw the regime of
reclusive North Korean President Kim Jong
Il reportedly test a nuclear bomb.
Possession of a nuclear capability in such
unpredictable hands is a major threat.
- Middle East: Recent diplomacy has seen
more constructive engagement with Iran,
which has been developing its own nuclear
capability, but risks remain of a fresh escala-
tion of tensions, at a time when neighbour-
SECURITIES LENDING
2006 was another great year for securities
lending market participants. In some respects
it could aptly be named “the year of the divi-
dend” as many corporations within developed
economies realized average yield increases as
high as 30%. Lenders and borrowers alike ben-
efited tremendously from this increase in cor-
porate dividend payouts while they also
enjoyed a steady rise in asset valuations.
Hedge Fund and proprietary trading growth
continued to rise globally as well, along with
the amount of short selling activity. New trad-
ing structures developed and the cash markets
offered stability. As a result, loan balances
were up across all asset classes as providers
attempted to satisfy the seemingly insatiable
demand of these borrowing entities.
It was a very informative year for the
beneficial owners of securities. Lenders
became much more involved with their
securities lending programs and much more
50 INVESTOR SERVICES JOURNAL
ing Iraq edges closer to outright civil war.
- Yield Curves: The US, UK and Euro-zone
yield curves are all either inverted, or are
close to inversion, raising the possibility
of looming recessions.
If traditional equity indices do return to a
more lacklustre trend over the next year, then
we can expect investors to look elsewhere,
which should accelerate the market presence of
enhanced exchange traded funds (ETFs). ETFs,
in the form of tradable indices, have been oper-
ating in developed markets for several years.
Fund managers find them particularly useful, as
buying or selling an ETF, which often involves
exposure to a broad range of sectors, offers a
much more convenient and effective means of
day-to-day portfolio management than continu-
ally trimming or increasing exposure to individ-
ual stock (or underlying fund) holdings.
Enhanced ETFs, meanwhile, are a more
advanced proposition, in that they move beyond
traditional indices. Rather than selecting stocks
on the basis of market capitalisation, they drill
down to quantitatively assess
parameters including growth, value, profitability
and cash flow.
The development of enhanced ETFs comes in
response to the returns of traditional indices in
knowledgeable about the market as a
whole.They used the various research tools
that exist to help quantify expected and real-
ized returns and challenged their providers to
increase their service levels. They recognized
that they have options and that they can safely
extract maximum value from their portfolios
without adding incremental risk. Many of
these Lenders introduced competition, expand-
ed their collateral profile and utilized various
routes to market. As a result it was a record
earnings year for many participants.
Emerging markets continued to pique the
interest of many providers who sought new
spread opportunities and an early mover
advantage. Many believe that this will be a key
asset class next year and that it will continue to
gain favor, particularly in the light of global tax
harmonization. It is no surprise that Asia,
Latin America and Eastern Europe are under a
spotlight and are being aggressively
recent years, which have often been well below
expectations, as well as concerns about the cost
of actively-managed funds. Enhanced ETFs are
computer driven, using algorithms to evaluate
company data in order to select a portfolio.
They do not, therefore, require the expense of
analytical input by humans (at least, not beyond
the initial development of the programme’s
quantitative filters), but their focus on sourcing
stocks on the basis of fundamentals offers the
prospect of higher returns than traditional
indices and basic ETFs. They also avoid the
emotional drawbacks of fund manager-driven
stock selection ( the twin evils: greed and fear).
Enhanced ETFs represent a cost-effective and
coherent proposition. The pace of uptake of
these products over the short term is partly
dependent upon the performance of traditional
equity indices. However, over the medium to
long term, their superior attributes should
mean they come increasingly to the fore, espe-
cially in a context where a number of products
already launched in this arena have been per-
forming well. London & Capital sees enhanced
ETFs as a major growth area for 2007.
Ashok Shah, Chief Investment Officer,
London & Capital
lobbied to develop Securities Borrowing
and Lending facilitation.
It is difficult to predict what 2007 will bring
the securities lending industry. It is highly
unlikely that dividend yields will increase at the
same percentage as they did this past year. It is
equally unlikely that Lenders and providers will
continue to enjoy all of their more profitable
yield enhancement markets. That said the old
cliché’ of when one door closes, expect another
to open should be entirely relevant. Lending
and borrowing activity will undoubtedly contin-
ue to grow at a healthy pace. The market and
its’ participants will also continue to evolve
towards a true investment management disci-
pline. The days of viewing securities lending
as nothing more than an expense offset are
gone.
Christopher Poikonen, Managing Director,
Auctions & Trading, eSecLending

TECHNOLOGY
The industry has been talking of ‘regulatory
fatigue’ in the last few years. As a result of the
EU Clearing & Settlements Directive and the
Markets in Financial Instruments Directive
(MiFID) being two major pieces of legislation
now in the implementation phase, implementa-
tion fatigue may be a buzz-word for 2007.
Regulatory implementation necessarily means
improvement of systems and processes, which
presents huge challenges. In the case of MiFID,
with confusion as to scope and the gradual def-
initions leading to piecemeal interpretation, the
challenges (and costs) of responding to regula-
tor enforcement in 2007 are likely to be consid-
erable. Data management, security and flows
between asset managers and their agents are
critical areas of technology development and
competition. Back office systems to handle
MIFID are still yet to be fully defined and
developed, which is cause for concern consider-
ing that this is work which will need to be com-
pleted next year.
At the exchange level, recent headlines have
signalled significant developments in trading
platforms. Due to increasing market pressure
for exchange consolidation, combined with
demands for better competition in trading plat-
forms (underlined by the Euroclear single plat-
form project), clearing and settlement tech-
nologies (and their attendant reporting sys-
tems) will need to become ever more flexible in
response to higher volumes of business, larger
exchanges and multiple trading platforms.
CUSTODY
Our clients themselves are changing, and the
consolidation of our industry echoes the consoli-
dation process that many of them are going
through; as they evolve, they demand more and
more integrated services and want a single
provider to deliver them, and the value chain is
changing to meet client needs. The growth of
investment in alternative assets such as hedge
funds, funds of hedge funds, private equity and
real estate demands that service providers devel-
op the ability to service these products. Any cus-
todian which doesn’t evolve accordingly will
quickly find itself going backwards relative to the
competition.
The increasing complexity of products being
invested in by fund managers also presents
new challenges, and the industry must adapt
to meet those challenges successfully. The abil-
ity to provide independent valuations of OTC
products, whether for the sell-side or the buy-
side, is becoming essential. Looking further
beyond 2007 into the medium- and longer-
term, we expect the trend for investment oper-
ations to be outsourced will spread from the
UK and into Continental Europe. It is important
These technologies will be drawing heavily on
sophisticated algorithmic innovation and the
demands for increased flexibility in how and
where trades are settled.
Corporate Actions processes have been the
subject of much brow-beating in recent years, in
response to the need to eliminate the paper
processes for which this field is notorious. The
quest for seamless straight-through processing
of data from exchange (or even issuer) to back
office systems integrated into front-end analysis
and third party service providers continues. Key
to this is an agreed taxonomy to facilitate auto-
matic interpretation of information within and
between counterparties and their various pro-
cessing systems.
Related to Corporate Actions is development
in company law across Europe, which will
improve automated communications between
issuers and investors. We hope to see better
facilitation of improvements to terminology and
process, creating maximum potential for the
implementation of market-leading technology
solutions already developed: straight-through
electronic voting is still a long way off thanks to
legislative and artificial market barriers which
are now being challenged.
It is this kind of elective corporate action
which could be much improved by automated
processes, not least with increasing demands
for transparency and reporting (as in so
many areas) placing heavy burdens on creaking
manual processes.
for providers to build or acquire the necessary
expertise now, to be ready for when it happens.
Our feeling is that mid-2006 will in hindsight
come to be seen as a turning point in the indus-
try’s history, for three main reasons related to
custody though not restricted to it. The first is
the decision of the Commission to implement a
code of conduct imposing concrete objectives on
post-trade infrastructures that must be reached
by the end of 2007 (concerning transparency of
prices, open access, separation of silos). The
question of whether or not a directive is neces-
sary has seen a great deal of discussion within
the industry over the past two years, but has now
been resolved.
The second is MiFID, the European Union’s
long-awaited Market in Financial Instruments
Directive. After one false start, November
2007 has been set as the date for full imple-
mentation and the authorities have made it
clear that financial institutions must be ready.
There will be no postponement to allow strag-
glers to catch up. MiFID will undoubtedly have
implications for some service providers.
Brokerage firms will face particularly strong
Predictions 2007
Improvements to the SWIFT message sets
will achieve much in the harmonization and
sophistication of inter-counterparty communi-
cations. Due to the extensive consultation and
testing that has taken place, this project is also
set to be a key driver for technological improve-
ment next year.
A most interesting issue is the strategic
aspect of “open source” developments. The
advantages of this are numerous, but chiefly it
enables universal sharing of information for the
benefit of the entire industry. Moreover,
regulators such as the FSA are now recognizing
that industry codes can have an
anti-competitive effect.
Highlighted as ‘one to watch’ is the develop-
ment in XBRL – eXtensible Business Reporting
Language. XBRL has the potential to greatly
smooth the way for the automatic processing of
data which hitherto has been subject to
manual processes. Although it is not a single
project, and doesn’t necessarily have a
definitive target date, it is a piece of work which
will progressively generate results in
dismantling some of the barriers which
currently exist in the world of business and
financial data processing.
With so many regulatory challenges, develop-
ments and conundrums which need solutions,
2007 should prove to be a hectic year!
Paul Hewitt, Business Development Manager,
Europe, Manifest.
pressure on internal compliance with the
requirements of the directive, and the cost of
compliance could lead such players to exit the
market. Service providers heavily involved in
servicing broker/dealers will face a long period
of uncertainty in the forthcoming months and
may be forced to revisit their business model
dramatically. Interestingly, a MiFID-readiness
survey recently conducted in the financial serv-
ices industry by SunGard (a provider of soft-
ware and processing solutions for financial
services), and TradeTech (a conferences and
research firm) shows that 65% of firms either
have no overall plan or are yet to fully identify
MiFID-related budgets.
The third is the Target 2 Securities project
announced at the beginning of July by the
European Central Bank aimed at creating a sin-
gle platform for settlement services for securities
transactions in central bank money. We have
long thought it vital that the European
Commission and the European Parliament con-
tinue to play a driving role in this respect, and as
Target 2 Securities is supported by the European
Commission, the long-running battle between
INVESTOR SERVICES JOURNAL 51
Predictions 2007 (cont.)
CUSTODY CONT.
proponents of an integrated system and defenders of the interface
model would appear to have at last come to an end. The devil,
though, as the saying goes, is in the detail and we await the details
with great interest.
Alain Closier, Global Head of Societe Generale Securities
Services (SGSS).
TECHNOLOGY
With the release of Windows Vista operating system, we will see a
movement away from traditional web-based applications and toward
thin-client applications based upon newer “smart client” technolo-
gies. Companies will begin porting older browser-based applications
to the smart client media in search of the richer user functionality
available on desktop platforms – a historic weakness of browser-
based applications. The smart client technologies will also encour-
age companies and vendors to leverage the new media by porting
older Win32 applications to the newer platform where they can main-
tain their advantage of rich user functionality while gaining the
appeal of thin-client deployment. This is of crucial importance since
many proprietors of Win32 systems have been thwarted in their
attempts to modernize their systems by the loss of a rich user expe-
rience imposed by moves to browser-based application platforms.
On the system integration front, we will see best of breed system
vendors with their deep functionality further widening the gap
between single-system vendors who opt for broad functional cover-
age at the expense of depth. This will be fueled by the continuing
move away from tightly coupled straight-through-processing applica-
tions and toward the loose coupling of the same applications based
upon the growth of web services and XML messaging interfaces
among key vendors. As the financial services industry adopts well-
defined XML schema like XBRL, system vendors will adopt those
schemas as de facto standards for system integration thus driving
down both the return-on-investment (ROI) and total-cost-of-owner-
ship (TCO) numbers to the gratification of CFO’s. However, while
the XML schema standards emerge, service oriented architecture
vendors will see continued growth in the need for their wares in the
face of interim message translation and correlation needs.
Finally, as the best-of-breed predominance continues to grow,
prospective clients interested in best-of-breed solutions but with rel-
atively low in-house IT proficiencies will look to best-of-breed ven-
dors to mitigate integration risk by offering to host complete STP
solutions. In fact, 2006 has seen an increase demand for just such
hosting deals. We will see an increase in strategic alliances between
best-of-breed vendors and resurgence in ASP solutions which will
use more current integration and hosting technologies. Hosted
applications will span the gamut from order management and per-
formance attribution in the front office to data reference manage-
ment, accounting, and reconciliation in the middle and back office.
Coupled with the growth of ASPs to meet these demand, the walls of
the ASP data centers will become increasingly transparent as XML
web services technologies enable ASP vendors to expose secure data
access points at the periphery of their data centers to clients. This
will offer ASP clients an unprecedented ability to create custom
reporting and analytical applications which span the breadth of their
businesses in the same way that self-hosting clients have done his-
torically. In short, the line between client-hosted turnkey applications
and vendor-hosted ASP applications will continue to blur as new
technologies render the integration media increasingly seamless.
Charlie Morris, Chief Technology Officer,
Princeton Financial Systems
52 INVESTOR SERVICES JOURNAL
Analyze this... Transfer Agency
Bill Hookings
WHAT ARE THE CURRENT CHALLENGES WITHIN THE
TRANSFER AGENCY ARENA?
Bill Hookings, Head of Product Development (Rufus GTA),
Bravura Solutions
The pace of change in the Transfer Agency (TA) space shows no
signs of slowing; regulatory change, the need for increased efficiency
and an increasing focus on global distribution are driving the need
for sophisticated TA systems.
With the introduction of the UCITS III law, product offerings have
changed to allow trading of financial instruments not previously
allowed in the UCITS environment. This has impacted many TA
systems, and many of the new products have features which
traditionally have not been conducted on a TA platform.
Hedge funds have previously been administered using specialist
computer systems, however as the demand for these products grow
across mutual fund distribution channels, so does the need to
administer these products on scalable TA platforms connected to
electronic dealing and servicing channels.
While the implementation of the new MiFID directive has a
significant impact on financial servicing, the impact on TA appears
minimal, as the necessary information for client classification and
appropriateness are not necessarily available to fund administrators.
Increasing trading activity and pressure on Fund Promoters to
reduce costs have led to initiatives to increase STP efficiency. Within
the UK, deal placement via EMX has significantly increased STP rates
for many organisations. In Europe, many TA players have introduced
the ISO15022 messages to support this process and are engaged in
the introduction of the new ISO20022 messages to harmonise fund
order processing globally.
The introduction of the new message standards not only increase
the STP process, but allow for the automation of processes not previ-
ously available; such as account openings, cash flow reporting and
price reporting. While the acceptance and introduction of the new
message standards has been slow, market players agree on the
importance of moving forward. Each of these solutions requires sub-
stantial systems development and infrastructure investment.
The biggest challenge is for the TA Administrator to expand their
service offering from a single location to support global distribution
in multiple jurisdictions; this impacts technical infrastructure as well
as staff resourcing. A key success factor for distributors of cross bor-
der products into Asia is the ability to provide local servicing and
support in Asian time zones and speak Asian languages.
Distributors may appoint sub Transfer Agents within the
Asia region to achieve this, or have service centres with remote links
to the central Transfer Agent. The need for increasingly sophisticated
computer systems, connected to an array of external services, and an
understanding of the regulations and market practices of the major
financial centres across the world cannot be refuted. For all but the
very largest players, the only way to achieve this is to partner with an
international specialist software provider.

Etienne Carmon
HOW IS THE TRANSFER AGENCY BUSINESS MODEL
BEING SHAPED BY THE EUROPEAN MARKETPLACE?
Etienne Carmon, Senior Marketing & Development Manager
Europe, CACEIS
As cross-border fund distribution gathers pace largely due to
open borders and open architecture, fund companies and transfer
agents, face a strategic decision: should they centralise their
business or develop a local presence where they operate? The
decision is driven by two principal factors: Service and Profitability.
A high level of service is key, but can impact profitability and if
profitability is the main focus then service suffers.
The benefits of a local network are clear: proximity to the target
market permits a far better understanding of country-specific
factors that can be the root of many problems if not effectively
tackled. A local office, staffed by a team that speaks the
national language helps build strong relationships with the local
players in the industry.
A local presence also permits closer integration into the market,
as by attending meetings with local authorities and national
industry working groups transfer agents can gain a greater
understanding of local taxation and regu-latory constraints.
Finally, the local presence allows a deeper comprehension of
each market’s own transaction flows and cash and security
settlement processes which are in the early stages of
standardisation in Europe.
A centralised approach however offers significant advantages
too. The cost of setting up a local network in terms of office
space, staff and the IT infrastructures can be daunting. The
centralised approach reduces costs, but also risk. For example,
a decentralised client account and static data infrastructure can
lead to data becoming desynchronised leading to errors and
increased risk.
A local presence is therefore crucial yet costly, however these
costs can be minimised whilst retaining the benefits that a local
presence offers. Staff numbers (and conseq-
uently office space requirements) can be significantly reduced
by centralising certain departments at a head office. Compliance
and risk management, tax and legal, sales and CRM, IT
development and project management can all be centralised,
increasing efficiency and reducing the cost burden.
Platforms for static data can also be centralised and systems
for processing, cash management and reporting can be shared
either between locations or with related business lines such as
fund administration.
An ideal business model for Transfer Agency therefore entails
both a local presence and a degree of centralisation for certain
parts of the business. This structure makes it possible to deliver
excellent service and whilst ensuring suitable profitability.
Analyze this... Transfer Agency
Christophe Lentschat
WHAT ARE THE LATEST DEVELOPMENTS IN FUND
DISTRIBUTION AND WHAT IMPACT DO THEY HAVE ON
TRANSFER AGENCY SERVICES?
Christophe Lentschat, Head of Sales, Product Development and
Marketing, European Fund Administration SA
The growing importance of professional buyers has certainly
been the most spectacular trend in the European fund distribution
landscape over recent years. Investment Funds are increasingly
used as building blocks in a wide array of wrapper products
including pension schemes, unit linked products, funds of funds,
structured notes and private banking products. According to a
Cerulli Survey, Professional buyers, distributors and assemblers
that use manager selection techniques to choose best in breed 3rd
party managers, account for over half the accumulated business of
cross border fund manufacturers. The aggregation power makes
the professional buyer a very interesting but volatile client for the
fund manufacturer. At the same time, professional buyers are
much more volatile and performance driven, putting pressure on
the manufacturers
The growing importance of professional buyers leads to the
emergence of a third register type in addition to the traditional
retail and the institutional closed architecture. The new type of
register is characterized by service requirements that are not as
straightforward as those of a traditional closed architecture
environment. As for retail funds using third party distribution
channels, trailer fees are an extremely important feature and the
TA has to be capable of processing highly customized fee sched-
ules. By definition, trailer fees are not important in traditional
institutional funds.
On the reporting side, both the fund managers and the manufac-
turers require advanced pre NAV and even pre-allotment informa-
tion.Transactions are sizeable because of the aggregated purchase
power of the assembler clients and the asset manager requires
advance warning to adjust portfolios. The manufacturer wishes to
follow his important professional clients very closely and therefore
needs to be informed of announced movements as soon as possi-
ble. In terms of web access and call center capabilities the function-
al requirements of the new category lie between the retail and tradi-
tional institutional registers. Web access may be required to simplify
and speed up reporting but will not be used by the end investor as
the end investor products need to be repackaged first. On the other
hand, connectivity is of high importance compared to the other cat-
egories of registers which do not operate in an open architecture
context. Again, because the investor is a professional assembler,
language is not as important as in the retail registers, where fulfil-
ment has to be processed in the end investors language.
Finally, whereas retail registers require a performing
automatic reconciliation tool in order to be efficient and ensure
quality in a high volume environment, the profess-
ional buyer requires the TA to accommodate flexible and
diverse settlement requirements.
INVESTOR SERVICES JOURNAL 53
Analyze this... Transfer Agency
Alec Hoffman
HOW IS THE TREND TOWARDS PLATFORM-BASED
DISTRIBUTION OF FUNDS AFFECTING TRANSFER AGENTS?
Alec Hoffman - Associate Director, heading the retail fund services
practice, Etheios
Transfer agency, the function that services individual investors’
holdings in retail funds, is seeing a reduction in the number of
accounts serviced, despite funds under administration increasing.
This is driven by a move away from direct investor accounts to
omnibus accounts held in the name of distributors (fund super-
markets, wealth managers, large IFAs and more recently wrap
platforms).
The number of transactions is also decreasing as distributors
aggregate orders before placing with transfer agents (TAs). Finally,
part of the requirement for TAs to provide the retail point of con-
tact (e.g. via call centres and postal correspondence) is also mov-
ing to platform providers, who provide a largely internet-based
investor servicing model.
How does this affect TA service providers? The reduction in
accounts and transaction volume coupled with the loss of direct
investor servicing hits profitability because service fees tend to be
based on these activities. Reductions in fees and profitability could
lead to consolidation in the industry as TA operations strive for
economies of scale.
It could also lead to new business models. When fund super-
markets appeared, TA service providers introduced aggregation
engines to support them. With more sophisticated platforms such
as wraps arriving, TA service providers are broadening their propo-
sition (to maintain revenue) by developing outsourced administra-
tion services for platforms, or providing services for other prod-
ucts such as wealth management or life and pensions. In other
words, traditional TA service providers are evolving into broader
distribution service providers based on different models.
The viability of platforms will be achieved through economies
of scale. Distribution service providers must deliver value to their
clients using efficient, scalable systems handling broader product
ranges. Efficiency is gained through comprehensive
interfacing with product manufacturers using straight through
processing (STP).
However, many service providers have legacy systems that are
TA-centric and heavily customised and to adapt these systems for
new product types and provide aggregation capabilities and the
additional STP required in open architecture environments may
prove expensive.
Therefore, service providers are implementing third-party sys-
tems to cater for other product types and interfacing these to their
core investor record-keeping systems.
Will this approach enable existing service providers to remain
competitive? Maybe, but the time could be right
for a new breed of “super service provider” who can
leverage newer technology to deliver value across a much wider
range of products.
54 INVESTOR SERVICES JOURNAL
Scott McLaren
WHAT ARE THE POTENTIAL OPPORTUNITIES FOR MOVING
TRANSER AGENCY SERVICES TO THE ASIA PACIFIC REGION?
Scott McLaren - Managing Director, RBC Dexia Investor Services,
Hong Kong
‘Global Distribution’ is one of the increasingly popular topics in the
funds industry today – some countries which have traditionally
offered domestic only funds are starting to open up to offshore
funds. Asia is a good example, where Luxembourg and Irish funds
are the norm in Hong Kong. International fund managers are
increasingly bringing their offshore products into Singapore and
the Taiwan legislation has opened up of late to the Luxembourg
domiciled funds.
Luxembourg SICAVs (Société d'investissement à capital variable)
are today sold to investors in more than 100 countries.
Consequently, one of the pressing issues facing transfer agents is
how to support the growing foreign distribution channels.
If you consider particular examples, such as European funds sold
in Europe, then time zone does not enter into the equation.
Language, however, does. In Luxembourg, most European
languages are spoken, helping to make client servicing fairly
straightforward.
However, if we look at the increasing growth of distribution chan-
nels in Asia for European administered funds, more complexities
arise, such as time zone differences, potential language challenges
and even differences in the investing cultures. Given these chal-
lenges, it might make sense to consider moving some support func-
tions to Asian in such an example. There are a number of potential
benefits for moving support to the distribution channel. In this sce-
nario, the distributors would be able to speak to a local servicing
team in the local language and in the same time zone - a distinct
advantage over waiting several hours for someone to acknowledge
receipt of the transaction. Transfer Agency relies heavily on
technology and increasing cross border distribution drives
the need for investment in robust systems that are able to
handle local specifics, whether with language, tax or custom
interfaces and reporting.
One of the key drivers in transfer agency today is the need for a
single platform. The convenience of having consolidated client data
allows you to offer a single client view across multiple jurisdictions
(e.g. via a transactional web site that can offer consolidated client
statements). A single platform also makes fee calculations, report-
ing and interfaces easier and more efficient.
The rate at which transfer agency is becoming global is positive
news, since it drives initiatives such as automation into less mature
markets at a faster pace. An ideal example is the automation we see
in the United States and Canada compared with the more manual
nature of the business in Asia. Global influence is causing a push
for automation in Asia and we are seeing some positive responses
to initiatives such as SWIFTnet Funds, which uses XML standards.
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Proxy Voting
Will the world soon be
dancing to the tune of
Electronc Proxy Voting?
Giles Turner reports.
Due to the rapid increase in electronic
communication efficiency in countries
such as the UK, the possibility for elec-
tronic proxy voting as a viable and supe-
rior alternative over traditional methods
has increased significantly. A major factor
that often drives development is cost effi-
ciency. If you are an outfit like Coca-Cola
with approximately 2 million sharehold-
ers, the need to need to distribute meet-
ing notifications and follow-ups rapidly
increases costs. A multinational compa-
nies report can often run up 80 pages,
and along with postage cost the costs to
the company for something that can be
sent over the Internet for next to nothing
is put into perspective.
In the US it is estimated that the aver-
age cost to vote online is around USD0.03
per shareholder, whilst the postage costs
involved through the traditional methods
costs around USD0.37. Whilst this may
not seem like much when taken individu-
ally, when you are dealing with
two million shareholders the
company can save around
The director only has to recieve
USD680,000. It is hardly surpris- one ‘yes’ vote, and they’re in.
ing on this account that the pop-
ularity of electronic proxy voting has
increased. In the UK in the six months to
30 June 2005, 42% of the FTSE 100’s
issued share capital was voted by elec-
tronic means, up from 22% in 2004.
Why make the change from traditional to
electronic proxy voting methods? In an
age of increased transparency and the
need for security, electronic methods
seems to solve many of these issues.
Steven Robertson of CRESTCo explains,
“An electronic voting template was agreed
56 INVESTOR SERVICES JOURNAL
Proxy
Music
with the Institute of Chartered Secretaries
and the main service registrars in the UK.
The result is a secure system supplement-
ed by an automated time stamp and audit
trail, which reduces significantly the risk
of votes not arriving in time at the right
place because there is clear evidence that
the vote has been sent. If securities hold-
ers complete a paper ballot, they would
then rely on the postal service to deliver it
manually, without an acknowledgement
of delivery.” Doing a quick survey of the
ISJ office, I found that everyone would
prefer to have their ballot form sent elec-
tronically rather than through the post.
Seeing as around one million letters or
parcels are ‘misplaced’ every year, it is
hardly surprising that electronic methods
are seen as a more secure alternative, even
with the recent press coverage of cyber-
fraud. Mr. Robertson continues,
“Electronic voting instructions are
encrypted as well, so there is a high level
of security. From the point of view of
deadlines, we are working to the same
deadlines as the physical proxy card, but
since clients are able to vote in real time
electronically, they can send their votes
that much later.”
In the UK there is total transparency
regarding confidentiality because the
company can ultimately identify the voter
through a 212 notice. In the U.S. there is
less transparency. Shareholders can be
split into two rather tribal sounding
groups; Objecting Beneficial Owners and
Non-Objecting Beneficial Owners (OBOs
and NOBO’s). If you are an OBO, no
details of the shareholders can be sent to
the issuer. However the need for trans-
parency, especially in the U.S means that
this situation will not last forever, and
changes are afoot.
There is a similar situation in Europe as
Rinnooy Kan of Evboxx explains, “the
issue in Holland is that for many compa-
nies is that they do not know who their
shareholders are. This is not the same as
in UK, within the registrar you have the
nominee accounts and they assemble col-
lective positions on the ultimate share-
holder. If you don’t know who your
shareholders are in the area there a num-
ber of reasons why companies will take
an increased interest in finding the share-
holders in order to communicate with
them; for example when the rights of the
shareholders have been increased by
those rights actually exercised.
A serious issue regarding proxy voting
in the U.S is the ability of shareholders to
get access to a vote that would allow them
to say ‘no’ when electing a member of the
board. Glen Good, Director, Europe &
Asia, ADP Investor Communication
Services, “The mechanics of voting in the
U.S is way ahead of anybody else, it’s
some of the rules surrounding voting that
many are questioning. When you are vot-
ing a director onto the board, you can’t
vote ‘no’. So the director only has to
receive one yes vote, and he’s in. So there
has to be more accountability within the
US and this is something that they are
looking to change.” This Securities and
Exchange rule, known as 14a.8, is being
challenged by sixteen public and corpo-
rate pension fund manages from both
sides of the pond, from the UK’s
Association of British Insurers
to the Ontario Teachers
Pension Plan. All have
demanded change. However
the most noticeable aspect is
not the demands for regulation change,
this has been happening for as long as
there has been regulation, but the fact
that some of the pressure for change has
come from more than one jurisdiction.
Because nearly all companies are global
entities, shareholders are located from
across the globe, yet shareholder regula-
tion is only controlled by one party, be it
the FSA or the SEC or the various EU
regulators. Companies are very rarely
100% domestically owned and dialogue
 The Global Vote
Processing Solution
has to be good if the foreign shareholders are going to be willing
to continue their investment. The U.S might be afraid of destabi-
lizing the company with increased power going to the sharehold-
ers but in the UK many have found increased communication has
helped the balance between the boardroom and the shareholders.
Another case that is slightly more sensitive is the issue of the ten-
day broker rule. The NYSE rule allows member firms to vote in
favour of the management ten days or less before the meeting, pro-
vided that the member firm mailed proxy material to beneficial
There is also a green tinge
to voting electronically.
owners at least 15 business days before the meeting. The point of
the rule is to allow many shares to be voted that would not neces-
sarily have received. However does this not defeat the point of vot-
ing itself? A vote is the right to indicate a choice in an election.
Even if you don’t vote all, this is still an indication of choice. If the
broker is allowed to vote for you, to say that the broker is voting on
your own behalf is something of a misnomer, the broker may be
voting for their interests, not yours; where is the right of choice Complete outsource solution
here? The broker can vote on the clients’ behalf, but the broker
might vote due to their personal preference, not what the clients
might think. This leads to other issues such as ‘over voting’, the bro-
kers are not fully taking into account which of their clients has Web based convenience
already voted. So in effect some of their clients may be double vot-
ing and as a result there have been some quite hefty fines handed
out over the past few months, up to one million dollars which has All electronic investor tools
been put down to lack of control. Perhaps if the platform becomes
electronic, because you will be able to vote right up to the deadline
date, and not worry about mailing off your ballot form when a few
clicks of the mouse will do, shareholders will be able to keep an eye
Multi-custodial product
on their brokers.
There is also a green tinge to voting electronically. Every time a
large company prints out all the relevant information for its share- Comprehensive reporting
holders annual meeting, another forest is wiped out. Mr Good
informs that “In addition to the green effect, US issuers delivering
meeting notifications and associated documents , and accepting Over 90 active markets
proxy vote responses electronically, saved an estimated $101 mil-
lion in postage and document printing costs during their 2006
proxy season, up from just under $92 million saved during the
same period in 2005” Not only can issuers save a considerable Over 2600 institutional investors
amount through a quite simple electronic alternative, but they can
also increase their brand awareness through positive ‘green’ actions.
We are seeing the swift transition form traditional proxy voting Global client service
method to an entirely electronic method. However will the next
transition be the move away from a proxy altogether, into straight
through voting directly to the meeting itself? For Mr Kan “this
seems unlikely. For example, there is a need for discretionary prox-
ies. “Live” electronic voting at the AGM cannot be a substitute for a
shareholder that wishes to empower someone else to vote on his
behalf without prior instructions.” Mr Good agrees, “There are a
number of different ways of voting today in the UK. You can either
attend the meeting, mail your proxy card in, or you can vote elec-
tronically through Crest. Regarding the first two methods, you can
appoint a proxy to vote on your behalf, but if you are voting elec-
tronically you are transmitting votes to someone at the other end
and the dependency on them to cast these votes at the meeting
remains. To my mind that equates to a form of proxy appoint-
ment.” Regarding voting effectively, it seems that it will always take
three to tango. ISJ

www.ics.adp.com
adpinfo@adp.com
Reference Data Management

Fee-Fi-Fo-Fima
One of the striking factors of the FIMA conferences
was the array of titles on display, from Chief Data Officer
to Global Head of Reference Data to the Imperial
majesty of Data Tsar. Srikant Sharma of Interwoven
explains that since the turn of the millennium more or
less Data Management Officers have been rising up the
ranks; “there are two factors for this rise, one is the
explosion and the complexity of products within the
financial market place. The second is that there is a much
higher degree of globalisation now, and what we are see-
ing is that there is a lot of complexity coming in from the
fact that you have multi-currency trades happening, that
you have a lot of funding coming from different pools of
capital globally; for instance HSBC has operations in
New York in Tokyo in Hong Kong in London so there is a
real need to manage data as a core asset of an enterprise.”
Compare this to ten years ago when data was managed
much more loosely. A Chief Information Officer would
be in charge of the company’s data, a somewhat hefty
task for one man. Now you have a whole team dealing
with data management, a Chief Information Officer, a
Chief Data Officer and a Chief Risk Officer, a veritable
army of acronyms who are coordinating this new wealth
of data information knowledge. Kevin Bradshaw, Global
head of Enterprise Information, Reuters, certainly agrees
that Data Management is higher on the agenda. “I think
the Data Management role is one that is being increas-
ingly seen as important and more significantly its remit
is starting to become enterprise wide which is perhaps
the biggest change. People have operated very much in
their own silos and there is a recognition that you need
someone with an enterprise viewpoint to be able to tie all
those silos together and get data management to work
effectively across an organization.”
Now that data management officers have climbed up
the greasy pole they are having to compete with the men-
tality that exists at the top of these financial institutions

“The financial industry is

defiantly short term.”
where short term gain is key. Mike Atkin, Managing
Director of the EDM Council, and a keynote speaker at
this year’s conference describes this phenomenon. “The
financial industry is short term orientated by design,
that’s how they evaluate companies and investment
Giles Turner strategies and that is how they are cultured to operate, as
a fast paced, Type-A personality within the industry.
takes cocktails However the problem of data management is not one
you can solve in a quarter, you have to have some
with some key patience. Unfortunately this has not been the financial
speakers at this years industry’s forte. They expect an immediate result because
these guys are all ‘make it happen, get it done, get in the
FIMA conference. game, make some money, take a risk! The other side of

58 INVESTOR SERVICES JOURNAL

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 Reference Data Management
that is long term change is risky and
potentially career risky. If you are trying
to sell something that doesn’t have an
immediate ROI within an organisation
that evaluates performance via a quarter-
ly balance sheet, you are taking a risk.
Financial information professionals are
cautious about absorbing a long-term
risk in an environment with a short-term
orientation. Overcoming the ‘curse of the
short view’ is one of the core challenges
for EDM success.”
Mr Bradshaw continues “In terms of a
time dimension a lot of the data manage-
ment projects are very long term initia-
tives. I think the challenge is that if you
look two or three years ago there was a
real focus on
looking for the “Data is worth nothing unless you have a trusted and
return on invest-
ment for any attributed sources underpinning each data item.”
given project.
As the issue around effective data man-
agement started to surface people recog-
nised it as a problem and realised it was
driving operational inefficiency and high
costs. Institutions realised that trying to
achieve the nirvana of one single source
of reference data driving all applications
and all process across the company was
just too big and long term a project to get
to, so people focused on short term proj-
ects that would take them one step along
they way. The ROI was looked at for each
of those short term steps and this is still
in vogue, people are asking what is the
return on incremental investment here to
try and move towards the point where all
data is managed across the firm.”
Yet changes may be afoot in the indus-
try regarding the pressures of the quar-
terly model as Mr Sharma explains; “We
are seeing a lot of strategic focus on man-
aging data, some of the largest customers
come and tell us that we are looking at a
more strategic model, looking at 2007, 18
months ahead. The fact of the matter is
none of these problems can be solved in a
matter of three months so we are looking
at more strategic 12 to 18 month cycles.
For example, a major new initiative is our
peer-to-peer (P2P) infrastructure. This
connectivity strategy represents a para-
digm shift to the Data Management space
in the capital markets which obviously
took Interwoven well over a quarter to
focus on. Certainly there are some MBO’s
(Manage by Objective rewards) and per-
formance metrics that have to be exam-
60 INVESTOR SERVICES JOURNAL
ined on a quarterly basis but we do see a
big push towards longer cycles. Every offi-
cer does have quarterly goals, there is no
escaping that in any business, but this
does not need to eradicate any form of
strategic focus.”
The difficulties discussed at FIMA
encompassed a wide and interesting spec-
trum, for example there are various con-
straints why the market has not evolved
towards straight through processing in
the middle and back office. Firstly, every-
one is constrained by the notion that you
have to have an existing or evolving mar-
ket standard for data market communica-
tion which is something of a limiting fac-
tor. The other is what Mr Sharma called
the three P’s of the market place “The
Products, the Participants and the
Processes. These are increasingly intricate
and the regulatory agencies simply can’t
cope with this increasing rate of complex-
ity. So as a result we almost have to have
individual global players such as
Goldman Sachs and Citigroup and UBS
and Credit Suisse and HSBC, these kinds
of players have to take the lead in trying
to solve their own problems and eventu-
ally coalesce towards a common de facto
standard.” What is most encouraging is
the change in topics at this years FIMA
conference. This change in focus high-
lights the progressive nature of Data
Management at this time, as Mr
Bradshaw explains, ‘the focus has shifted
from instrument data towards counter
party data. So whereas four years ago if
you came to FIMA or similar conferences
the agenda would have been geared
around straight through processing and
instrument data, today the focus has
shifted because a lot of the problems con-
cerning instrument data has been solved.
Instead counterparty data is now where
instrument data was four years ago in
that it is of increasing importance to
companies both from a regulatory per-
spective but also from a risk management
perspective.”
There are still many challenges ahead as
Mr Sharma explains, “if you ask any
derivatives professionals what are your
three biggest challenges in Data
Management in capital markets one of
them will definitely be that we have to
clean up the whole middle and back
office operations space, it is just complete
chaos, the manual processes and ineffi-
ciencies in communications within the
industry are becoming a serious drag on
the productivity.” Interwoven’s new P2P
system hopes to overcome such difficul-
ties.
Mr Bradshaw agrees with the area of
difficulty; “I think there is no doubt that
settlement in the back office is getting
harder because trading is increasingly
cross asset, and there has been a step-
change in the mix of trading over the last
three years from cash instruments into
derivatives. If you look at the growth of
the CDS market for exam-
ple, this year the outstand-
ing CDS contracts are
something over $17 tril-
lion, the downstream pro-
cessing of CDS transactions is notorious-
ly difficult because of the lack of industry
wide reference data associated with those
transactions. CDS deals are largely
bespoke deals between just a couple of
counterparties so it’s not the same as
trading a cash bond where you can look
up the terms and conditions easily. The
bespoke nature of CDS trading makes it a
challenging and complex.”
However when one set of challenges are
dealt with, another soon arises and it is
important that people in the industry
keep track of the changes. Mr Bradshaw
explains the possible pitfalls. “You hear a
lot of people worrying about counterpar-
ty data, and there is a push and a scram-
ble to ensure that the organisations have
the right counterparty data in place. It’s
not just the data that matters, there are a
number of other factors that are equally
important that are geared around satisfy-
ing the regulators by having trusted and
attributed sources underpinning each
data item. Data is worth nothing unless
you have a trusted and attributed source
behind it. So very often people worry
about the data, but they focus less on the
ability to integrate that data, and take a
rolled up view to their exposure of any
given legal entity, so the meta-data that
comes with the counterparty data is criti-
cal. This meta-data is linking instruments
to entities and linking entities to their
parents and subsidiaries, without this
meta-data the counterparty is fairly
worthless.” ISJ
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Meet The Future - National Australia Bank Group
NAB-ing
the Job
ISJ speaks to Jacqueline
Guichelaar of National
Australia Bank Group,
continuing the series of
‘Meet the future’ profiles.
Jacqueline Elizabeth Guichelaar was born in
Uruguay, South America. Her family emigrated
to Australia determined to provide a better
future for the children, but without detaching
themselves from their diverse cultural heritage.
Taking a break before studying law at Sydney
University, Ms. Guichelaar’s first job was at
Computer Sciences Corporation, Australia. She
immediately discovered her passion and affinity
for the IT industry and quickly immersed herself
professionally in the IT field.
Why did you choose your career initially?
I wanted to save money to buy a car so I
could drive to university. My dream was always
to be a lawyer. I got a great job on night shift as
a Tape Operator within the data centre in
Computer Sciences of Australia. Before I knew
it I was being promoted to a Trainee Computer
Operator – and the rest is history. Needless to
say that I did not study law – nevertheless, I
62 INVESTOR SERVICES JOURNAL
have learnt certain parts of law and policies to
support my career, in addition, I have spent
many days in lawyer’s offices negotiating deals.
So I think I still got what I wanted.
Describe your experience at previuos
employers / locations
I have experienced many different cultures,
different countries, different banks, different
businesses. I find it fascinating that organiza-
tions have such powerful cultures, I’m not sure
most people get that.
What do you enjoy most about your cuurrent
position at National Australia Bank?
Leading people through large scale change. I
get so much motivation knowing that, while
people resist and are adverse to change, I will
play a role in pushing them forward and that
they will come out of the process as different
individuals. Change is such a powerful process
and people always change – in my experience,
for the better when they embrace it.
Who are your mentors / role models?
A key mentor to me was Lee Ward, currently
the Vice President and General Manager of
UNISYS (Global Outsourcing and Infrastructure
Services). She inspired the beginning of my
journey in 1993 when I joined IBM. I remember
thinking ‘she is great, I want to be like her.’ She
always seemed to go above and beyond – she
spent time with the people, she listened, and
she encouraged individuals. On top of her sen-
ior role, she found the time to drive diversity
programs and many other initiatives, she also
spoke often of the importance of relationships.
I remember spending weeks of sleepless nights
trying to build the courage to ask her to be my
mentor. I still remember vividly the day I walked
up to her office door. She invited me in and
asked me to sit down. I proceeded to tell her
that I had been thinking about a speech she
had made in a recent event where she spoke
about the power of mentoring. I went on to tell
her that I would be grateful if we could form a
mentor/pupil relationship. She responded by
saying that she would be happy to, but that we
really needed to think it through in order to
guarantee we matched from a relationship and
type point of view. These types of relationships
have to start with feeling right. We then met
again and both agreed it could work between
us. And I guess the rest is history.
My belief is that the power in mentors is when
they can continue to inspire you throughout
your career. I am sure that is rare, and I am very
grateful for the privilege.
Where do you seee yourself in five years time?
I would love to run a country. I was born in
Uruguay where economic circumstances have
only worsened over the years. The country has
resources and potential but the leaders of the
country keep failing because they are not
thinking of the people. They need to invest in
the people of the country as they are the
future of it. Only then will they radically
change the history. I would love that challenge
one day.
We at ISJ work hard, we did hear you work
long hours too. What is your average working
day like?
High-pressure. Intense meetings. Focusing
on the organization, people and structures,
listening, calibrating, and connecting data
points. My days are mainly filled with talking
to people. I like to listen to people from all
levels of the bank. I believe this is important.
If you were given the opportunity to take a
sabbatical or year out what would you do?
I would love to spend a year in the United
Nations. I may not go back to work though!
If you weree named NAB employee of the year,
how and where would you celebrate?
The Seychelles. With my husband and my
close friends.
What are your long-term goals for the future?
The easier question is “what is not?” I don’t
want to look back at my life with any regrets.
Therefore, I make sure that I have a job that
I love (and that is leadership) and make sure I
spend enough time with my husband these
days – he keeps me sane - something has to!
My long-term goals for the future are to
spend more time with my family and friends.
In addition, I would love to get into profes-
sional dancing again – it is a passion of mine.
THE ISJ MINUTE
CD or MP3? CD
Books or Films? I do little of each
Cocktails or Wine? Wine
Theatre or Club? Theatre
Elvis or Johnny Cash? Elvis
Nightts In or Nights Out? Nights Out
Watching or Playing? Playing
ISJ or FT? ISJ!
JACQUELINE GUICHELAAR
TITLE: GENERAL MANAGER, TECHNOLOGY OPERATIONS
EMPLOYMENT: 1994 - 2000 VARIOUS MANAGERIAL ROLES, IBM
GLOBAL SERVICES. 2003 - 2006 CHIEF TECHNOLOGY OFFICER,
DEUTSCHE BANK AG,
JUNE 2006 TO PRESENT NATIONAL AUSTRALIA BANK GROUP

In true Orwellian style,
Keith Ford addresses the
issue of identity theft.
Giving Big
Brother the
Finger.
Seasons Greetings from contingency towers!
I say “Seasons Greetings” very much tongue
in cheek as we are still actually firmly in
November and yet the whole of London
seems to be in the Christmas Spirit already.
Certainly the parties are starting, and the
white sweaty faces of hung-over staff have
started to appear later and later through the
office door each morning.
The young blades in the office are very
excited at the two new young ladies in the
department. One drives a fast sports car
(very dangerously). The other is from
Holland. Everyone assumes that she will
have a relaxed Dutch personality and a free
spirited, swinging approach
to life... particularly at the
Christmas Party!
Is the fuss about roadside
They both arrived virtually fingerprint collection a red herring?
in tears this week as Roweena,
the Fast Driver, had been pulled over by the
police for speeding and had been breathal-
ysed. Apparently everyone caught speeding
is now routinely breathalysed. This does not
just happen during December. Mieka, her
Dutch counterpart, was threatened she may
have to provide a sample of her fingerprints
to the constabulary at the roadside, until
she produced her Dutch passport and
ID card.
We were surprised that the Dutch have
not yet trialed this roadside fingerprinting,
having discovered that they introduced their
ID cards to everyone over the age of 14 back
in 2005. Despite fining over 50,000 citizens
who could not or would not produce their
cards in the first 9 months, UK officers have
been denying the roadside fingerprinting
system was a "Big Brother" attempt to catch
motorists. They hope the device will save
massive amounts of police time and money
by allowing officers to identify suspects on
the roadside without having to take them to
the station.
The pilot scheme, codenamed Operation
Lantern, was launched in Luton by officers
targeting driving offences. The gadget
allows them to compare suspects' details
against the 6.6 million profiles on the
National Fingerprint Database, with results
back to the roadside within about two min-
utes. Luigi Guerriero, from Bedfordshire
Police, said: “We used it earlier this week
when a man stopped in Leeds was found to
be wanted in Leeds for other offences”.
Drivers must agree to the fingerprint test
before it is carried out. If they refuse they
could be made to go to a nearby police sta-
tion so their identity can be verified.
"Primarily, it is keeping officers on the
streets. In normal circumstances it would
have taken four or five hours to deal with
them. The Big Brother issue is this; if you're
not a person involved with the police you
have nothing to worry about." If the suspect
has no return on the database search, all
their details are immediately deleted from
the system, stressed Mr. Guerriero.
Are we sure that this is the case ? Do you
really have to be that cynical to believe that
the police, given this freedom to stop some-
one at will and ask for their fingerprints will
not be abused?
What about the much talked about intro-
duction of the National ID card? I am sure
Disaster Recovery Column
that most of us now have a photo ID card at
work that will allow us access to particular
areas of the building. What some of us
don’t know (especially the blond Dutch
contingent) is that in the office this month,
security have decided to cut down on tail-
gating, the practice of following someone
into a secure area without using your card
will cease. They have amended the access
system so that if you don’t swipe in, the sys-
tem won’t let you swipe out! This is fine
unless you follow an operator into a server
room late at night and he leaves without
seeing you or knowing you are there! Queue
sobbing employee setting off the building
alarm to be rescued by security.
There must have been times when you
have tried to use your card as official proof
of your identity, I have, both in banks to
prove my identity (usually Ok) and trying
to board cheap flight airlines when I have
forgotten my passport (no luck so far). We
are happy to carry these cards every day
now, why is that different to an ID card?
Well to quote from one source: “The major-
ity of sectoral (specific purpose) cards in
use in developed nations have the holders
name, sex, date of birth, and issuing coordi-
nates printed on the card itself. An expiry
date, and number is also embossed, along
with a space for a signature. A minority of
cards include a photograph, official cards
issued by police or Interior Ministries gen-
erally do include a photograph, and in
many cases, a fingerprint.” Is the fuss about
roadside fingerprint collection a red her-
ring? With the introduction of
the ID card our prints will be
available for anyone with
authority to read.
So, are these official docu-
ments safe? Back in August we had
Grunwald a German national who boned-
up on ICAO (International Civil Aviation
Organisation) documentation, bought an
ePassport reader and reading software, read
a passport (German, but other ePassports
would do the trick too), then cloned it.
Looking as far back as January 2006 we
had Dutch TV programme Nieuwslicht
(Newslight) claiming that the security of
the Dutch biometric passport has already
been cracked. The program reported the
passport was read remotely and then the
security cracked using flaws built into the
system, whereupon all of the biometric data
could be read. So, our Dutch staff shouldn’t
be too unhappy that they were stopped
that they were merely stopped at the side
of the road.
ISJ
INVESTOR SERVICES JOURNAL 63
Mandate Update Downdate

MANDATES AWARDED TABLE

2006
Month Winner Client Location Assignment Mandate Size

November AA Mellon Cambridgeshire UK Custody & Accounting GBP 1.2 bn

November Mellon Financial River & Mercan UK Custody & Depositary n/a
November Northern Trust OPF UK Custody Services USD 320 million
November BNPParibas RFGP France Fund Administration EUR 4.3 bn
October JPMorgan Teachers’ Ret USA Custody Services USD 8 bn
September State Street IKANO Lux Securities Services USD 3.8 bn
September AA Mellon Hoogovens Netherlands Custody & Accounting EUR 5 bn
September Citigroup Kiwibank New Zealand Securities Services n/a
September Northen Trust Abu Dhabi UAE Custody n/a
August AXA Rosenberg Nykredit US Equities USD 60 b
August AXA Rosenberg Nykredit US Equities USD 50 bn
August Statestreet Virgin Money UK Custody GBP 2.6 bn
August AA Mellon North YorkshirePF UK Custody & Accounting GBP 1 bn
August JPMorgan WSS Freddie Mac USA Transaction Processing USD 700bn
July AA Mellon North Yorkshire UK Custody & Accounting GBP 1 bn
June JPMorgan WSS Royal Mail UK Custody GBP 2.2bn
June AA Mellon Merchant Navy UK Custody & Accounting GBP 3.2bn

Wrapping it up for this year

Christmas is coming, and a few of us are getting fat…... on
the delectable winter mandates we have been feasting on.
As the year draws to a close, a few deals have set custodians a-dancing, a-leaping, and a-milking the last of 2006’s
mandates. Here are five of the deals ringing in the change…

Mellon Financial Corporation was awarded the full administration service mandate for River and Mercantile Asset
Management; a new long only investment management boutique, initially focussing on the development of its UK
equities division. The company is initially offering two funds; UK Equity High Alpha and UK Smaller Companies and
anticipates launching several additional funds over the course of 2007/08. Global custody and depositary services will
be provided through Mellon's joint venture by ABN AMRO Mellon Global Securities Services B.V. and fund accounting,
performance measurement, fund administration and transfer agency will be provided by Mellon's asset servicing divi-
sion.

Northern Trust has strengthened its Nordic stronghold, winning the mandate to provide custody services to the 2,090
million NOK (approximately USD320 million) Oslo Pensjonsforsikring’s (OPF) global fixed income portfolio.
The portfolio is managed by investment manager Rogge Global Partners and the fund is for employees working in the
Municipality of Oslo, Norway, or companies in which the Municipality has a majority ownership interest.

Christmas came early for JPMorgan Worldwide Securities Services this year. The Teachers’ Retirement System of
Oklahoma selected JPMorgan Worldwide Securities Services to provide custody–related services for its $8 bn asset
portfolio. JPMorgan will provide custody, fund accounting, securities lending, performance measurement and compli-
ance reporting services.

The firm also completed an asset restructuring for one of their mandates; the £1bn Lincolnshire County Council
Pension Fund. As part of the restructuring, the pension fund has hired Alliance Bernstein to manage £100million of
equities and Threadneedle to manage £50 million of equities.

64 INVESTOR SERVICES JOURNAL


Single European Payments Area
(SEPA)
The implementation issues surrounding
the introduction of the Single European
Payments Area (SEPA) will be plentiful.
Crucially the EU Directive, designed to
make Europe's banking payments sys-
tems more equal and cost effective, has
unexpected rigidities for corporates.
Its requirement to quote Individual
Bank Account Numbers (IBANs) and
Bank Identifier Codes (BICs) on invoices
will mean that many organisations will
be locked in to uncompetitive banking
arrangements. A solution could be found
in the introduction of Portable IBANs
and the removal of the requirement to
quote the BIC of their bank. Portable
IBANs are not linked to BICs and can be
maintained by a centralised organisa-
tion/Automated Clearing House. This
would enable the owner of the Portable
IBAN to change their banking relation-
ship at any time and easily move from
one bank to another. Customers would
no longer have to be informed about BIC
changes leading to reduced key in costs,
fewer errors and improved Straight-
Through Processing. It would also be
easier to redirect funds to new accounts
as multiple Portable IBANs can also
point to a single account, so you can
use Portable IBANs to set up a sub-
accounting structure, for easy tracking
of funds from different business lines or
regions. A sophisticated directory behind
the Portable IBAN could also eliminate
the need for third parties to maintain a
directory of Corporate Standard
Settlement Instructions (SSIs).
While many banks don't like the idea
of portable IBANs, as they would lead to
increased competition, a portable solu-
tion implemented throughout the
Eurozone would (i) require significantly
less maintenance and bring reduced
costs for corporates (ii) allow banks
offering cheaper more efficient services
to corporates to expand more quickly.
The adoption of Portable IBANs could
therefore provide the final key to realis-
ing the spirit behind SEPA - the creation
of an efficient, low-cost, flexible pay-
ments service within Europe.
Ian Dunning, Managing Director,
CB.Net
SOX: Shareholders Demanding
Closer Inspection
When the Sarbanes-Oxley Act (SOX) was
passed in 2002 in response to a num-
ber of well-documented major corporate
Letters (cont from page 4) / Diary
Dating
accounting scandals, it was designed to
increase public trust and transparency in
accounting and reporting practices.
Today, the ramifications of the law are
generally well understood from the top Global Securities
down within organisations that must Services events
comply. From regulatory fines to person-
al liability, there is no doubt that the act
has teeth. Additionally, investor aware-
ness of critical statements such as the 05 December 2006, 3 days
404 report and the ultimate reaction in Hybrid Securities World Australia
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the market to material weakness disclo- T: +61 2 9005 0724
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The dilemma: In an environment
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up to 75% of the balance sheet is 12 December 2006, 3 days
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addition, how do you make certain that 12 February 2007, 3 days
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Elizabeth Elkins, Vice President, Global
Sales Strategy, CheckFree
INVESTOR SERVICES JOURNAL 65
 People Moves -Moving & Shaking

Moving Lionhart Investments Ltd. (Lionhart)

has appointed Simon Quirke as Asian
Markets Trader & Asian Product
Peacock. He is an
Associate of the
Pensions
& Specialist. Mr Quirke will be based in
Singapore and will help grow Lionhart's
Management
Institute. John

Shaking business strategy in the region. He will

A selection of the
appointments
from WWW.ISJFORUM.COM
report to Barry McQuain, who has over-
sight for Lionhart in Asia. Commenting
on his appointment, Quirke said: "With
a strong presence and more than 10
years experience of investing in Asia,
Lionhart is clearly committed to the
region and to providing clients with an
innovative investment approach. I am
looking forward to making a solid con-
tribution to the continued success of
Lionhart's Asian activities."
GoldenSource Corporation has
announced the appointment of Peter
Leichsenring as Head of Sales for
Central and Southern Europe. Reporting
into the EMEA headquarters in London,
Mr Leichsenring will build on a network
of existing customers and local contacts
to grow business throughout the region,
focusing on Germany, Austria,
Switzerland, Portugal, Spain and Italy.
Initially recruited to the company in
December 2004 to build and launch a
channel sales program, Mr Leichsenring
established the "Powered by
GoldenSource" alliance partnership pro-
gram, opening up the use of
Goldensource’s data platform to service
providers, data vendors and other non
financial institutions.
The chairman and chief executive of UBS
America, Mark Sutton, is leaving the com-
pany after just 18 months in the job to
spend more time with his family. He will
be replaced in the New Year by Robert
Wolf. The shock departure was accompa-
nied by a statement saying Mr Sutton
also planned to "pursue other business
interests". Mr Wolf, the chief operating
officer of UBS's investment bank, will suc-
ceed Mr Sutton on 01 January 2007 but
retain his current position.
The Pensions Trust has appointed
Stephen Nichols as its new Chief
Executive, effective 01 May 2007. Mr
Nichols joined The Pensions Trust as
Deputy Chief Executive in January 2002.
His varied pension career includes
spells at Express Dairies plc as Pensions
Manager, at Burmah Castrol plc as
Pensions Administration Manager and
at consultancy firm Lane Clark and
Alleston, Chair of
The Pensions
Trust said:
“Stephen’s
appointment fol-
lows a rigorous
selection process
Stephen Nichols during which he
was up against very tough competition.
There are some big challenges ahead
for the Trust in the changing world of
pensions. I and all the Board, look for-
ward to working with Stephen to turn
these into opportunities for the benefit
of all our members and employers.”
Stephen takes over from Richard Stroud
who decided to retire as Chief Executive
after more than 25 years.
Paul Chapman, former Head of
Strategic Relationships at Northern
Trust and Victoria Hornby, former
European Head of Recruitment at
Northern Trust, have joined forces to
create HornbyChapman, an executive
search company focusing on senior
asset servicing roles within the custody,
asset manager, investment bank and
consultant communities. Speaking to
ISJ, Chapman said: "We marry a combi-
nation of credibility and discretion with
significant industry experience to bring
what we firmly believe is a compelling
and different offering to the market.”
HornbyChapman opens for business in
Middlesex Street on 01 January 2007,
with plans to
open an office in
Edinburgh later in
the year.
Dresdner
Kleinwort has
appointed Susan
Dingilian as new
chief executive of
the Americas. Ms
Dingilian will
maintain her cur- Susan Dingilian
rent responsibili-
ties as head of global banking and also
front the management committee’s
efforts to strengthen the firm’s foothold
in both Americas, taking over from
Craig Schiffer, who is leaving after five
years with the firm. Based in New York,

66 INVESTOR SERVICES JOURNAL


she will report to global chief operating
officer Baudouin Croonenberghs and
global head of global banking, Bert
Piedra. Ms Dingilian started work for
Dresdner Kleinwort in London six years
ago and formerly worked for four years
at BNP Paribas where she was head of
Latin America debt capital markets.
Credit Suisse has announced the
appointment of Joachim Mies as Chief
Operating Officer for Asset
Management in EMEA. Mr Mies will be
responsible for overseeing divisionally
aligned support functions for the Asset
Management business and will work
closely with the senior management
team in Asset Management and Shared
Services in the
region. He will be
responsible for
supporting Credit
Suisse's ongoing
initiatives to fur-
ther develop and
grow its Asset
Management
business in
EMEA. Mark
Burgess,
Executive Vice Joachim Mies
Chairman and Head of Asset
Management for the EMEA region said,
"We are very excited about Joachim join-
ing our team. His vast experience of
working in COO roles and related func-
tions will add significant value to our
Asset Management business in EMEA."
FIX CITY, software provider of FIX
Indication of Interest (IOI) solutions, has
appointed Matthew Barkway as director
of sales and Kate Roberts as account
manager, at its UK office. Barkway joins
FIX CITY’s co-founders, Paul Scott, Amy
Muddimer and Karl Breeze, on the board
of directors. With almost 20 years’ experi-
ence in senior trading and sales roles, Mr
Barkway, previously sales manager at FIX
CITY, will head sales strategy, lead new
business negotiation and oversee the UK
sales team. Ms Roberts, previously global
relationship manager with OMGEO and
client connectivity manager with ABN
AMRO, has 14 years’ industry experience.
In her new role, as account manager, Ms
Roberts will focus on further reinforcing
relationships with ioinet’s buy- and sell-
side clients, and developing awareness of
the global solution.
People Moves - Moving & Shaking
Etheios has
announced the
appointment of
Alec Hoffman as
Associate Director,
heading the Retail
Fund Services
Practice. Mr
Hoffman joined
Etheios in 2000 as
a Principal
Consultant, spe- Alec Hoffman
cialising in invest-
ment administration, and has worked
on a number of consultancy projects for
the company. These include implemen-
tation of a fund supermarket adminis-
tration platform and the provision of
systems for straight through processing
(STP) for clients including Mellon
Investment Services and Bank of New
York. He has worked in the financial
services industry for fifteen years with
experience in treasury, international
banking and fund management.
Zurich Financial Services Group have
announced important personnel
changes affecting its Group Executive
Committee to follow the planned retire-
ment of Chief Operating Officer Peter
Eckert on 28 February 2007. Patrick
O’Sullivan, who currently serves as
Group Finance Director, will assume the
new positions of Vice Chairman of the
Group Management Board and Chief
Growth Officer, while Dieter Wemmer,
who currently is the CEO of Europe
General Insurance, will become the
Group’s Chief Financial Officer. Both
announcements are effective 01 March
2007. Succeeding Mr. Wemmer will be
Annette Court, who currently leads
Royal Bank of Scotland (RBS)
Insurance. She will also become a
member of Zurich’s Group Executive
Committee. In his new role, Mr.
O’Sullivan will have responsibility for
driving a growth culture throughout the
Group, including managing a newly cre-
ated Growth Council, identifying and
targeting profitable growth opportuni-
ties, and assuring alignment of critical
business processes with the company’s
growth targets. In his new role as CFO,
Mr. Wemmer will chair the Group
Finance Committee and oversee all
aspects of the finance function, includ-
ing capital management, mergers and
acquisitions, actuarial, accounting and
Group Treasury. He will also be respon-
sible for overseeing the delivery of the
Group’s business operating profit tar-
gets and driving the Group’s opera-
tional transformation initiatives.
SmartStream
Technologies has
announced that
Ken Archer has
been appointed
CEO. Mr Archer
assumed full
responsibility on
06 November
2006. Mr Archer
has more than 25
years experience in Ken Archer
leading and man-
aging large services and software com-
panies. Having started his career with
JP Morgan, where he was VP of
Information Services, Archer subse-
quently became CEO of Mercantile
Information Services and COO of The
Savings Corporation, a subsidiary of
AIG. Archer's most recent position was
President of European Business
Development at Computer Sciences
Corporation. Commenting on the
appointment, Ron Mackintosh,
Chairman said, "SmartStream continues
to be a great success stor. I'm delighted
we've appointed a world class CEO to
lead the company through the next
stage of its corporate development."
Obituary: Milton Friedman, the Nobel Prize
winning US economist whose monetarist
theorising inspired
Margaret Thatcher
and Ronald Reagan,
died last month at
the age of 94.
Professor Friedman
won the Nobel Prize
in 1976, his main
premise was that the
Keynesian tax-and-
spend policies that
were prevalent during
Milton Friedman the oil shocks and
high inflation and unemployment of the 1970’s
did not solve fiscal difficulties. Friedman argued
that instead of seeking to increase growth, gov-
ernments should be trying to control inflation
through supply side economics. Friedman was
seen as the leading proponent of this train of
thought, grouped together under the Chicago
School of monetary economics, which regarded
quantity of money as the main instrument of
government policy.
INVESTOR SERVICES JOURNAL 67
People Moves - Securities Services Vacancies

Senior Corporate Development Specialist City to £70k

This Top Tier UK Banking Group have an opening for a Qualified Accountant.
with in-depth understanding of corporate finance principles of managing
ffffffffff
transactions from origination through to completion.

Financial Controller West End to 65k

Rare opportunity to join this growing private equity firm. Varied project work,
strategy, analytical, business focused and board level exposure. Must be ACA
qualified. Includes bonus and benefits.

Senior Settlements Clerk City 40k

Top 3 European Bank requires a Equity Settlements clerk with strong euroclear
skills. The ideal candidate will have at least 2 years experience and be a good
team player.

Senior Corporate Actions Clerk City 40k

Major London investment Bank requires a senior corporate actions clerk with
a minimum of 5 years UK and international corporate actions experience.

FOR RECRUITMENT ADVERTISING

Fund Accountant West End 28/35 Ph
Prestigous Hedge Fund urgently requires an experienced Fund Accountant. IN INVESTOR SERVICES JOURNAL,
Candidates should have previous Investment Management, Unit pricing
experience and exposure to Invest one. ISJFORUM.COM, OR FUND AIM
PLEASE CONTACT
For more information on any of these positions or to apply please
email your details to: investorservices@cameronkennedy.com JUSTIN ON +44 (0)20 7493 9966 OR AT
Cameron Kennedy
justin.lawson@isjforum.com
6th Floor, 25 Bucklersbury, London, EC4N 8DA
Telephone 020 7653 1800, Fax 020 7653 1810 www.cameronkennedy.com

68 INVESTOR SERVICES JOURNAL

 People Moves - Securities Services Vacancies

HEAD OF INTERNATIONAL
MULTI-MANAGER INVESTMENTS -
LONDON
High profile position to supervise investment
practices, procedures and resources as they relate
to Europe, Middle East as Asia.

Responsibilities will encompass overseeing the

manager research, portfolio management and client
relations business.

All discussions entered in to are strictly confidential.

Please forward your CV outlining your remuneration
and notice period in the first instance.

International Multi-manager
Recruitment Specialists

www.fisherbarrie.com
enquiries@fisherbarrie.com
+44 20 7613 3915

INVESTOR SERVICES JOURNAL 69

 ISJ Directory of Services

Consultants
C: Professor Michael Mainelli,
Z/Yen helps organisations make better choices. Our name combines Zen and Yen -
Executive Chairman
“a philosophical desire to succeed” - in a ratio, recognising that all decisions are
E: michael_mainelli@zyen.com
trade-offs. Z/Yen’s mission is to be the foremost risk/reward management firm.
In the financial markets Z/Yen conducts numerous research projects on a variety of C: (Disaster Recovery and Project
wholesale and retail issues, as well as providing technical strategy, support and Management): Keith Ford,
prediction systems. Z/Yen’s renowned annual studies include: Senior Consultant
i. Global cost per trade benchmarks on equities, money markets and foreign E: keith_ford@zyen.com
exchange;
T: +44 207-562-9562
ii. Operational performance of broker ratings;
F: +44 207-628-6786
iii. Operational performance of client (buy-side) ratings.
W: www.zyen.com

Custody & Clearing

Australia and New Zealand Banking Group Limited (ANZ) is one of the leading finan-
cial institutions in the Australian and New Zealand markets. We provide an extensive
range of Retail, Corporate, Institutional and Private Banking services in addition to a T: +61 03 92733563
range of specialised functions including Custody Services through ANZ Custodian F: +61 03 92732650
Services. ANZ Custodian Services is committed to our home markets and continu- C: Philip Dowman
ously seeks to provide our clients with highly competitive service through our cus- E: dowmanp@anz.com
tomer-focused and experienced teams, extended business hours and ongoing invest- A: Level 25, 530 Collins Street
ment in technology. Our capabilities incorporate core Custody and Clearing of securi- Melbourne Victoria VIC 3000
ties, Investment Administration Services, Cash, Foreign Exchange and Securities Australia
Lending. W: www.anz.com
Assets under Custody: AUD$90 billion

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 C: Cornelia Keth
comprehensive array of customised solutions. BHF-BANK combines the strengths of a private bank T: +49 69 718 3738
with a long track record of capital market competence. Trust, an individual approach and F: +49 69 718 6050
impartiality - these qualities are at the very heart of the long-term guidance and advice we provide E: cornelia.keth@bhf-bank.com
for our clients. Our bank's activities are grouped within the divisions Asset Management & C: Moritz Ostwald
Financial Services, Financial Markets & Corporates and Private Banking. Financial Services
T: +49 69 718 6838
comprises the bank’s custody services, investment company (depotbank) services and its securities
and derivatives clearing business. The bank’s longstanding experience in the German securities E: moritz.ostwald@bhf-bank.com
services market goes hand in hand with a corporate culture that values prompt acknowledge- A: Strahlenbergerstraße 45,
ments and short decision-making channels. BHF-BANK offers tailor-made custody services to 63067 Offenbach a.Main
meet its clients’ particular requirements. It’s reporting services include a comprehensive SWIFT Germany
reporting matrix as well as its Internet-based reporting tool cds@web. W: www.bhf-bank.com
Assets under Custody: EUR 260 bn No of funds: 232

The CACEIS Group is a partnership between the Investor Services business lines
T: +33 1 57 78 10 78
of Crédit Agricole S.A. and Groupe Caisse d'Epargne. We rank among the top 10
custodians worldwide, with EUR 1,697 billion in assets under custody C: (France)
(30/6/2006). CACEIS provides a full range of services to institutional clients in Patrick Lemuet
France, Luxembourg, Spain and Ireland. These services include, global and local E: france@caceis.com
custody (safekeeping of listed and OTC assets) depositary/trustee services, T: +352 4767 2567
STP transactions (SWIFT), corporate actions and income collection, proxy voting, C: (International)
tax services, compliance and performance monitoring, flexible online reporting, José-Benamin Longrée
securities lending, matching, processing and settlement. We also have links to E: international@caceis.com
200+ UCITS registrars. Our network of sub-custodians provides a secure
W: www.caceis.com
environment for your assets in over 70 markets worldwide.

DBS offers a full range of custodial services including securities safekeeping, settlement of
trades, corporate actions and market information updates. These services are available in T: 65 6878-1830
Singapore, Hong Kong and other selected markets. DBS offers short-term, highly liquid F: 65 6878-4166
overnight facilities for its clients’ accounts to earn daily interest on any excess funds. DBS also C: Ms Low Swee Fun
provides the value added service of tax reclamation without holding tax reductions (where local E: investorsvs@dbs.com
regulations permit) on income arising from securities safekept with it. Proxy voting services for
A: DBS Bank Ltd
clients’ holdings at Annual General Meetings and Extraordinary General Meetings are also
available on request. Global Transaction Services
Securities services is an integral part of Global Transaction Services within DBS bank. With Securities Services, 6 Shenton
more than 20 years of experience in the custody business, DBS’ strengths lie in its ability to Way, 36-02, DBS Building Tower
provide quality services, in depth knowledge and expertise of the Asian markets. Its clientele 1, Singapore 068809
compromise the major global custodians, investment banks, private banks, insurance compa- W: www.dbs.com
nies and investment managers etc.

70 INVESTOR SERVICES JOURNAL


T: +47 22 94 92 95
F: +47 22 48 28 46
Contact: Bente I. Hoem
E: bente.hoem@dnbnor.no
W: www.dnbnor.com
T: +46 8 701 2988
F: +46 8 701 2990
Contact: Johan Wennerberg
E: custodyservices@handels-
banken.se
Address: Blasieholmstorg 12,
SE-106 70 Stockholm, Sweden
www.handelsbanken.com/nordic_
_custody_services
New York: Christopher Lynch
T: +1 718-242-7555
E: chris.e.lynch@jpmorgan.com
London: Dick Feehan
T: +44 (20) 7742-0102
E: dick.j.feehan@jpmorgan.com
Sydney: Laurence Bailey
T: (61-2) 9250-4833
E:laurence.bailey@jpmorgan.com
W: www.jpmorgan.com/wss
Nordea is the leading financial services group in the Nordic and Baltic Sea region
and operates through three business areas: Retail Banking, Corporate and
Institutional Banking and Asset Management & Life.
T: +47 2248 6238
Contact: Anne-Lise Kristiansen
Head of Sub-custody and
Clearing
E: anne-lise.kristiansen@nordea.com
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.
T: +44 (0) 20 7653 4096
F: +44 (0) 20 7248 3946
Contact: Tony Johnson
Head, Sales & Relationship
Management
E: antony.johnson@rbcdexia-is.com
Address: 71 Queen Victoria Street,
London, EC4V 4DE, UK
T: +46 8 763 5770
F: +46 8 763 6930
Contact: Goran Fors
E: goran.fors@seb.se
W: www.seb.se
Custody, Clearing & Settlement ISJ Directory of Services
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.
Handelsbanken was the first Nordic bank to provide complete custody services in the
entire Nordic region. We conduct in-house processing in each Nordic country, with
well-experienced staff with in-depth market knowledge and access to market
information. Each client is allocated an account manager 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.
JPMorgan Worldwide Securities Services provides custody and securities servicing
solutions to the world's leading institutional investors, including fund managers,
insurance companies, pension funds and banks.
As one of the world's leading global custodians, we have $11.7 trillion in assets
under custody.
JPMorgan meets institutional investors' needs by providing extensive experience,
comprehensive products and advanced technology designed to optimize efficiency,
enhance revenues and mitigate risks associated with global investing.
- The leading financial services group
- 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 institu-
tions 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.
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 EUR 460 bn and provide services in more that 70 markets, 9
of them under the SEB name (Sweden, Norway, Finland, Denmark, Luxembourg,
Germany, Estonia, Latvia and Lithuania).
We offer a full range of securities services including corporate action and
information 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 150 years in the securities industry; we know the market
and our clients well.
71 INVESTOR SERVICES JOURNAL
 Financial Asset Services is the custody and investments-servicing division of
Standard Bank, providing a unique suite of services to sophisticated investors in A:Standard Bank
South Africa and eight sub-Saharan markets. Financial Asset Services
3rd Floor
Standard Bank has assets under custody to the value of ZAR1.56 trillion and an 25 Sauer Street
overall market share of approximately 40%. Johannesburg 2107
T: +2711 636 6615
Standard Bank's unique selling point lies in its consultative approach to E: adam.bateman@standard-
relationships combined with the bank's commitment to custody and investment bank.co.za
administration services. W: www.standardbank.co.za

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 C: Neil Daswani,
in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom Global Head, Securities Services
and the Americas.
T: +65 6517 0022
As one of Asia's leading custodians, Standard Chartered has an impressive track E: Neil.Daswani@sg.standard-
record across the 16 Asian markets in which it provides securities services. It serves chartered.com
global, regional and local custodians and broker-dealers, as well as local and regional W: www.standardchartered.com
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

securities lending (including auto-borrow facilities), derivative clearing services,
proxy voting, full corporate actions and income service. Flexibility is an important
aspect of Swedbanks products and services. Our dedicated Client Relations T: +46 8 5859 1800
Managers and Account Managers are focused on personalized processing and F: +46 8 7237 147
reporting solutions. C: Neal Meacham, Head of
Custody
Other Features: ISO9001:2000 quality certification. Swedbank Markets Online
(SMO) internet information and reporting toolfor Custody and Securities Lending. E: neal.meacham@swedbank.com
Nordic Custody alliance with DnB NOR (Norway), OKO Bank (Finland) and A: Stockholm SE 105 34
Amagerbanken (Denmark) to offer regional custody product. Sweden
Institutional Assets under Custody: USD 70 billion
No. of Institutional Clients: 110

Data Services
Capco Reference Data Services (CRDS) provides a suite of reference data
management solutions that help financial services providers to achieve C: Donna Faup Bailey
superior data integrity, solve data integration issues and transform
operational performance while lowering data management costs. These Director Business Strategy &
services include a comprehensive managed services offering - a proven Marketing, Capco
alternative to in-house management of reference data as well as index T: +212 284 8749
and ETF data solutions. CRDS also provides consulting services E: Donna.FaupBailey@Capco.com
including advisory, assessment, migration, implementation, integration,
project management, development and training. For more information, W: www.capco.com/crds
please visit www.capco.com/crds.

Through its subsidiaries, DTCC provides clearance, settlement and information services for
equities, corporate and municipal bonds, government and mortgage-backed securities and London: Richard Bustard
over-the-counter derivatives. DTCC's depository also provides custody and asset servicing for T: +44 (0)20 7444-0403
more than 2.5 million securities issues from the United States and more than 100 other coun- E: rbustard@dtcc.com
tries and territories. In addition, DTCC is a leading processor of mutual funds and insurance
transactions, linking funds and carriers with their distribution networks. DTCC has operating New York: Susan Spivey
facilities in multiple locations in the United States and overseas. For more information on T: + 1 212 855-4144
DTCC, visit www.dtcc.com. E: sspivey@dtcc.com
DTCC’s GCA Validation Service gathers and distributes validated global corporate actions General information
announcement information on more than 1.4 million securities from more than 150 countries T: +1 212 855-1000
in more than 16 languages, more than any other provider.

Interactive Data Corporation (NYSE: IDC) is a leading global provider of Interactive Data (Europe) Ltd
financial market data, analytics and related services to financial institutions, active A: European Headquarters
traders and individual investors. The company’s businesses comprise: FT Interactive
Fitzroy House, 13-17 Epworth
Data, ComStock, CMS BondEdge and eSignal.
Street, London EC2A 4DL
FT Interactive Data provides global securities pricing, evaluations, dividend, corporate T: +44 (0)20 7825 7800
action and reference data designed to support financial institutions’ and investment F: +44 (0)20 7608 3514
funds' pricing activities, securities operations, research and portfolio management. FT
E: eu-info@interactivedata.com
Interactive Data collects, edits, maintains and delivers data on more than 3.5 million
W: www.interactivedata.com
securities, including daily evaluations for approximately 2.5 million fixed income and
international equity issues. FT Interactive Data specialises in ‘hard-to-value’ instru- C: Brendan Beith – European
ments and ‘hard-to-get’ information from emerging markets. Sales Director

72 INVESTOR SERVICES JOURNAL


W: www.sungard.com/dataman-
agementsolutions
T: 1-888-441-9935
F: 212-977-7144
C: Marketing Department
E: moreinfo@sungard.com
A: SunGard
888 Seventh Avenue
New York, NY 10106
Andrew Collins Managing Director
T: 441-299-3954
E: andrewcollins@bntb.bm
Tania Kowalski Marketing
Manager T: 441-278-6300
E: taniakowalski@bntb.bm
A: Rosebank Centre 11
Bermudiana Road, Pembroke,
Bermuda HM 08 / P.O. Box HM
195 Hamilton, Bermuda HM AX
T: +33 1 57 78 10 78
C: Patrick Lemuet (France)
E: france@caceis.com
T: +352 4767 2567
C: José-Benamin Longrée
(International)
E: international@caceis.com
W: www.caceis.com
New York: Christopher Lynch
T: +1 718-242-7555
E: chris.e.lynch@jpmorgan.com
London: Dick Feehan
T: +44 (20) 7742-0102
E: dick.j.feehan@jpmorgan.com
Sydney: Laurence Bailey
T: (61-2) 9250-4833
E:laurence.bailey@jpmorgan.com
W: www.jpmorgan.com/wss
C: Fred W. Jacobs, III
A: PFPC, 301 Bellevue Pkwy
Wilmington, DE 19809 USA
T: 302-791-2000
F: 302-791-1570
E: Information@pfpc.com
C: Fergus McKeon
A: PFPC Riverside Two
Sir John Rogerson’s Quay
Dublin 2, Ireland
T: +353-1-790-3500
E: Information@pfpc.com
T: +44 (0) 1481 744000
F: +44 (0) 1481 744529
C: Jose Santamaria
E: jose.santamaria@rbc.com
A: PO Box 48 Canada Court
St Peter Port Guernsey
GY1 3BQ United Kingdom
W: www.rbcprivatebanking.
com/ci.html
SunGard's solutions for data management provide technology for the management
and delivery of market, historical and reference data to financial services
institutions, energy and public sector organizations. SunGard also offers outsourced
data management services, as well as real-time, interactive and flat-file data feeds
for application integration. Aggregating market data and financial content from more
than 100 third-party sources, SunGard's solutions for data management add value
through a range of services including cleansing, enrichment and analytics. To find
out how SunGard's solutions for data management can help improve productivity,
portfolio optimization and investment opportunity with predictive analytics and
packaged data please visit www.sungard.com/datamanagementsolutions.
Fund Administration
Butterfield Fund Services (BFS) provides valuation, accounting, corporate secretari-
al, compliance, directorial and shareholder services to hedge funds, fund-of-funds,
and mutual funds. BFS also services international pension & insurance trusts.
Clients such as financial institutions, insurance companies, and institutional
investors use Butterfield Fund Services to set up and launch investment funds. BFS
operates in Bermuda, Bahamas, the Cayman Islands and Guernsey.
Whether a fund is just starting out or is well established, Butterfield Fund Services
can provide complete solutions to help clients better service their investors. With
over $50 billion in assets under administration, many alternative funds have turned
to Butterfield Fund Services for timely and accurate administration services.
The CACEIS Group is a partnership between the Investor Services business lines of
Crédit Agricole S.A. and Groupe Caisse d'Epargne. With a total of 823 billion in
assets under administration (30/6/2006), we are Europe’s premier third party fund
administrator. CACEIS provides a full range of services in France, Luxembourg,
Ireland, Belgium and The Netherlands. These services include portfolio valuation
with multiple and automated pricing sources, NAV calculation, product structuring,
tax relevant data calculation, fees and commissions calculation, on-line client report-
ing, legal and statutory investment guideline monitoring, performance measurement
and globalisation techniques such as Cloning. Our transfer agency services include
retail and institutional account management, Europe-wide transaction processing,
distribution network management, third party distribution and shareholder services.
The Fastnet Network, operated by CACEIS, undertakes some of the above services
and is a partnership venture with the Fortis Group.
JPMorgan Fund Administration provides a full suite of products for all aspects of
fund administration, enabling asset managers to focus on their core business of
investment management. Fully integrated with JPMorgan's custody and fund
accounting system, it also accepts automated data feeds from clients' in-house or
third party accounting platforms. By automating these activities, we leverage
technology to build flexible business systems that increase efficiencies and deliver
customer focused solutions.
A world-class team of experienced industry professionals provides the expertise you
need in fund administration services.
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.
73 INVESTOR SERVICES JOURNAL
 Atlanta: Peter Cohen
For over 25 years, professional advisors, financial institutions, corporations and high net T: 001-404-233-5275
worth families worldwide have relied on Trident Trust for integrity, reliability and commit- BVI: Barry Goodman
ment to client service. T: 284-494-2434
Main Services: A full range of back office administration services tailored for hedge, pri- Cayman Islands: Rick Gorter
vate equity and closed-ended funds. We offer flexibility in structuring administration T: 345-949-0880
which allows us to work closely with accounting firms and other service providers. Guernsey: Mark Le Tissier
Services include full fund accounting, NAV calculations, registrar and transfer agent, T: 01481-740-930
corporate secretarial including company formation, due diligence compliance and inter-
UK: Robin Harris
net reporting.
T: 44-(0)207-935-1503
Assets Under Administration: $13 billion * No. of Funds Administration: 185
W: www.tridenttrust.com

UBS Fund Services offers comprehensive fund administration services including

fund set-up, registration and support around the world (currently 28 countries), fund W: www.ubs.com/fundservices
accounting, NAV calculation, compliance management, risk control and reporting.
We provide a flexible offering from the full range of services, including Private C: Mr Gerhard Fusenig
Labelling, to selected functions. Services are based on leading fund administration T: +41 44 235 4992
architecture, multi-source pricing and powerful compliance tools. F: +41 44 234 2840
Capabilities also extend to services for hedge funds through our teams in Cayman, E: gerhard.fusenig@ubs.com
Ireland and Canada. A: UBS Fund Services
In times when management attention is increasingly focused on value creation, it Stauffacherstrasse 41,
may be rewarding to re-evaluate whether asset administration remains a strategic PO Box, CH-8098 Zurich
core business to you. CH-8098 Z Switzerland
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

Hedge Fund Administration

Robert N. Chin, General Manager
T: (+) 5999 738 1351 ext 11
E: robert.chin@atcfunds.an
ATC Fund Services is a specialized hedge fund administrator who has consistently Kedi J. Chang, Managing Director
received excellent reviews from its clients. ATC provides full administration to hedge T: (+) 5999 738 1351 ext 10
funds, including daily processing of all funds’ activities, nav calculation on a daily, E: kedi.chang@atcfunds.an
weekly or monthly basis and registrar & transfer agency services. In addition, ATC
ATC Fund Services
takes a pro active approach in assisting start up hedge fund managers with the Bon Bini Business Center, units
incorporation of their fund in jurisdictions such as the Cayman Islands, the British 2B2K & 2B2L
Virgin Islands and the Netherlands Antilles. Schottegatweg Oost 10
Curaçao, Netherlands Antilles
F: (+) 5999 738 1311
W: www.atcgroup.info

Custom House Administration

Custom House is the specialist hedge fund administrator that also offers a turnkey & Corporate Services Limited
package start-up service. Custom House was the first hedge fund administrator to A: 25 Eden Quay, Dublin 1,
be awarded a Moody’s Management Quality Rating. Ireland
Custom House provides advice and assistance in the organisation of alternative
T: +(353) 1 878 0807
investment and hedge funds, together with the provision of a full administration
F: +(353) 1 878 0827
service, which covers all aspects of the day-to-day operations.
Reporting can be effected through “CHARIOT”, Custom House’s secure C: dermot.butler@customhouse-
web-reporting platform for managers and investors. Custom House Administration & group.com
Corporate Services Ltd. is authorised by the Irish Financial Regulator under Section C: david.blair@customhouse-
10 of the Investment Intermediaries Act, 1995. group.com
www.customhousegroup.com

DPM Mellon provides onshore and offshore alternative asset fund administration,
back and middle office outsourcing, portfolio valuation, daily NAVs, risk
administration and portfolio transparency solutions for fund managers, asset W: www.dpmmellon.com
allocators, institutional investors and proprietary traders. T: +1 732 667 1155
DPM Mellon’s services are designed to solve complex administrative needs and F: +1 732 662 2650
improve operational efficiency. From the most basic reports to complex portfolio C: Skander Aissa
valuations, risk analysis and daily transparency, DPM has the systems, infrastructure E: Aissa.s@dpmmellon.com
and experience to handle your toughest administrative challenges. A: 400 Atrium Drive Somerset
DPM Mellon has a world-wide staff of approximately 200 employees. DPM Mellon New Jersey NJ 08873 USA
is headquartered in Somerset, New Jersey with offices in London, the Bahamas, and
the Cayman Islands.

For over 25 years, Trident Trust has been a leading provider of corporate, trust and
fund services to the financial service sector worldwide.
Fund Services: A full range of back office administration services tailored for W: www.tridenttrust.com
hedge, private equity and closed-ended funds. Flexibility in structuring a fund’s T: +44 (0) 20 7935 1503
administration allows us to work closely with accounting firms and other service F: +44 (0) 20 7935 7242
providers to offer a cost-effective administrative solution. C: Robin Harris
Services include full fund accounting, NAV calculations, registrar and transfer E: rharris@tridenttrust.com
agent, corporate secretarial including company formation, due diligence compliance A: 7 Welbeck Street
and internet reporting. Assets of Funds Serviced: $20 billion No. of Funds: 300 London W1G 9YE UK
New York: Mario Novello T: 212-840-8280 London: Robin Harris T: 0207-935-1503
BVI: Barry Goodman T: 284-494-2434 Cayman Is: Rick Gorter T: 345-949-0880
Guernsey: Mark Le Tissier T: 01481-727571 Jersey: Mike Spittal T: 01534-733401

74 INVESTOR SERVICES JOURNAL

 THE DERIVATIVES & ALTERNATIVES
GUIDE FOR THE FUNDS INDUSTRY
Derivatives - Routes to Market; Investment Strategies;
Algorithmics; Fund Design & Structure; Risk Metrics; Data

D
Analysis; Trading Services & Outsourcing; Hedge Fund

N
Exposure; Prime Brokerage; Legal & Compliance; Futures;

FU M
Exchanges; Commodities; REITs/REIFs; Training & Education

AI
Fund AIM. ISJ’s new Alternatives
Intelligence Magazine. Coming Soon...
Seasons Greetings...

ALGORITHMIC DUBAI - Arabian Heights

TRADING FUTURES FUTURE - OTC Organises
PANEL - Alternatives Become Mainstream
BINARY VISION?
€ 35 - Europe, Mid-East, Africa
$ 43 - Americas
£ 25 - UK, ROW

DERIVATIVES AND ALTERNATIVES FOR FUNDS

 UBS Fund Services, based in the Cayman Islands, Ireland and Canada holds a lead-
ing position in the area of hedge fund administration, offering a complete range of
services including accounting, NAV computation, share holder services, banking and
Cayman Islands: Darren Stainrod,
credit facilities.
T: +1-345-914 1076
With the dedication and experience of a professional team of over 150 and our
Ireland: Don McClean,
state-of-the-art web reporting, accounting and shareholder systems, we are well posi-
T: +353-1-436 3636
tioned to provide clients with a first class service.
Canada: Pearse Griffith,
With specialist expertise in both single manager and fund of hedge fund adminis-
T: +1-416-971 4702
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.

Prime Brokerage
Fimat’s Alternative Investment Solutions team (AIS) is a dedicated global Prime
Brokerage team serving the alternative investment community including hedge C: Philippe Teilhard
funds and CTAs. A: Fimat International Banque SA
The AIS team offers a global range of brokerage activities on a wide range of asset (UK Branch) - part of the Societe
classes including equities, bonds, currencies, commodities, and their related listed & Generale Group
OTC derivative products. The team also provides a dedicated account management SG House, 41 Tower Hill
team, cross-margining tools between securities & derivative instruments, hedge fund London EC3N 4SG, UK
start-up services, hedge fund industry quantitative information and capital T: + 44 207 676 85 36
introductions services. F + 44 207 628 44 47
The AIS team is part of Fimat, which employs over 1,600 people in 26 markets, E: philippe.teilhard@fimat.co.uk
and is a member of 46 derivatives exchanges, and 17 stock exchanges worldwide.

Payments & Settlement

The Settlements Directory for CLS removes the uncertainty surrounding which A: Exchange Tower
instructions to use, easing time pressure on query handling and investigation in One Harbour Exchange
back office operations. London
E14 9GE
T: Asia: +81 (0) 2 3517 2791
The Settlements Directory for CLS is a web-enabled application powered by
Europe: +44 (0) 20 7971 5700
SSISearch containing contact details, basic settlement information and MT300 North America: +1 212 943
preferences. It offers Settlement Members ongoing certainty of accurate settle- 2290
ments information and a fast, simple method of publishing and accessing CLS E: corpcom@cls-group.com
static data. W: www.cls-group.com

Eiger Systems solutions are designed to be best in class and are the leading products
within their market sectors. Developed to meet the needs of organisations with complex or
mission critical payment processes, our solutions interface easily with existing business A: Eiger Point
applications and are available for all main operating systems. Swift Park
EigerPAY Gateway is a global payments platform which handles complex payment require- Old Leicester Road
ments and multiple payment channels. Already the UK’s leading BACSTEL-IP solution,
Rugby
EigerPAY Gateway is ideally suited to organisations with one or more of the following:
CV21 1DZ
• a mission critical reliance on payments
• complex functional or technical requirements United Kingdom
• a requirement for numerous communication channels such as T: + 44 (0) 1788 554800
BACSTEL-IP, CHAPS, SWIFT, or PE-ACH connectivity (Sales): +44 (0) 1788 554810
EigerPAY Gateway’s flexible architecture enables organisations to integrate with the
many new and developing payment systems, with minimal change to legacy systems.
A: Europe/Asia/Africa
Fundtech's payments solutions automate all aspects of the funds transfer and cus-
42 New Broad Street
tomer notification process, enabling straight-through-processing (STP) of payments. London EC2M 1SB
Fundtech also offers payments solutions for continuous linked settlement (CLS), nos- United Kingdom
tro account management and enterprise-wide payments management. T: +44-207-588-1100
Global PAYplus - The enterprise-wide payments management solution for global F: +44-207-588-1155
financial institutions. A: Americas
PAYplus RTGS - A fully integrated, multi-currency payment system for banks resid- 30 Montgomery Street
ing in countries outside the U.S. that have established Real Time Gross Settlement Suite 501
(RTGS) standards. Jersey City, NJ 07302
T: +1-201-946-1100
PAYplus USA - The leading payments solution for financial institutions in the US.
F: +1-201-946-1313

Securities Lending .
Data Explorers Limited, a specialist and independent company, offers impartial
W: www.dataexplorers.com
quantitative measurement of securities lending performance services to the global T: +44 (20) 7392 4000
securities financing industry. We help our clients monitor and understand the F: +44 (20) 7392 4004
relative performance of their lending activity and risk, and turn raw lending, borrow- A: 155 Commercial Street,
ing and collateral data into useful, actionable information. We also provide proxies London E1 6BJ United Kingdom
for short selling information. London: Julian Pittam
Working with the industry we ensure information flows are appropriate and peer T: +44 (20) 7392 5018
groups relevant. We are not involved in transactions. E: jp@dataexplorers.com
All of our services: Performance Explorer, Transaction Explorer, Risk Explorer, Boston: Tim Smith
Index Explorer and Report Explorer are web based and available to clients T: + 1 (617) 973 5099
E: tim.smith@dataexplorers.com
over the internet.

76 INVESTOR SERVICES JOURNAL

T: +1 212 901 2200
C: Carrie R. Schwartz
E: carrie.schwartz@equi
lend.com/info@equilend.com
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: Dan Ahern
E: info@eseclending.com
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
T: +41 (0)44 218 14 14
F: +41 (0)44 218 14 18
E: info@ifbs.com
A: IFBS AG, Buckhauserstrasse
11, CH-8048 Zurich, Switzerland
W: www.ifbs.com
New York: Christopher Lynch
T: +1 718-242-7555
E: chris.e.lynch@jpmorgan.com
London: Dick Feehan
T: +44 (20) 7742-0102
E: dick.j.feehan@jpmorgan.com
Sydney: Laurence Bailey
T: (61-2) 9250-4833
E:laurence.bailey@jpmorgan.com
W: www.jpmorgan.com/wss
T: +44 (0) 20 7521 5672
F: +44 (0) 20 7521 2683
C: Jonathan Cossey, Head of
Equity Finance
A: Nomura House,
1 St Martin's-le Grand, London,
EC1A 4NP United Kingdom
W: www.nomura.com
T: +44 (0) 207 551 3000
E: bsginfo@adp.com
Address: The ISIS Building,
193 Marsh Wall, London,
E14 9SG, UK
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 global securities lending manager and a leading provider and
administrator of customized securities lending programs. Its programs attract
some of the world's largest and most sophisticated asset gatherers, including
pension funds, mutual funds, investment managers and insurance companies.
Over the past six years, the company has auctioned over $950 billion in assets
and has achieved significant growth in its client base, lendable assets and assets
on loan. The firm awards principal securities lending business through a compet-
itive auction process that has provided clients with higher returns compared to
traditional program structures and improved transparency and objective criteria
upon which to make decisions. More information about eSecLending can be
found at www.eseclending.com.
IFBS offers the financial industry a wide range of consulting services as well as
individual and standard software solutions. The firm supports clients along the entire
security value chain - from business modelling to change management processes.
IFBS’s IT solutions range from FINACE®, a Securities Finance and Collateral
Management Platform, to the development of tailor-made IT applications.
JPMorgan Securities Lending offers institutional investors the opportunity to earn
extra income on investment and pension portfolios with minimal risk and
involvement by lending their securities to qualified borrowers. With more than 300
lending relationships and lendable assets in excess of $1.2 trillion, JPMorgan is
clearly committed to the market and to the value that our clients place in it. Our
resources enable you to develop programs that comply with your business
requirements and achieve your business objectives. When you select JPMorgan as
your securities lending agent, you have chosen a premier provider of securities
lending services worldwide.
Nomura Group is a global investment bank dedicated to providing a broad range of
financial services for individual, institutional, corporate and government clients.
The Group’s business activities include investment consultation and brokerage
services for retail investors in Japan, and, on a global basis, brokerage services,
securities underwriting, investment banking advisory services, merchant banking,
and asset management.
Nomura offers a full range of Equity Finance services to institutional participants
in over thirty markets, through regional trading desks in London, New York,
Tokyo and Hong Kong. Identifying client needs and providing bespoke solutions
is our top priority.
Technology
ADP Brokerage Services Group is an industry leading outsourcing vendor for global
transaction processing systems, desktop productivity applications and investor
communication services to banks and brokerages worldwide.
-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.
77 INVESTOR SERVICES JOURNAL
 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, T: +44 (0)20 7631 9240
Middle East and Africa. Advent has an established network of offices across the F: +44 (0)20 7631 9256
region serving a growing client base of asset managers, hedge fund managers, prime
E: emea@advent.com
brokers, fund administrators, wealth managers, private banks and family offices who
continue to improve their businesses using Advent’s suite of integrated investment
A: One Bedford Avenue,
management solutions. Advent Software EMEA is part of Advent Software Inc. London WC1B 3AU, UK
(Nasdaq: ADVS), a global organisation that has been providing solutions to the W: www.advent.com
world's leading financial professionals since 1983. Firms in more than 50 countries
using Advent technology manage investments totaling more than US $8 trillion.

Progress Apama provides the next-generation Algorithmic Trading A: EMEA - Progress Apama
Platform for both the buy and sell-side financial institutions - giving 68 Lombard Street
traders full control over composing, deploying and managing algorithmic London EC3v 9LJ
trading strategies, such as VWAP, spread trading and index arbitrage. T: +44 (0) 870 3517212
E: fraser.herrick@progress.com
Apama has customers using the Algorithmic Trading Platform in equities,
A: USA - Progress Apama
futures & options, foreign exchange and bonds and often trading multiple 10th Floor, 230 Park Avenue
assets classes within the same strategy. New York NY
T: +1 203 606 5006
Apama's platform plugs straight into any market data feeds, order E: jim.feingold@progress.com
management systems and databases.
W: www.progress.com/apama

C: Belinda Hamer (US)

Asset Control is the world's leading provider of Centralized Data Management (CDM)
E: bhamer@asset-control.com
to financial industry firms. With a complete range of in-house and outsourced T: +1 212 445 1076
options, Asset Control delivers a hybrid approach to data management. The F: +1 212 445 1079
selection of developer tools, turnkey software solutions and outsourced services
enable users to optimize their investment data for efficiency, cost control, reduced C: Pascal Guignabaudet (EU)
E: pascalg@asset-control.com
operational risk and increased value from their data.
Address: 54 Lombard Street,
Asset Control solutions manage prices, reference data, risk factors, credit risk data, London, EC3P 3AH, UK
corporate actions and research data. The solutions support market risk, Basel II, T: +44 (0)20 7743 0320
F: +44 (0)20 7743 0321
portfolio management, trading and enterprise-wide operational coherency.
W: www.asset-control.com

DST International is the world’s premier vendor of technology solutions to the global
T: UK +44 (0)20 8390 5000
investment management community with over 700 clients in 55 countries, and
Boston +1 617 482 8800
1500 employees in 19 of the world’s leading financial centres. Our wide range of
Hong Kong +85 225 812 880
asset management solutions meet the needs of fund managers, dealers, settlement
F: +44 (0)20 8390 7000
staff, custodians and record keepers operating as international asset managers; from
E: info@dstintl.com
front office simulation, opinion management and modelling functions, through data
A: DST House, St Mark’s Hill,
management, dealing and settlement to custody and corporate actions. The suite of
Surbiton, Surrey, KT6 4QD
products can be used either as stand-alone applications or brought together in flexi-
W: www.dstinternational.com
ble combinations according to specific needs.

T: +1 212 922 6590

Eagle Investment Systems LLC, a Mellon Financial CompanySM, is a global provider F: +1 212 922 7677
of financial services technology, serving the world's leading financial institutions. E: sales@eagleinvsys.com
Eagle's Web-based systems support the internal straight-through processing A: 200 Park Avenue,
requirements of firms of any size including money managers, mutual funds, hedge East Mezzanine,
funds, plan sponsors, banks, corporate trusts, and insurance companies. Eagle is New York, NY 10166
committed to providing leading-edge technology, professional services, and global T: +44 (0) 20 7163 5700
support for portfolio management, investment accounting, performance F: +44 (0) 20 7163 5701
measurement, attribution, reference data management, AIMR/GIPS compliance, A: Mellon Financial Centre,
reporting, and outsourcing. To learn more about Eagle's solutions, contact 160 Queen Victoria Street,
+44 207 163 5700 or uksales@eagleinvsys.com or visit www.eagleinvsys.com. London, EC4V 4LA
W: www.eagleinvsys.com

Interactive Technologies is a leader in developing and delivering software solutions

that support current and emerging Financial Industry needs for enterprise-level T: +1 908 273 1116
billing and revenue management. Founded in 1993, Interactive Technologies was C: Mike Donoghue
acquired by Fiserv, Inc (Nasdaq: FISV) in June 2005 and is based in Summit, N.J., E: Mike.Donoghue@itadv.com
with additional offices in Los Angeles, London and Toronto. The company's sole A: 482 Springfield Avenue,
product - Advantage Fee System - provides banking and financial service institutions Summit, New Jersey NJ 07901
with a comprehensive solution for streamlining, automating and managing fee-based USA
billing operations. Over 60 organizations benefit from the Advantage Fee System, W: www.itadv.com
ranging in assets managed from 5 billion to well above 1 trillion US$.

78 INVESTOR SERVICES JOURNAL

C: Paul Hewitt, Business
Development Manager, Europe
A: Manifest
9 Freebournes Court
Newland Street, Witham
Essex, CM8 2BL, UK
T: +44 (0)1376 503500
D: +44 (0)1376 504502
M: +44 (0)7884 495165
F: +44 (0)1376 503550
E: paul.hewitt@manifest.co.uk
W: www.manifest.co.uk
C: Harvey Colborne
E: harvey.colborne@mondas.com
A: 17 - 29 Sun Street
London, EC2M 2PT, UK
E: info@mondas.com
T: +44 (0) 207 392 1300
F: +44 (0) 207 392 1301
W: www.mondas.com
T: +44 (0)29 20402200
F: +44 (0)29 20402213
A: New Broad Street House, 35
New Broad Street, London
EC2M 1NH
E: info@peterevans.com
W: www.petervans.com
T: +1 609-987-2400
F: +1 609-514-4794
C: Lorne Whitmore, Vice
President, Global Sales &
Product Management
E: lwhitmore@pfs.com
A: 600 College Road East,
Princeton, NJ 08540, USA
W: www.pfs.com
T: +44 (0) 20 7651 8800
F: +44 (0) 20 7651 8811
C: Ian Crompton, sales director,
SimCorp Dimension
E: ian.crompton@simcorp.co.uk
London EC4N 8DQ, UK
W: www.simcorp.com
T: +44 (0)118 378 8239
F: +44 (0)118 931 4741
E: admin@icmacentre.ac.uk
C: Samantha Heslop
(please quote ref:IS001)
A: University of Reading,
Whiteknights, PO Box 242,
Reading RG6 6BA
W: www.icmacentre.ac.uk
Manifest offers global voting services to institutional investors encompassing 75,000
lines of stock around the world. We are renowned for the thoroughness,
independence and timeliness of our services, placing company research within an
appropriate local context. We deliver unrivalled consistency and transparency with
desktop-to-meeting electronic voting through our own web-enabled platform. Our
SWIFT membership gives us direct and seamless access to counterparties across the
globe. With research, policy, analysis, voting and delivery integrated into a single
straight-through process, it's easy to see why audit and control are central to our
service. Manifest - big enough to deliver, small enough to care.
AIM-listed Mondas plc provides specialist software solutions to firms dealing in the
Global Financial Markets. Our solutions increase process efficiency, improve
customer service and reduce operational risk.
Mondas is a market-leading supplier of solutions for global corporate actions
processing; financial research and client reporting, and management of new issues
and placings.
Mondas’ clients include HSBC, Credit Suisse, ING, Panmure Gordon & Co.,
Brewin Dolphin Securities, Investec, Williams de Broë, Man Financial, Stocktrade,
Evolution Securities and Rabobank.
www.mondas.com
peterevans is a leading independent provider of front to back office systems to the
financial services sector, providing both global solutions to major institutions and
highly-focused technology to smaller organizations.
The Company's creative, high-end solutions integrate seamlessly with existing infra-
structures to ensure business performance is optimised.
peterevans’ flagship products TRACS and Axim support end-to-end straight through
processing for the full range of back office automation and transaction requirements,
including SWIFT messaging. Tira, the company’s front to middle office system, links
effortlessly with the back office, providing fund and investment managers with one
of the most comprehensive tools on the market.
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.
SimCorp Dimension is a powerful, comprehensive and truly seamless investment
management system. It can handle NAV and other calculations, with complete
related accounting, for a huge variety of fund structures and product types, including
regional specialities. Support for broader functions, such as performance attribution
and risk management, are particular strengths of the system.
SimCorp Dimension has been designed from scratch as a total straight through pro-
cessing system, handling all aspects of the investment management process, consis-
tently. Data is recorded into a single database so that reporting is made easy, there
is no reconciliation of data and no duplication of procedures.
Training and Education
The ICMA Centre, University of Reading has an international reputation for providing
quality academic and professional programmes tailored to the capital markets indus-
try. Established in 1991 with funding provided by the International Capital Market
Association (ICMA) in Zurich, the Centre is housed in a purpose-built modernist
building with state-of-the-art facilities including two dealing rooms. Our academic
programmes include the MSc International Securities, Investment and Banking, MSc
Capital Markets, Regulation and Compliance, MSc Financial Risk Management and
MSc Investment Management.
Professional programmes offered:
- - ICMA and NASD certificate and diploma programmes
- - Practical finance workshops for market professionals (Market VaR, Options, Repo,
FX and Money Markets) – can be customised to company requirements
- - Simulated trading days.
79 INVESTOR SERVICES JOURNAL
Hindsight/Foresight
THGISDNIH FORESIGHT
“Life can only be understood backwards, Dr Nick Laxton, Head of Quantitative
but it must be lived forward.” Portfolio Strategies, Aberdeen Asset
Soren Kierkegaard
HINDSIGHT
How have investment management strategies evolved
over the past five years, with the benefit of hindsight?
Changes in the pension and accounting rules have had a
huge impact upon what clients need and naturally invest-
ment managers have had to adapt. The market has moved
to separate investment strategies that handle beta manage-
ment cheaply and effectively (such as liability driven
investments and swaps strategies) and then pay a premium
for returns uncorrelated to benchmarks and liabilities
(alpha). That has put a lot of pressure on transparency
with managers needing the capability to understand the
true nature of their investment strategies. The key change
for me is that investment managers have a stronger capa-
bility to use derivatives not only to manage exposure but
solely as a means to generate additional returns.
How have lessons learnt impacted on the development of
new and innovative strategies?
There has always been events such as the Russian debt crisis,
LTCM, the tech bubble bursting and Enron that
have brought more mainstream focus on risk manage-
ment. The key shift is the realization that the step forward is
not to constrain managers by constantly cutting risk; the
real trick is to take advantage of risk systems to manage it
more effectively. By increasing investment breadth we can
increase diversification and our risk systems can tell us by
how much – the best managers will then go spend it on
more strategies.
With the benefit of hindsight on market conditions and
volatility, what would you do differently?
I would have backed a friend of mine to finish his inter-
net poker site 15 years ago and bought a lot more property
– it’s still pretty much the only mainstream investment as
a private investor you can borrow to invest in. For our
portfolios I would have spent more time on commod-
ities but I can’t help thinking that there will be some
short term pain.
80 INVESTOR SERVICES JOURNAL
Management, contributes to the last
Hindsight/Foresight of 2006.
FORESIGHT
Are hedge funds still alternative?
Alternative to low fees? Yes. Some hedge funds are a
cost-effective source of higher return but there are an
awful lot that aren’t. I think the new alternatives are
asset managers who can now make the same offerings as
the hedge funds and be really competitive on fees. They
used to be the only ones offering diverse strategies in
derivative instruments but that is just not true anymore.
The shift in investment strategy for asset managers
means their style is becoming more like hedge funds
with a quest for uncorrelated sources of total return.
Hedge funds are not doing anything particularly new
although they tend to be in a nicer part of town.
Over the next few years where will the largest returns
come from?
Commodities will fall in the short term, but longer term
there is a limit to supply and an increase in demand as
Asia (China) gets stronger and stronger. When someone
issues water futures – buy them.
More mainstream investments will need to rely on port-
folio construction and increasing investment breadth. If
you increase your uncorrelated sources of return then
you can use leverage in an effective and risk managed
way to maximize your returns. I think we will see more
managers use these techniques in the next few years.
What's the biggest risk you face?
Taking ourselves too seriously and being very aware that
all investors can get it really, really wrong. When we are
working on our portfolios and how to put together
investment ideas in increasingly “better” ways, we have
be just as diligent in working out all the pitfalls. Too
many managers believe they are infallible – that doesn’t
make common sense. Nobody throws sixes every time.
ISJ