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S ERVICES
JOURNAL
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© UBS 2008. All rights reserved.
HEADS UP
INVESTOR
S ERVICES
JOURNAL
VOL 5 No. 28 - 2008 A behemoth is born
he big news this month will be technology systems not up to the job?
CONTENTS
23 Domiciles reports
Isle of Man and Guernsey
24 Offshore funds
Global jurisdictions wrapup
■ Custody 24
Idyllic funds
32 Nordic custody
Growth in an established market
■ Securities lending
38 Canadian custody
Not the 52nd state 48 Proxy voting
The XML era begins
Risk - the product of 40 UK Custody
Has global M&A in the UK
corporate culture? ■ Hedge funds
43 Transfer agency
1 Heads up Conference report 52 Panel discussion
Editor’s letter Hedge funds
■ Technology 60 Hedge fund statistics
4 Letters
Points of view Securities on loan
44 Fee billing
Performance above all else?
■ News ■ Payments
45 Client reporting
6 Global snapshots & mandates Growing client demands 61 UK Faster Payments
Round up of securities services
headlines from isjnews.com 62 Analyse this
SEPA
10 News analysis 38
Reading between the lines ■ Regulars
14 CEO profile 66 Company profile
Digger Donahue of BBH Bank of Ireland
Custody-Depositary / Trustee
Fund Administration
Corporate Trust
CACEIS benefits from an S&P AA- rating
ISJ28 pp1-15 ML 12/3/08 6:07 pm Page 4
/PSEJD#BMUJD&YDFMMFODF
SEB is the leading provider of custody and clearing services in the
Nordic/Baltic region.
Business is built on long standing partnerships with our clients.
Our commitments are efficiency, reliability and providing the highest
service quality.
For further information please contact: Global Head of Custody Services: Göran Fors,
goran.fors@seb.se. Head of Sub-Custody Client Relations: Ulf Norén, ulf.noren@seb.se.
ISJ28 pp1-15 ML 12/3/08 6:07 pm Page 6
NEWS
NEWS
opportunity to claim damages exchange and clearinghouse, platform. Superderivatives Technologies and
to which they are legally will offer clearing and also provides risk private wealth vendor
entitled. settlement services for management, revaluation and Odyssey Financial
physical OTC natural gas online options trading Technologies have
London - An online survey contracts beginning 3 March, solutions. announced a global
conducted by FRSGlobal, 2008. Physical clearing on partnership to offer Redi2
provider of multi-country select US trading hubs will be SECURITIES LENDING
Revenue Manager as the fee
regulatory reporting available as part of the Dublin - State Street
billing and revenue billing
solutions, has found that 41% previously announced alliance Corporation has
component of Odyssey's
of respondents consider their between ICE and N G X. The expanded its relationships
wealth management platform.
business’ reporting process first two natural gas hubs with two of its clients, N e w
Odyssey began searching for
lacking in standardisation, available for cleared physical Star Asset
a more robust fee billing
with 17% of respondents delivery will be PG&E M a n a g e m e n t and
solution in early 2007. Under
saying that a standardised Citygate and GTN Malin, Muzinich &
the new licensing and reseller
process is non-existent. Over with additional US hubs to be Company (Ireland), to
agreements, Odyssey will
a quarter of respondents announced in the near future. include securities lending
initially offer Redi2 Revenue
(25.5%) expressed low levels NGX's clearing organisation services. State Street will
Manager to its North
of confidence in their will serve as the central provide securities lending
American clients. The next
organisations ability to counterparty for physical services for EUR225 million
phase of the relationship is
measure operational risk. delivery and financial in assets and facilitate lending
expected to target Odyssey's
performance. for an additional EUR1.3
European client base, which
MARKET INFRASTRUCTURE billion in assets via an
includes more than 180
Atlanta - N e w Y o r k - Office exclusive lending
financial institutions in 30
Intercontinental systems provider arrangement for New Star
countries and 15 of the top
Exchange (ICE), a major SuperDerivatives has Asset Management’s Irish
25 European banks.
operator of global exchanges announced a partnership with domiciled funds.
and over-the-counter (OTC) Liffe, which will allow its NEWS DAILY AT
markets, and Natural Gas customers use of the Liffe TECHNOLOGY
WWW.ISJNEWS.COM
Exchange (NGX), an energy Connect electronic trading Oakland, CA — Fee
billing vendor Redi2
NEWS ANALYSIS
An unfair Definitely
handicap maybe
bsolute return equity funds came
A
iscussions, probably not
“ A masterpiece! The story hinges around BNP Paribas Securities Services, who are always coming up with
new and ingenious ways of providing their clients with a winning solution. In this book, we uncover the
secrets of their success: their on-the-ground presence in Europe, Asia-Pacific and the US means they are
perfectly placed to address the full range of their clients’ business needs, on a global scale.
BNP Paribas Securities Services - close to clients, close to markets. ”
BNP Paribas Securities Services is incorporated in France with Limited Liability and authorised by the French Regulators (CECEI and AMF). BNP Paribas Securities
Services London Branch is regulated by the Financial Services Authority for the conduct of its investment business in the United Kingdom and is a member of
the London Stock Exchange. BNP Paribas Fund Services UK Limited, BNP Paribas Trust Corporation UK Limited and Investment Fund Services Limited are wholly
owned subsidiaries of BNP Paribas Securities Services, are incorporated in the UK and are authorised and regulated by the Financial Services Authority.
www.securities.bnpparibas.com
ISJ28 pp1-15 ML 12/3/08 6:08 pm Page 12
NEWS ANALYSIS
Behemoth A dip
is born arrives
Thomson gobbles up US mutual fund investors
Reuters come over all shy
egulatory bodies across the board n the wake of a 2007 that was
“Digger” Donahue
has been at private
bank BBH for more
than thirty years and
takes time out to talk
with Giles Turner
egun nearly 200 years ago as an
clams instead of sitting at a desk in a suit thing in the 70s and 80s. At that time
and tie.” there was hardly anyone who was any
With no activist interference, BBH good at it or who even wanted to try it. It DOUGLAS A DONAHUE JR
remains independent. However this was an entrepreneurial, let’s give it a try,
independence only remains through approach. We had been a United States
continued success. Donahue started his sub-custodian for foreign financial Douglas (Digger) Donahue was
BBH career as a commercial banker at the institutions for decades but global
Boston office. “The Boston office was a investment was a new activity in the 70s named managing partner of the
very entrepreneurial place and I could see and 80s that grew very rapidly.” private banking firm of Brown
that if I just stayed in the office doing At present, anybody in the global Brothers Harriman & Co. (BBH)
spreadsheets then it was my own fault. custody services space has to be alert to in January 2008.
Others had been very successful by the economic and liquidity implications of
getting out of the bank and attracting the spreading credit crisis. So far BBH
good business. This was lots more fun has managed to avoid any direct He joined the Boston Office of
and was the way the best careers were problems, a fact less to do with luck, and BBH in 1976 as a commercial
shaped.” more to do with long term planning. banker. Over the course of his
Perhaps the best way to continue good Donahue explains: “One of the things
business is make sure that lessons learnt that comes with a lot of continuity and
career he became involved
are passed onto the next generation. stability in an organisation is a long-term with the firm's Investor
General partners like McConnell work at perspective that includes seeing cycles Services business which
BBH until age of 65, after which they going up and down and not getting operates through 8 offices
give up day-to-day line management but carried away with things. There is located in the world's primary
remain general partners until the age of independent thinking and not just a ‘me
74. They can then remain limited too’ herd mentality.” Donahue argues financial centers.
partners of the firm for as long as they that the sub-prime event was a Black
desire. “They are provided a desk, a lot of Swan, so called after Nassim Taleb’s The Donahue assumed overall
them sit together, it is really a life long Black Swan: The Impact of the Highly responsibility for this business
kind of thing and a great source of Improbable. Until the 19th century and
strength and continuity for our firm,” the discovery of black swans in Australia, in 1997 and it has grown to be
Donahue says. it was assumed that all swans where BBH's largest business activity
This longstanding style of doing white. “Black Swan” is now a phrase for servicing over USD2 trillion in
business has been channelled into a widely unexpected events or processes, assets for the world's most
specialised, global firm. Rather than like 9/11 for example, or unlikly winners
competing by copying others, BBH aims of the Oscars. The sub-prime summer sophisticated asset managers
to deliver value where others can’t. For was a Black Swan, as everybody and financial institutions.
Donahue, one of the major areas of value thought that mortgages were great until
within BBH has been the securities the whole system froze up and nobody He was named a Partner of the
services business: “We build some of our wanted to buy anything from anyone.
most important relationships around this BBH managed to avoid this dark anomaly.
firm in 1990 and in 1997 he was
industry. We are very creative in the fund According to Donahue: “There is named the Partner in charge of
accounting world with pooling something in our outlook, I wouldn’t call the Boston Office and to the
techniques, share class hedging, and it conservative, but we don’t get carried BBH Steering Committee. He is
automatic rebalancing of fund of funds. away. There is scepticism that if
We try to be out on the early edge, for everyone is doing one thing, it might not
a director of numerous
example we are servicing many of the be as good as everyone thinks it is.” BBH subsidiaries around the
more innovative ETFs. We work with General partnership puts an element globe and is Treasurer of the
our clients’ new product areas and we into risk management that corporate Commercial Club of Boston.
help fund groups with their distribution companies often try and cover up by
strategies around the world.” heavy risk processes and technology. It
Another interesting aspect of Brown helps to manage risk when 100% of the Donahue is a 1969 graduate of
Brothers is that the firm started in 1818 firm is owned by the people who’ve Phillips Academy, a 1973
handling capital flows across borders and worked their careers there. At graduate of Dartmouth
now the business is doing the same with Brown Brothers there is a saying from College and a 1976 graduate of
investment flows across borders. years ago that the firm hires a lot of
Somewhere around two-thirds of high-powered MBA’s, brings them in at Harvard Business School.
BBH’s securities servicing business, their the bottom, keeps them there until Donahue resides in Boston and
largest business, is conducted outside the they learn the business, then makes sure New York.
US. It wasn’t always like this. “Cross they stick like glue. Donahue proves
border investment in the US was a new the point. ■
RISK MANAGEMENT
RISK MANAGEMENT
n 21 February, a leading provider the system at will. He was a 40 year old whether it is HR department involvement
RISK MANAGEMENT
Vix at market close
VIX is the ticker symbol for the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options.
Referred to by some as the fear index, it represents one measure of the market's expectation of volatility over the next 30 day period.
majority of risk management systems management software and processes. going to be watching, explain why they
were developed when the concept of a What can change in pace with financial think these are most appropriate and then
Chinese Wall was paramount. Front, innovation is the attitude of the company you watch them, report, and fill the
middle and back office were designed with towards risk. It’s not enough to see risk as scorecard. In the end this approach was
full independence in mind, yet no windows an important factor in day-to-day much more successful as we are giving
seemed to be in place in order for each business. What needs to be done is that responsibility to the individual.”
department to communicate when each individual needs to understand his or This approach may sound very simple
appropriate. When billions of euros are her own risk. Carrel recalls a personal in such a technological age, but giving
going back and forth in accounts that, like example: “You need to define responsibility to the individual is a tried
Kerviel’s, have strict and relatively minor responsibility and accountability, and then and tested method. However if you are
trading limits, any questions the back risk management will improve. I recall going to increase the responsibility of the
office might have about potential when we were implementing operation individual, do you also have to increase the
irregularities are voided by the depth and risk frameworks for a client in the context punishment of the individual when things
breadth of the Chinese wall. As Carrel for the preparation for Basel II. First we go wrong? Everyone asked seemed
succinctly puts it: “Why doesn’t the back thought we where going to define various reluctant to answer this question and
office know about what’s going on? trading processes and other complicated stressed the need to make the employee
Because he is not supposed to know, and procedures, yet after a few months we feel responsible, rather than flesh out
because he’s on the other side of the wall. ended up score carding, with a qualitative draconian retributions. The traders
All these risk management systems were approach, giving speeches all across the themselves have been taking some of the
developed five years ago and five years ago enterprise explaining that everyone has to blame for the recent economic problem.
in finance might as well be the time of the be responsible and defining this "Over the past few years, risk
dinosaurs.” responsibility. For example, the head of management has been an oxymoron.
Times change too quickly to always the desk makes clear their responsibilities, Banks haven't been doing it," said Larry
have the most up-to-date risk they then choose the risk factors they’re White, professor of economics at New
RISK MANAGEMENT
York University's Leonard N Stern product manager, thinks not: “There is reckless but briefly profitable trader. It is
School of Business. "They thought that still pressure to obtain alpha and people not as if the warning signs were obvious
all the extra return they were getting was are not going to change their culture any enough. A SocGen insider stated that
because they were the smartest, not time soon.” “Recently he’d spend all his spare time re-
because they were taking a lot of risk and How soon change will occur is up for reading Adam Smith's Wealth of Nations,
were just being lucky." Guy Bunker, chief debate, but after the subprime and the which is his favourite book." Too much
scientist at Symantec, agrees: “They have recent fraud events change, like an Obama faith in the invisible and not enough risk
become greedy – and like a gambler on a slogan, is inevitable. Perhaps the greatest awareness always spells disaster. ■
winning streak, they don’t believe they change within companies will be the rise
can lose, so the stakes get bigger and
bigger. In this instance the subprime
and rise of the risk management officer.
In the 60s the entrepreneurs held sway in
Tony Freeman, executive
debacle is something people didn’t a technocratic environment, in the 70s the director of Industry Relations
forecast or even really consider. In these marketing manager was king, in the 80s it and Market Growth EMEA on
cases it is agility that wins the day –
recognising the ‘new’ risk and then acting
was the finance manager, in the 90s it was
the M&A team, the beginning of this
Risk, Communication and
on it. Tougher internal governance is decade saw data managers wielding Office politics.
required to ensure that the risk is fully power, and now these next years will see The SocGen incident highlights not
known and understood.” the risk managers consolidating their just the efforts of one man but also the
Tougher internal governance also power. It will take some time for the risk miscommunication between various
means forcing traders to relax once in a mangers to implement a new corporate parts of an organisation – something
while. In 2007 Kerviel refused to take any culture, but time is not being wasted. One that is prevalent across many firms. In
holiday, and by early January this year he large investment bank has already put this instance it appears to be
was placing around EUR50 billion on through a GBP150 million risk report, an communication between front and
three European stock indices, more than expensive enough undertaking even back offices. The back-office did query
SocGen’s entire market value. While before any implementation, but cheap Kerviel’s fictitious trades to hedge
many quips have been traded at enough compared to a USD7 billion against the enormous positions he was
conferences about Kerviel being the first write-down. trading, but it was a further 10 months
before the whole incident came to
light. One senior banker sent in to clear
If you are going to increase the responsibility of the up the mess said that he didn’t think
SocGen’s risk-control techniques were
individual, do you also have to increase the punishment any different or worse from most other
banks. This is of course a concern. The
of the individual when things go wrong? major problem is that the different
functions around risk management and
Frenchman not to take a holiday, the irony It will be impossible to stop ‘rogue control still operating in silos. What
is that despite social stereotypes, forcing traders’ getting into the system, but a needs to happen is a weaving together
Kerviel to take a holiday would have corporate culture that gives responsibility of risk, control, exposure etc as part of
avoided, or at least scaled back, some of to the individual, rather than relying on an overall, institution-wide risk
the USD7 billion losses taken by SocGen. the most up-to-date risk process, is more management effort.
Okochi of Reval explains: “A simple Fed likely to succeed. Carrel explains: “We The back office has been given a
rule is that you are supposed to be off need to review the way we manage risk. hard time as a cost-centre and an
your desk for two weeks a year. If you’re Don’t start with what is being done, start impediment to faster trading in todays
not on your desk and you’ve got some fake with what needs to be done. I think the volatile markets. Quotes from recent
positions against real positions, all that risk manager today is somebody who press coverage include: “Back office
stuff should unravel over two weeks. I holds the truth about the real worth of a staff add cost but do not generate
can’t say every trader that I’ve ever company. An employee’s performance revenue,” and that giving more power
worked with took the full weeks off, but should not impress the risk manager if to the back office would “create a
switching people off books for a period of the same employee does not follow the group of people who see nothing but
time would certainly help unravel day to risk policy of the company. ‘Yes you have risk and for whom it would be easier to
day massaging of figures.” outperformed, but you are fired’ should be say no.” In the SocGen story it appears
that the organisation didn’t know what
There will always be rogue traders and the response. What we see now is the
trades it had executed resulting in false
corporate fraud. When asked if traders beginning of the era where the risk positions on its books. The level of risk
will always slip through the risk manager is the holder of the truth, the was therefore unknown. An efficient
management net, Carrel replied that “if real value of the company. Risk back office enables productivity in
there is a net, then there will be people management is the shareholder value the front office, it eliminates
slipping through the holes.” now.” operational latency and, crucially, by
What remains to be seen is whether Those willing to act on warning signs, implementing fast and accurate trade
corporate culture will change in the near such as a trader refusing to take holidays, confirmation it provides the foundation
future. Dan Cohen, Misys Summit will be of more use to a company than a of operational stability.
regime may not rectify the situation. “A Instruments Directive (MiFID), which
relaxation for foreign firms may improve came into effect in November last year,
London’s financial markets registrations in New York; however, was a significant driver in the decision to
businesses might be concerned about introduce more flexibility into its regime.
The Bank of England, based in the future changes. The actions that According to the regulator, the new
City on Threadneedle Street, is the regulators take build up a history of approach was a “radical simplification” of
country’s central bank and the behaviour. If the US is viewed as over the rules governing banks and
government’s banker. The bank used
prescribed regulation-wise, or constantly investment firms and a move away from
to regulate the financial markets
before the government launched the
needing to revisit its regulation, this the excessive detail and prescription of
Financial Services Authority (FSA) to would likely cause firms to consider the previous rulebook.
take control of financial regulation. alternatives,” she explains. “The move towards principles-based
The FSA is an independent non- Furthermore, it is not just Sarbanes- regulation means focusing on the
governmental body that was given its Oxley that lies at the root of the US IPO outcomes that really matter rather than
full powers in 2001 by the Financial exodus. The London Stock Exchange on procedural box ticking,” said FSA
Services and Markets Act 2000. The commissioned report indicated that US director of retail policy Dan Waters
FSA is accountable to treasury IPOs are simply more expensive and when the changes were announced. “It
ministers and through them to more complicated for companies to do. also gives firms the flexibility to achieve
parliament. It is funded entirely by The costs include significantly higher these outcomes in the context of their
the firms it regulates. fees for US investment bankers. particular business models and it fits with
The London Stock Exchange (LSE), According to the report, investment the emphasis we place on senior
like the Bank of England, transferred banking fees for New York IPOs are management responsibility, a core FSA
its role as regulator to the FSA. The roughly twice as high as those for London principal of good regulation.”
LSE operates in four key areas: listings and that is before taking into This more flexible approach to
equity markets, trading services, account the legal, accounting, marketing regulation is a factor that makes London
market information and derivatives. and other fees that US-listed companies attractive to the financial services
The exchange has two primary typically pay. Other problems in terms of community as a whole and hedge funds in
markets: the Main Market and the public image include the Patriot Act, the particular. “There is certainly a growing
Alternative Investment Market (AIM).
Department of Homeland Security, and hedge fund business in other parts of
AIM is the LSE’s market for small,
young and growing companies.
the perception that America doesn’t Europe but it is not likely to threaten
Euronext.liffe is the world’s leading welcome outsiders. London which is an established, stable
exchange for euro short term interest The UK’s cost efficiencies in terms of financial hub, a proven entity to the hedge
rate derivatives and equity options. compliance demands and more favourable fund community,” adds Valentine.
The exchange, which was formerly regulatory regime have proved great Of course, it is not just the US markets
the London International Financial attractions for the hedge fund community that are faced with the prospect of a
Futures and Options Exchange, is the in particular. “Hedge funds have recession – there is much speculation that
international derivatives business of registration lite in London and while the the events of last summer were a
Euronext, comprising the US regulatory bodies and congress precursor to a global recession. However,
Amsterdam, Brussels, Liffe, Lisbon appear confused and fussing about what Valentine does not believe this will
and Paris derivatives markets. to do about hedge funds, the Financial prevent London from continuing to
The London Metal Exchange (LME) Services Authority (FSA) has been quite thrive in the long term. “Currencies
is the world centre for non-ferrous directed and clear. The lack of ambiguity always move and would only be a single
(non-iron) metal trading, providing offers stability from a hedge fund factor in business decisions.
the global forum for all those who perspective,” explains Aite Group’s Economic climates, recessions and booms
wish to manage the risk of future Valentine. “Principles-based regulatory are again part of the landscape. Financial
price movements in non-ferrous regime rather than a prescribed regime centres are in effect a business which
metals. allows for interpretation and works to draw in ‘clients’, creating a
The British Bankers’ Association accommodation to a growth market favourable business environment. This
(BBA), the leading trade association
which is continually developing and extends beyond registration fees, to tax
in the UK banking and financial
services industry, is based in London.
changing. Prescribed regulation would breaks, infrastructure, regulation and so
Its members, as well as many no doubt require continuous modification forth,” she explains.
associate members, fund its not-for- which causes uncertainty and can lead to It would appear that for now at least,
profit activities. extremes where a rule is set up which London is at the top of its game. Like
London is the centre of the world’s ultimately has unintended consequences.” Wimbledon, it’s attracting top
insurance industry and Lloyd’s of In 2006 the FSA conducted an overhaul international talent and seems to be
London is the world’s leading of its rulebook, which heralded a move benefiting from the advantage of the
insurance market providing specialist towards a principles-based approach to FSA’s lighter regulatory touch. But the
insurance services to businesses in the way it regulated the UK financial city cannot forget the baseline – to
over 189 countries. services market. The FSA explained at remain competitive it needs to adopt an
the time that the Markets in Financial open stance. ■
DOMICILES REPORT
Fund launch the Isle of Man: “The Isle of Man was the clear
To coincide with the launch of the Isle of Man’s choice of domicile in which to base our
new fund regime in November last year, a operations when we formed the business last
number of new hedge fund operations have year, and the Island’s authorities made the set-up
established on the Isle of Man. These include the process very straightforward. It is now clear that
leading fund management firm Bridge Global our decision has quite literally paid off, with the
Asset Management (IOM) Ltd, which was issued Isle of Man’s low tax regime and competitive
Isle of Man with an investment business licence by the Isle of operating costs creating the perfect environment
Man Regulator, the FSC (Financial Supervision for our fund operations.
Commission). “The Island also offers a political and
Bridge Asset Management was established by economically stable platform on which to
partners Nick Corby, Gary Cressman, Aelita conduct business, while the capacity and
Arampova and Mark Slater in August 2007. In appetite for growth mean we have physical room
October 2007, the management company to expand our company. Obviously the Island’s
decided to base its middle, back office and close proximity to London and a high quality of
trading execution in the Isle of Man, while the life complete the picture.”
fund advisor was based in the Mayfair head We expect to see the successful Bridge Asset
office. This is in line with the model advocated by Management model replicated with further fund
the Island as part of its new fund regime management and administration companies
(formally announced in September 2007). basing operations on the Isle of Man in 2008.
The management company launched its first Despite the challenging current market
fund, Bridge Global Opportunities Fund (BGOF), conditions, we remain confident about
in October 2007 and it intends to increase the our ability to convert new business opportunities
size of its Isle of Man operations as other fund for the Island and have a very
strategies are added. full programme of conferences and seminars in
Four months on, Mark Slater, general counsel the coming months to showcase the Isle of
at Bridge Asset Management has commented on Man’s credentials.
the benefits of the company’s partnership with Brian Donegan, director, Foreign Direct
Investment, Isle of Man Finance
INVESTOR SERVICES JOURNAL 23
ISJ28 pp16-31 ML 13/3/08 2:01 pm Page 24
OFFSHORE FUNDS
OFFSHORE FUNDS
Malta: The jurisdiction’s relatively short history as an centres such as the Cayman Islands to ‘onshore’ domiciles
based in the EU or the US.
international funds centre began in 2004 after it was
welcomed into the EU as one of nine accession states. He credits a “regulatory framework that is flexible and
Between 1988 and 1994 Malta’s financial services industry working well” as the most important factor in the domicile’s
had been governed by offshore legislation and had 2,500 current success but sees a “combination of factors rather
trading companies on the island but just a handful of banks than a single feature” as the key to any long-term success.
and financial services companies. The fact that it is English speaking has helped and human
The offshore legislation was repealed in 1994 as Malta resources have increased. Of the 400,000 population
embarked on a strategy that would see it adopt EU practices roughly half are employed and just over 7,500 are working
and regulation, as seen by the implementation of the in the financial services industry and Xuereb believes that
Investment Services Act. The 10 year phasing out period for there is room for growth.
offshore companies based in Malta coincided with the Nevertheless, capacity will undoubtedly be a concern for
island’s accession to the EU. Now, four years on, there just a domicile the size of Malta and it has turned to education
over 50 UCITS funds, 150 hedge funds, 21 banks, 13 fund as a way of swelling its numbers. “All academic institutions
administrators and over 10bn in assets under management in Malta are geared up for providing more training in
– a sharp increase from the 1bn of just 18 months ago. financial services,” says Xuereb adding that the MFSA
According to Michael Xuereb, director for strategic provides areas of training as required. There are currently
development at Malta’s Financial Services Authority, the 10,000 university students and despite the frequency of
growth in Malta-based hedge funds has followed an emigration, it is these students that the funds industry is
international trend of moving from the traditional offshore targeting, says Xuereb.
Guernsey and Jersey: Capacity is also an issue it is assumed that with that much money the investors will
be able to afford the professional advice they need. It also
for the Channel Islands, such as Jersey and Guernsey,
which have a longer history in the funds industry than complements our existing regulated regime and the recent
Malta but are similarly looking to expand their respective updates we have made to company law.”
funds markets. Jersey in particular has been successful in The fact that Jersey has been able to introduce such
recent years in developing itself as one of the top European legislative changes is indicative of a government that is
centres for property funds and private equity funds but is pro-finance and pro-funds, says Kirkby, an attitude that he
yet to establish a dominant position in the hedge funds feels has helped Jersey to overcome a lot of its capacity
market, something which it is attempting to change. constraints. “The government recognises that it is very
“We recently introduced the Unregulated Funds Regime lucrative work so the immigration of professionals is well
which is available to high net worth investors,” says Robert supported and I have yet to hear of any company that was
Kirkby, technical director for Jersey Finance, the body not able to attract the staff it needed.”
established by the Jersey government and the finance So what is so attractive about Jersey? “It has a low tax
industry to promote the island as an international financial regime and it is a nice place to live – there are good schools
centre. “It is wholly unregulated unlike other domiciles and hospitals and a low crime rate,” says Kirkby. The
which have a fast-track registration or partial regulation commute is rarely longer than 10 minutes and in the same
regime. There is a minimum requirement of $1 million and space of time you can be on the beach. And for those that
base in
bermuda
a proactive jurisdiction with a premier reputation • low cost set-up and administration • speed and precision
ʥˇˆ˃˔ ʪˑ˗˕ˇʏ ʔʒ ʸˋ˅˖ˑ˔ˋ˃ ʵ˖˔ˇˇ˖ʏ ʪ˃ˏˋˎ˖ˑː ʪʯʓʔ ʤˇ˔ˏ˗ˆ˃ ˖ˇˎʎʖʖʓʎʔʛʔʎʒʘʕʔ ˈ˃˚ʎʖʖʓʎʔʛʔʎʓʙʛʙ ˙˙˙ʎʤʫʤʣʎˑ˔ˉ
ISJ28 pp16-31 ML 13/3/08 2:07 pm Page 28
OFFSHORE FUNDS
seek a more exciting night-life, London is just a 45 minute – and it is this ability to respond to changing market
plane journey away. conditions that Fuller says is one of Guernsey’s key
It also helps that work is interesting, says Kirkby, advantages.
something which ahs helped attract the local work-force “Guernsey has to be able to do things differently and
along with an extensive training program – something create an environment where this is possible,” he says.
which Kirkby says will help sustain the Island in the long- “There has to be an interaction between the legislators in
term. “After all, you can only have regulatory arbitrage for Guernsey, the market and the regulators and Guernsey is
so long.” very good at that and has always been very responsive.”
Long-term sustainability will also be helped by Jersey’s Some of this responsiveness is down to the proximity and
heritage, says Kirkby, who accepts that the current number accessibility of Guernsey meaning that if a fund manager
of international funds centres is unlikely to be so high in wants to see his administrator, custodian and regulator all
five to ten years time. “There is clearly no need for so in one day, they will all see you, claims Fuller. Furthermore,
many,” he says. there is a collective will among all sides of the market in
Where some of the newer domiciles will struggle, he says, Guernsey to grow the industry, something that tends to
is their lack of a proven track record. “The key requirement exist in the smaller domiciles and which helps to cultivate
for fund managers is service levels and that comes from an accommodating yet robust enough regulatory
having the right people on the ground and the history. environment, something that Fuller believes will be
Jersey has been an established funds centre for the last 10 increasingly important for the alternatives market.
to 15 years, it has the people, it has a robust court system “There is more institutional money driving hedge funds
and a reputation which the new domiciles will struggle to and there is more need for good corporate governance and
gain.” for compliance oversight which can be done more easily in
Heritage and reputation are cited as important factors by Guernsey than the Caribbean,” says Fuller.
those involved in Guernsey’s funds industry. As Robin Guernsey is set to introduce a new Companies Law
Fuller, managing director of Guernsey-based Dominion later this year (June), a new electronic company registry
Fund Management, says, Guernsey predates Dublin, if not and the investment regulations are all being upgraded in
Luxembourg, as an offshore fund centre, beginning response to industry demand, all of which is part of the
operations in the late 1960s, primarily for UK institutions. strategy for growing Guernsey as a funds centre, says
It then assumed more of a retail focus in the 1980s before Fuller. “This is what attracts people to Guernsey –fund
returning back to the institutions given the success of managers are constantly looking to innovate in the
Dublin and Luxembourg in the retail sector. alternative funds sector, to do something different,
Currently much of Guernsey’s fund industry is centred on Guernsey is responsive to this. It is willing to support
the more specialised side of the market – property and real managers ‘pushing the envelope’.”
estate funds, private equity, hedge funds and fund of funds
Dubai: One new market that has emerged without any Dubai is not just trying to be a Cayman Islands for funds or
a Dublin for fund administrators. “We are more trying to
of the heritage enjoyed by the Channel Islands yet in many
people’s eyes, it stands a better chance than many of create an all-embracing capital markets centre, akin to
enjoying some long term success as an international funds London where there is a coming together of all kinds of
centre. For example, as BNY Mellon’s Murphy states, not financial services firms.” Consequently, he says, the funds
only can it cater for specialist funds, notably Sharia funds, industry will be subservient to the capital markets activity
it is more immune to changes in market conditions given that will in turn create the encouragement for asset
the financial resources of the Emirates and, similarly, has managers to be here.
few capacity constraints in either infrastructure or people. The Dubai International Financial Centre has been in
“We are looking at Dubai as a possible fund centre for the effect since September 2004 but the collective investment
future. With the current demand for Islamic finance and legislation was only introduced in March 2006. Funds
Shariah funds it makes sense to have a presence there.” domiciled in Dubai only number 11 currently but this is no
The first thing Kevin Birkett, director, asset management great surprise says Birkett as they are still waiting for the
at the Dubai International Finance Centre, says is that market to establish and the industry to arrive.
“The asset management is here in large numbers but
OFFSHORE FUNDS
only really as sales outposts rather than manufacturing an issue. The current centre is twice the size of Canary
centres,” he says. “Now we are beginning to see more Wharf (110 acres) and there are 65 buildings being
funds looking to manufacture products here but they are constructed on the site to cater for both residential and
still using the traditional Luxembourg/Cayman/BVI route at commercial properties. “Our current problem is getting
the moment. them up quick enough to cope with demand,” says Birkett.
The plan is a long-term one, even if ‘long-term’ is a In terms of labour, the market is very much ex-pat,
phrase not readily associated with Dubai. What is more however there is a difference in many of these ex-pats now,
readily associated with Dubai and the Middle East is the says Birkett. “Historically Dubai was seen as a hardship
whole area of Islamic finance and shariah funds, however post where you would stay for two years maybe and then
Birkett stresses that there is also a number of firms return to the family but now people buying property here,
engaged in conventional business. sending their children to school here and generally
Birkett also insists that Dubai is not really offering any establishing a life here.”
specific incentives for firms to set up there – so no seeding Overall Birkett remains confident that Dubai will prove to
of funds or similar tactics. “We think we have created the be successful. “I think this is another one of those
infrastructure here that will make us an attractive initiatives in Dubai that just does not fail. I can’t think of
proposition. We have a common law jurisdiction in the any market in this region that could have an English legal
middle of a shariah law country. We have an IOSCO- system and an IOSCO regulator and I think that’s been the
accredited regulator (the DFSA), we allow 100% ownership secret of our success.”
of a company, which is rare in Middle Eastern countries, Birkett also cites the amount of wealth in the Middle
and there is a guaranteed free tax rate for the next 50 East, something which certainly protects areas like Dubai
years. more than other territories when it comes to market
“These features along with the economic growth that is slowdowns. “I don’t think Dubai is ever immune to global
happening here, should be enough to attract a lot of firms,” recessions or credit crunches but it is so far removed from
says Birkett. In the three years since the DISC was set up, the centre of the action and in a business with so much
the regulator has licensed 178 firms, including banks and economic activity around us. There are ripples perhaps but
private equity firms, to operate there. no-one is getting wet.”
As would be expected in Dubai, capacity is unlikely to be
North America: In contrast to the example of want to be closer to their families or start their own,” says
Suber.
Dubai and its image as an oasis in the desert attracting
young ex-pats in search of a lucrative life, albeit that many It is not just Canada that is attempting to establish itself
more are settling for longer periods, there are a number of in the Americas. Suber also mentions South and Central
Canadian cities that are competing for employment, American domiciles such as Costa Rica, as well as South
particularly in the fund administration market. East Asian countries like Singapore and the Philippines as
Ron Suber, president of Spectrum Global Fund territories that are providing a talented accounting and
Administration mentions the Canadian cities of Nova operations resource pool to fill the growing capacity for
Scotia, Prince Edward Island (PEI), Ottawa and Toronto as fund administration.
having been particularly aggressive in soliciting hedge “Having universities that are producing talented,
funds and offering a multitude of incentives. motivated students with accounting and brokerage
As many others have stated, Suber does not imagine that knowledge and training along with a pool of labour that
all of the new territories will be able to sustain any long- wants to live and remain in that area will be key,” says
term success but what is interesting about the Canadian Suber of the various training and education efforts
cause is that in most cases it has involved attracting underway at these new destinations. But as much as the
Canadians back form the various off-shore domiciles, such desire for staff to live and raise their family there and the
as the Cayman Islands, Dublin or Bermuda. ability to encourage young professionals and graduates to
“Many of the Canadians that went to these off-shore develop their career there, some good old-fashioned
destinations are now at the point in their lives where they financial, tax or real estate incentives will always help, says
want to come back to Canada. Many of them are older and Suber. “The combination between these factors is
important – those incentives cannot be overlooked.” ■
means
Although the passing of the Act
that Bermuda's fund
capitalisation of Bermuda's reinsurance
industry rose more than 20 percent to situation. When it came down to it, it administrators will be licensed for the
reach USD129 billion by the end of the was a very short list of places that we first time, Minister Cox has been quick to
third quarter of 2007. That staggering considered and Bermuda was at the top." point out that it is not the case that there
figure is greater than the 2006 gross Packwood cites the ongoing has been no regulation of service
domestic product of many countries, cooperative support and consultation that providers.
including Pakistan and New Zealand and thrives between government, the Prior to the Act, fund administrators
oil-producing Nigeria, according to business community and regulators were regulated entities under the
International Monetary Fund (IMF) which ensures that appropriate yet Proceeds of Crime Act 1977 and were
figures. flexible legislation and regulation subject to a higher level of due diligence
And, in the investment industry, remains a priority. The passing of the when handling subscriptions and
Bermuda also enjoys a world class Investment Funds Act 2006 in December redemptions similar to those imposed on
reputation. At the end of 2007, after last year by Bermuda's House of banks, trust companies and investment
making the decision to leave London, Assembly was applauded by the business providers. While many funds register in
leaders of Invesco quickly arrived at the community in Bermuda. other jurisdictions, Bermuda is one of the
conclusion that Bermuda was the best BIBA (the Bermuda International leading choices for companies to
place to redomicile. With more than Business Association) gave its full administer their funds, regardless of
USD500 billion of assets under endorsement to the legislation, which where they choose to domicile. Bermuda
management, the company picked the outlines more clearly the regulation of actually administers a substantial
Island because of its legal and public funds and refines the framework proportion of the funds which register in
regulatory environment and the for non-public, institutional funds. Cayman, for instance.
similarities of those to the laws of the Packwood stated: "As I commented at the BIBA’s members are enthusiastic about
US state of Delaware. A company time the legislation was enacted, this Act both the intent and content of this
spokesman said that a number of the is yet another example of the positive legislation. Combined with Bermuda's
large companies already domiciled in results of collaborative consultation superior infrastructure, reputation and
Bermuda were recognised and respected between Bermuda's private and public intellectual capital, the island is poised to
by Invesco, which presented an sector partnership. It is the policy in effectively garner its share of the
additional reason in the Island's favour. Bermuda for the Ministry of Finance and booming global fund business.
Another attractive feature for those the extent that it was inappropriate and
choosing to register and list in Bermuda impinged on fund managers’ ability to
is a unique vehicle whereby funds can be effectively carry out their investment Highlights of the Investment
simultaneously approved by the BMA strategy. Julie McLean said that
and listed on the Bermuda Stock exchanges needed to have a balanced Funds Act
Exchange (BSX) in as short a time as approach whereby investor protection is
• a clearly defined distinction
two weeks. achieved while still allowing funds to
between public (retail) funds and
In late 2005, a New Product carry out effectively their investment institutional or non-public funds;
Development Committee was established strategy. “This is what we feel the BSX • refined powers to exclude funds
as a joint initiative between BIBA offers,” she added. from particular requirements,
members of the private sector, engaged The ‘Designated Investment giving certainty as to the minimum
in funds and trust business, the BSX and Exchange’ recognition given to the requirements expected of fund
the BMA in order to stimulate creative Bermuda Stock Exchange reflects that it operators;
thinking and devise new products that is a properly managed exchange with • more clearly defined exclusions
would appeal to global investors. sophisticated trading platforms and not from fund regulation, so funds of a
The first product developed, ‘Launch ‘n just a mere listing board. In addition to ‘private nature’ are not captured;
List’, leverages the fact that Bermuda has the effective regulation of the BSX, the • the inclusion in the legislation of
a fully electronic stock exchange with exchange has the ability to be nimble partnerships, as well as mutual
Designated and flexible in its approach to listing fund companies and unit trusts
Investment funds. “An example is funds with side (under previous legislation
Exchange status, pocket investments,” said Julie McLean. partnerships were not covered);
as well as a “The BSX has never had an issue with • regulation and licensing of fund
regulatory listing such shares.” administrators;
authority with a As mentioned above, the co-operation • the introduction of a new class
practical but between the Bermuda authorities and of funds, known as ‘administered
effective approach funds’. With the introduction of
the BSX in the ‘Launch ‘n List’ process
licensed administrators, it is now
to regulation that means that funds can apply to
possible to register funds under
this class with the level of
Bermuda's reinsurance industry rose regulation adapted on the grounds
that the administrator is based in
more than 20% to reach USD129 billion Bermuda and subject to codes of
Cheryl Packwood by the end of the third quarter of 2007 conduct and fund rules that will
ensure the proper level of
supports development of bespoke incorporate and be classified under fund governance of the fund;
products for the investor. As of regulations at the same time that initial • clearer definition of the rules for
December 2007, the BSX was designated application is made to the BSX for the appointment of service
by the Board of the United Kingdom’s listing. providers and delegation of powers;
HM Revenue and Customs as a Greg Wojciechowski, President and • a new section enabling unit
“Recognised Stock Exchange”. CEO of the Bermuda Stock Exchange trustees to hold property in
The committee is chaired by Conyers and a member of the New Product segregated accounts and defining
Dill & Pearman partner, Julie McLean Development Committee commented how these accounts will be
who explained: “Funds usually list for that: “We continually see issuers managed. This affords trustees the
two main reasons. The first is that listing coming from jurisdictions all over the same benefits as companies
insures that the shares of the funds are world seeking to incorporate in operating with segregated
considered liquid assets, which many Bermuda and list on the BSX. The accounts;
institutional investors prefer since they • rules for prospectuses of funds
Launch ‘n List product was a logical
that are clearly set down and
are frequently prohibited, for various extension to offer our clients a one-stop
distinguished from the general
reasons, from investing in illiquid assets. solution.” rules under the Companies Act of
Secondly, hedge funds are largely Mr. Wojciechowski also pointed out 1981;
unregulated so listing provides a layer of that the new product will not only apply • enhanced powers for the BMA to
comfort to investors that there is an to the funds industry but will also be inspect funds and to require more
independent, regulatory body important for products such as private information;
monitoring the funds to ensure proper equity and debt transactions. • more clearly defined
corporate governance and compliance The ‘Launch ‘n List’ product is an requirements and powers for
with stated investment strategies and example of the innovative yet quality sharing of information with other
restrictions.” business that Bermuda can provide regulators;
The feedback the committee received discerning global investors and is the • the introduction of a right of
was that the larger exchanges had brainchild of a successful collaboration appeal to a tribunal, similar to
increased their regulatory approach to between the public and private sector. ■ other financial institutions.
NORDIC CUSTODY
W established community of
institutional investors whose
strategies are becoming increasingly
"Given the differences between
markets, the market knowledge from a
custodian is very important, to guide
customers with a harmonised solution
that is as simple as possible, even though
the local environment is pretty
sophisticated, the growth potential of investment banks and global custodians fragmented," says Johan Wennerberg,
the Nordic custody market is attracting in the market to get the best benefits and vice president & head of Relationship
the attention of both local and global information," says Anne-Lise Management at Handelsbanken Asset
institutions, in an environment that Kristiansen, head of sub-custody at Management.
remains fairly fragmented. Nordea. However, he admits it can also be seen
Indeed, it would be more appropriate For established regional players fully as an opportunity, "because it makes it
to talk about Nordic markets, with four versed with the local nuances, such more difficult for new competitors to
countries - Sweden, Norway, Finland and fragmentation constitutes both a enter the market. They need to set up in
Denmark - that have different challenge and an opportunity. many different places and adapt to
languages, currencies, regulators, tax "There are challenges for regional different systems, so it can be seen as a
www.danskebank.com
The leading Danish custodian can open the door to the entire
Nordic region.
Issued by Danske Bank, Copenhagen and approved by Danske Bank, London Branch, 75 King William Street, London EC4N 7DT, which is regulated by the Securities
and Futures Authority for the conduct of investment business in the UK, and is a member of the London Stock Exchange. The rules and regulations made under the
Financial Services Act 1986 for the protection of investors may not apply to investment business carried out from offices outside the UK.
ISJ28 pp32-51 ML 13/3/08 4:34 pm Page 34
NORDIC CUSTODY
type of barrier to entry." doing that, they are having to invest in Mellon. "They have strong appetite for
This lack of harmonisation is not the more alternatives, derivatives, and with highly technical interfaces. As an
only hurdle awaiting custodians that come much more sophisticated organisation, BNY Mellon has invested
wanting to set up shop in Scandinavia. product lines like cash collateral heavily in building these interfaces and
Banks that are not established and management." we have had good experiences in
regulated locally cannot act as a trustee Another potential new opportunity in working with our top tier clients, which
for local funds, forcing players willing to the field of securities services was go beyond the level of interfacing we
take on the fund's global custody brought on by recent changes in see in many other markets. It would
incorporate not just transactional flows,
but an array of data sets."
"If you are a local player, you are competing For Newby, the barriers of entry are
not necessarily around whether you are
head-to-head with institutions that have a global client international or local. "I think it is about
base; and that is very difficult to compete with" having the range of services and having
made the investment in the technology
that is now being demanded by the
business to strike up a co-operation Finland's tax laws. underlying clients," he explains.
agreement with a depot bank in the local "Clients are now able to lend Newby considers that BNY Mellon's
market. securities," Senior explains. "Securities win of a major mandate in the region
Still, for all the complexities and lending is going to be a big thing this last year, for one of the largest Nordic
subtleties of the Nordic markets, the year in Finland and in Norway. We are pension funds, Denmark's ATP in
opportunities presented by their vibrant seeing mutual fund lending showing Denmark, demonstrates the advantages
investment communities are enough to more promise in being able to expand offered by a global house over local
motivate local and global providers the percentage of assets being lent." banks.
alike. Another trend in demand from "ATP moving from a local to a global
"We see huge increases in transaction domestic clients is a growing interest in (player) is a good example of this," he
volumes," says Wennerberg. "Of course, high growth foreign markets such as says. "In some countries, there has been
investment banks and international Far-eastern Europe or Africa. "This is a preference towards local house banks,
brokers represent a big part of that something that keeps our global custody but as the clients' investment strategies
business. However, the local pension network quite busy," Wennerberg says. have become more complex, their needs
funds and domestic client segments are This international appetite also have expanded, and we are increasingly
also growing quite a lot. We do see local increases the sophistication of the seeing them look toward providers who
companies popping up and doing very clients needs, according to Senior. "You have the global reach and range of
well in the market. Hedge funds are also are seeing this much more diverse products that can meet their changing
an area that is growing very quickly, investment strategy, clients are moving needs."
mainly in Sweden, but also in the other into world markets they haven't been in "ATP was looking for a broader area
Nordic markets." before, and currency also is an important of services, with highly technical
The Nordics also present a very aspect of their investment needs," she interfaces and components of a middle
sophisticated client base, according to explains. "They need to have a global office solution, which encompassed core
Maddy Senior, head of Nordic client platform that can give them real time custody but also traditional middle office
services at Northern Trust. "They are information and very refined technology functions such as trade matching and
clients with large pools of assets and that takes them straight to the collateral management," Newby
many of the ones we deal with are information they need, so that they can explains.
predominantly in-house managed," she manage their risks much more He also contends that, despite cultural
explains. "So when you are talking about effectively." differences across the regions, there are
a pension fund client, you have to be able In a region that tends to lead the way strong similarities in the needs of top
to treat them and understand their in terms of technology adoption, tier institutional clients. "In addition to
needs, not just from the pension particularly when it comes to financial core custody, there will be similar
perspective, but also as an investment applications, technology can indeed act demand for servicing OTC derivatives
manager in their own right." as a differentiator. And in the innovation and a range of value-added services,
For Senior, the most notable driver in race, global custodians appear to have an such as securities lending, providing
the region last year was the performance edge, if only because of their deeper CLS and collateral management," he
of some of the funds. "One of our pockets. says.
clients had a double-digit annualised "I think the technology requirements Local players, however, argue that
return for last year," she says. "When of the Nordic market, certainly at the their intimate knowledge of the markets
you are looking at a volatile market, it is institutional investor level, may also in which they operate gives them a
a pretty impressive bottom line figure. differentiate the Nordic market," says competitive advantage over larger
Really, the main driver for the clients Sid Newby, head of business foreign players.
there is to continue to generate alpha. In development for the Nordic region, BNY "Technology is of course a
NORDIC CUSTODY
differentiator," admits Göran Fors, clients. Having a large domestic client competing head-to-head with
global head of custody services at SEB, base also ensures that the custodian is institutions that have a global client
"but the local presence and our expertise committed to the market and will not be base; and that is very difficult to
in servicing the client is equally tempted to withdraw in difficult times." compete with," says Dahlgren. "We have
important. We continuously develop our Peter Dahlgren, head of custody tried to mitigate that a couple of years
technology to accommodate our clients' services at Nordea, considers that what ago through our partnership with Bank
needs." sets his bank apart from the competition of New York, which we are constantly
As for the tendency of pension funds is its pan-Nordic footprint. "The main looking at, to see how we are going to
and insurance companies to invest more differentiating factor is that we are local develop further."
globally, and increasing demand for in each of the four markets and our Another such alliance is the
services in Africa, Eastern Europe, or competitors are not,'" he says. "They are partnership between Northern Trust
Asia, Fors does not think they provide usually local in Sweden, but are not full- and Handelsbanken, signed five years
an advantage to global players. "Local fledged banks in other countries. That is ago, which covers all four Nordic
custodians are very capable of offering of course a huge advantage for us, as it markets.
those services as well," he says. allows us to pass back benefits to our "We provide local custody, local
Bente Hoem, head of Global Relations sub-custody clients when it comes to connections, and trustee services to local
and Business Development at DnB Nor, corporate actions or tax services." fund companies and insurance
considers that local players have the If competition continues to heat up companies," says Handelsbanken's
"unique added advantage of full scale among Nordic providers, some of them Wennergberg, “while Northern Trust
local operations and solid domestic have also signed mutually beneficial provide their expertise in global custody
client bases. In addition, they have in- deals with global custodians to address and make their set-up and systems
depth product and market knowledge, some of the challenges of their available to domestic clients in the
are influential and their closeness to the competitive environment. Nordic markets."
local market is an obvious benefit to "If you are a local player, you are Northern Trust's Senior considers
Nordea Bank AB (publ)
Making it possible
ISJ28 pp32-51 ML 13/3/08 4:34 pm Page 36
NORDIC CUSTODY
that foreign players face the choice of timing, product and benefits for both custody business altogether.
setting up shop as a full-blown local parties are present, DnB NOR will "All the local banks provide a custody
bank or partnering with an existing consider the idea." product, both for the proprietary and
local player with immediate expertise. "I think that the domestic providers retail sides," he explains. "All major
"There are restrictions, but the offer a very good, high-quality service players are strong in the retail sector and
important thing is to be creative and to domestically," says BNY Mellon's also have big amounts of proprietary
be open-minded, to look for best-of- Newby. "They have been very focused on trading in the markets. So there will
breed solutions for your clients, and their domestic service and for a number always be a need for the banks to
focus on where you can add most value," of them, on creating a pan-Nordic maintain a custody and settlement
she explains. solution to provide a consistent service product, internally. I don't think any
However, some Scandinavian banks, across all four markets." bank will exit the custody market,
like Denmark's Danske, Norway's DnB "However," he adds, "I think that the because as long as you need to have the
NOR or Sweden's SEB, still prefer to go top tier institutional investors and asset product internally, you can also offer it
it alone, at least for now. managers are becoming more complex to external clients."
"We have of course evaluated the and their needs are becoming broader. So Others consider a consolidation of the
possibility of partnering with a global there is a challenge for local providers to local custody market likely, with
institution and decided that we would maintain the level of investment that is mounting price pressure that could be
continue by ourselves," says SEB's Fors. required to continually service this top hard for smaller players to stomach in
"We saw that the solutions that we could tier. That is one choice they may face: the long run.
offer to our clients combining custody either focus on domestic custody or "We are getting a lot of new business
with other products in the bank was very develop a global solution which has a from the players that are not sustainable
important and that our offer was minimal level of investment that is not in the sub-custody business, which
competitive." insignificant." helped us double our volume last year,"
"For the time being we do not have But whether or not they form alliances says Nordea's Dahlgren, who sees his
any plans to partner with a global with global players, Wennerberg reckons bank as one of the few consolidators in
custodian," says Hoem, "but if the right it is unlikely that local banks will exit the that segment. "We increased our market
NORDIC CUSTODY
share considerably with investment Indeed, while Sweden and Finland stage," says Newby. "Obviously, that
banks in 2007," he adds. have merged their CSDs, at least on a hasn't been totally successful. Norway
But as Newby points out, the question corporate level, with Norway and still has its vertical integration model of
there is more generally whether or not Denmark generally seen as dragging CSD and exchange. I don't see that
there will be more banking consolidation their feet. In fact, Norway continues to changing in the short term, but there is
in the region. "The Nordic market has operate its own exchange, vertically seems to be the will from the local banks
already gone through a series of bank integrated with the country's depository. to make that happen."
consolidations over the last five years," Therefore, plans to consolidate On top of their pan-Nordic ambitions,
he says. "Banks that do not have a pan regional depositories into one Nordic local players are also looking beyond the
Nordic footprint would probably like to CSD, while they are supported by the borders of Scandinavia to high growth
"I think that the domestic providers offer a very good, high-quality service
domestically," says BNY Mellon's Newby. "They have been very focused on their
domestic service and for a number of them, on creating a pan-Nordic solution to
provide a consistent service across all four markets."
explore opportunities to create a pan banking community, have never really neighbouring markets on the
Nordic institution, but the number of taken off. What's more, they could Eastern front, with Baltic countries like
opportunities are diminishing." eventually be rendered irrelevant by the Estonia, Latvia and Lithuania, now EU
Beyond the competitive landscape and advent of a pan-European clearing and members, but also to the West, with
potential M&A activity in months to settlement facility, as proposed by the Iceland.
come, questions remain around the ECB's Target 2 Securities project. One of the Baltic's region largest
Nordic financial industry's desire to push "I think we are going to see more banks, Hansabank, sees SEB as its main
for more harmonisation and integration, harmonisation, but probably as part of a competitors in the Baltic market "while
and if so, whether it will be driven by European harmonisation effort that will Sampo, Nordea and Svenska
purely Scandinavian initiatives or a include the Nordic countries," says Fors. Handelsbanken have minor market
result of larger changes affecting the "If all Nordic CSDs commit to Target 2 shares as well."
European landscape. Securities, it will of course have a big Nordic custody players therefore have
While progress has been made on the impact on the region, but it is too early plenty of opportunities to tackle both at
exchange front, with regional exchange to say whether that will be the case." home and in nearby emerging markets,
OMX now covering Sweden, Denmark, "A lot of the local banks have spent but with growing appetite from global
Finland, as well as Iceland, Latvia, and considerable efforts working with the competitors and a changing European
Lithuania, the CSD environment local CSDs and exchanges, trying to environment, they have just as many
remains fragmented. encourage a move to a consolidated challenges lying ahead. ■
CANADIAN CUSTODY
CANADIAN CUSTODY
linked to Canada’s enormous wealth of there are also deficits to make up and but the complexity and originality of
natural resources as commodities prices almost all developed countries are facing these services can lead to increased risks.
rocketed – especially in energy and an aging population with fewer “With greater complexity comes cost,
metals,” he explains. “These industries contributors to pay the bills. risk and manual processing,” says Blouin.
were pivotal in strengthening the CAD Many funds have got around this by “Just as the industry spent many years
on all fronts: in terms of capital flows due changing their investment strategies: implementing straight-through
to foreign investment, in terms of a some have embraces a policy of absolute processing solutions for cross-border
strong trade surplus, and due to their returns, some have invested in hedge equities clearing and settlement, it now
effect on the domestic economy and the funds and fund of funds and commodities needs to make similar improvements
governments ability to maintain a strong while some have expanded their across the entire alternative investment
budget surplus.” securities lending operations. The list space. Clients and their administrators
And since the US is where the majority goes on and on, but the buck stops with need to work in partnership to build
of non-domestic investment from the custodians who must service these solutions that are flexible enough to
Canada ends up, the affect of the strong requirements. handle the growing number of asset
Canadian dollar was increased. What is Providing for these alternative classes and instrument types flooding the
more, the US market continues to be the investments is one of the biggest, if not market. Strategies are needed that help
major source of geographic the biggest, potential area for growth for raise service standards, create capacity,
diversification for Canadian investors, the asset servicing industry in Canada, reduce processing risk and improve
according MacMillan. says Smit. “Allocations above 20% of operational efficiencies.”
But 2008 is predicted to see the CAD total plan assets are not uncommon The big custodians in Canada are
weakening against the USD, according to among the larger plans and some have either launching products to meet this
Saxo, with the CAD moving from being been very public about their intentions to increased demand, or are buying existing
underpriced to severely overpriced increase their allocations even further,” firms that do so. The Bank of New York
between 2002 and 2007. “While in the he explains. Mellon has made in-roads through the
short-term we could see a bit more CAD RBC Dexia’s Blouin agrees that one of acquisition and integration of the
strength on strong commodity prices, the the major trends is the dramatic increase operations of DPM and International
longer term outlook is more likely to in the number of traditional, long-only Fund Administration (IFA), says
favour CAD much weaker versus the funds making use of alternative MacMillan.
USD. First, the Canadian economy investment vehicles. “This growing trend Northern Trust, on the other hand, has
cannot move independently or in the has added a new level of complexity to recently launched a service that handles
opposite direction as the US forever due our clients’ businesses and accordingly, the collateral management of OTC
to the degree with which the two they are becoming increasingly reliant on derivatives, something that’s typically not
economies are integrated,” Hardy says. us to help them administer these a core service for investment managers
“Second, the strong CAD is damaging to products. An excellent example of this is who are focused on delivering returns.
other sectors of the Canadian economy the emerging popularity of 130/30 Products and services for funds,
in terms of export competitiveness, and investment strategies, she says. “We provided by custodian banks, will
the weak USD is doing the opposite. identified this as an opportunity for us to continue to develop as those banks look
Canada recently recorded it’s lowest grow with our clients and developed the to corner the fund administration market
merchandise trade surplus in years, while
the US non-energy trade deficit is fast Products and services for funds, provided by custodian
shrinking. Finally, any strong sell-off in
commodities markets related to a global banks, will continue to develop as those banks look to
growth slowdown would likely mean a
weaker CAD.”
corner the fund administration market and push brokers
Whether or not the US economy will out of the space
recover from its downturn or slide
further into depression isn’t really a required product functionality to support and push brokers out of the space. But
matter for debate here, but the link them.” the overall relationship between client
between the two largest North American MacMillan says that five to 10 years and bank will also change, with an
economies should not be ignored. But it ago only the largest funds were investing increased burden on banks to help clients
is generally accepted by the big in alternative investment strategies. understand all the aspects of their
custodians that time is on the side of the “Now most clients above the USD1 instruments (for example if it’s highly
long-term investments – the long-term billion threshold are allocating to these liquid, or non-transparent like a private
returns are there for the taking. investments. Some of our clients have equity structure, or even something
Unfortunately, that’s not nearly good even set a goal of up to 20% of their vanilla like using a systematic trading
enough in 2008. Pension funds are assets in alternative investments in the strategy through exchange traded
expected to make returns in both good coming years.” derivatives). The onus will be on
years and bad as investors become Alternative investments require custodians to identify and help mitigate
increasingly savvy. In many countries servicing, just as vanilla investments do, the risk around these instruments. ■
UK CUSTODY
Come together
The global custody market has
experienced a high level of M&A
activity over the last few years, but
how does the UK market compare?
Virginie O’Shea investigates
t is not just London that has been Chris Rowland, JPMorgan’s global The last decade has seen a significant
UK CUSTODY
share of the UK pensions business, for provider and that is exacerbated further management in Europe. According to a
instance, and it is also the biggest is they are subjected to more than one study by consultancy Oxera in 2005, the
provider of transfer agency and fund change in the course of a year. “Clearly, UK fund management industry had
accounting solutions in the UK. history has shown that mergers can be assets under management of at least
Despite the bias towards the bigger disruptive to clients if they are not £2.8 trillion.
players, scale is not the be all and end all, properly managed,” admits Chakar. Both the asset managers and the
says Chakar: “Your ability as a provider “Signing the deal is the simple part, it is custodian community may have also been
to handle complexity is the real key, but merely the end of the beginning of the attracted to the UK market as a result of
there is no question that today clients are merger process – successfully integrating its favourable regulatory and tax
environment. “The legal and tax
environment is regarded as clear and
Both the asset managers and the custodian community efficient and the Financial Services
Authority (FSA) is viewed highly as a
may have also been attracted to the UK market as a regulator,” explains Jerome de Lavenere
result of its favourable regulatory and tax environment Lussan, managing partner at investment
management consultancy firm Laven
Partners.
increasingly looking to work with one the companies is where the real challenge The philosophy of principles-based
trusted partner who can support them lies. Having watched and learnt from the regulation instituted by the FSA has
across all their needs, both global and often painful mergers or acquisitions given the UK the reputation of having a
local. Volatile capital markets, clients’ other custodians have gone through, we constructive and business friendly
desire to embrace new portfolio are determined to take our time in environment relative to other
strategies and instruments and the ability making that a reality, and to do it right. jurisdictions, agrees Tom Brown,
to come quickly to market are all Client retention is one of our foremost European head of Investment
challenges that play to the strengths of priorities post-merger, and in keeping Management and Funds at KPMG in the
large providers like BNY Mellon that with that we are committed to a very UK. “There is an atmosphere of more
have a strong track record both in respect measured and considered integration consultation and working towards
of innovation and cross border service process to ensure minimal disruption to building solid relationships with business
delivery.” our clients and staff.” relative to other regions,” he adds.
“If there is to be further consolidation, JPMorgan’s Rowland agrees that However, this favourable environment
it will almost certainly result from main custodians are very conscious of the need may not be the norm for much longer as
bank level M&A activity – as was the case to make transitions as ‘seamless’ as regulations change frequently. The
with the BNY-Mellon Financial merger – possible to clients, given that the driver of Inland Revenue, for example, has adopted
rather than being driven by the needs of the consolidation and M&A activity is to a more tenacious and investigative role
the custody business,” adds Chakar. retain and grow client revenues. towards hedge funds which is likely to
You could argue that the concentration However, he admits there is always going put an end to the current flexible and
of players in the UK market has resulted to be client disruption with the need to advantageous business model. “The
in less choice, but equally you have to ask
whether that is necessarily a bad thing,
continues Chakar. There are still enough From a custodian’s perspective, the current regulatory
providers to ensure fees remain
competitive and to encourage innovation environment seems to be rather favourable
– but at the same time, those remaining
custodians possess the scale that is today make certain changes to settlement recent tax rules relating to non-doms are
mandatory if you are to finance the standing instructions, as well as the need evidence of a potential lack of thought
massive investments in technology R&D for clients to understand a new custodian from the government, as the economics
and intellectual capital that are required structure. “Clearly any change in apparently were not properly evaluated
if you are to meet the needs of an ever relationship is likely to prompt clients to before the changes were reported. There
more sophisticated and globalised client re-evaluate the current and potential was a lot of noise about raising revenue
base. “Plus those of us who have stayed service offering. Therefore, in addition to when most experts believe the resulting
the distance are very demonstrably scale and ability to invest in services, exodus would lead to an actual loss of
committed to this business, and that level clients need to know that the people tax collected,” says de Lavenere Lussan.
of commitment is very important to our servicing their accounts are experts in It only takes a few regulatory changes to
clients, who are looking to establish long custody,” Rowland explains. make all the difference – just look at
term partnerships,” she elaborates. But what exactly is the attraction of Sarbanes-Oxley in the US.
M&A activity doesn’t just affect the the UK custody market? The draw of the From a custodian’s perspective, the
banks, however. There is the potential market for custodians could have current regulatory environment seems to
that clients could be seriously something to do with the fact that the UK be rather favourable. Custody has been a
disadvantaged by a changeover in is the largest centre for asset regulated activity for many years in the
UK CUSTODY
UK and the FSA has developed a high and thus can struggle to adapt quickly Performance and reporting is another
level of understanding and comfort with enough to properly service these area. Many clients would like to calculate
regard to market participants, says requirements. But in order to retain their returns on their private investments on a
Meager. Last year, the Markets in clients custodians have been forced to non-lagged basis – for example, they
Financial Instruments Directive (MiFID) react faster as traditional long only require valuation and corresponding
was the centre of regulatory attention in managers and institutional clients have rates of return reflective of the true time
custody banks and this year there will be expanded their investment capabilities to periods (private equity valuations are not
increased attention around money include alpha generation strategies and produced in a timely fashion, hence miss
laundering and know your client (KYC) instruments. the month end accounting deadlines). By
procedures, as well as fraud risk “In almost all cases custodians have had importing the detailed breakdown or
management. to rely on complementary technology transparency of an alternative fund
Very little has changed from a pure platforms, supported by technically investment into the traditional custody
custody perspective, agrees Chakar, proficient staff and even the creation of database, consolidated reporting and
although MiFID has placed some in-house quant teams, to support the performance reporting and accounting
additional requirements upon custodians increase in alternative instruments. Many services can be provided.
in certain specific areas of their have leveraged the expertise in their third “Alternatives servicing can also be an
businesses. “The recent changes to SORP party hedge fund administration administrative burden to our clients. For
require us to carry out additional work in operations, which for several providers example, a UK pension plan typically
the accounting space, and further has come as a result of external may invest 5% in alternatives – hence
changes may be forthcoming in 2008 acquisition versus organic growth. The they would only need a small special team
from a more international perspective. In industry is also seeing a parallel trend to support this (say three or four people),
the UK, from a trustee’s perspective, we whereby many managers are also looking which can be difficult to sustain.
can add value in a number of ways: to outsource and bundle the middle office Accordingly, we offer ‘hosted private
helping to ensure that they are carrying components of alternative investment investment services’ to clients to help
out their regulatory responsibilities; processing with custody. This in itself ease this burden and remove various
assisting them in making informed possesses additional operational forms of administrative overhead,
decisions and making their operational challenges for those custodians including data and document
processes more efficient; and assisting struggling to make the initial leap just management, from the client,” Chakar
them with training,” she explains. supporting shorts and derivatives,” continues.
The UK Treasury is also likely to explains RBC Dexia’s Meager. JPMorgan has similar ambitions
permit the electronic transfer and The integration of alternatives into explains Rowland: “Instruments types
renunciation of title to authorised funds traditional asset servicing model is being are always evolving and custodians need
in 2008, which will allow for automation felt in a number of ways, adds Chakar. to constantly enhance their platforms to
to be introduced to the UK unit trust Transparency is one area – an investment service these. Because JPMorgan’s
market, adds Rowland This will allow into a private equity fund, for example, Investment Bank is a leading derivatives
custodians to standardise and rationalise will appear on an accounting system as a house, JPMorgan Worldwide Securities
their operations resulting in an improved
service to clients – cost savings and
better client service equals a win-win The integration of alternatives into traditional asset
situation.
The general economic environment servicing models is being felt in a number of ways
that resulted from the credit crisis last
summer has also had some impact on the line item (for example, 100 units of fund Services is particularly well positioned to
custody market. Tough market ABC valued at X). Clients want to know develop our alternative investment
conditions typically lead to retrenchment, what their full exposure is in terms of technology offerings. We are jointly
with fund managers looking to refocus on counterparty risk or number of shares in developing service platforms that can be
their core activities and explore ways to a particular company or segment. The leveraged by both businesses. Our status
reduce their operational costs, Chakar private equity investment needs to be as a leading global firm also means we
elaborates. “We are ideally placed to work broken down into its constituent parts to can attract and retain the brightest and
with them in a consultative capacity as consolidate with a client’s more most experienced team of professionals
their trusted partner, handling their non- traditional positions, she explains. “Hence to provide the best intellectual capital to
core activities on their behalf via our providing transparency or ‘drill down’ service these highly complex
flexible modular outsourcing solutions.” reporting is a key component of our instruments.”
However, these more complex products overall service offering, and to that end These complex instruments are
do present somewhat of a challenge to we have partnered with The Burgiss likely to pose a significant challenge to
the custodian community. Custody Group, LLC, an industry leading the UK custodians in the future and
technology platforms were never created provider of solutions for investors in given the level of competition in
to handle short positions and over the private equity and other alternative the market, it will be an interesting next
counter (OTC) derivative instruments assets,” says Chakar. few year. ■
FEE BILLING
Performance critical
Are performance based fees the logical step,
by Jamie Darlow
t seems a strange model to keep revenue billing component through fairly if the fee calculation was overly
CLIENT REPORTING
What do
they want
from me?
Jamie Darlow looks
at how client
reporting is changing
lients of custody banks are always clients want data they can feed into their demanded periodic statements of wealth
CLIENT REPORTING
Regulation is also playing its part in to see their positions daily or in real the client, so the client doesn’t have to
increasing reporting demands, according time. Alternative investments are new to log into multiple systems or run several
to Mark Deakin, business development many funds, so of course they want to be reports and piece them together, he
consultant at Rhyme Systems. “In in control of their positions. Pension continues – “Integration is the main
certain parts of the market, regulation funds want comprehensive reporting focus around technology growth.”
has meant that clients are getting more that lets them see both the accounting In particular, demand is coming from
regular reports than was previously the value and the notional exposure of their the over the counter (OTC) space, Boor
case, he says. “There has definitely been funds in their monthly financial says: “We are seeing the greatest demand
an increased move to giving access to statements. Som in alternatives from limited partnerships,
client’s information over the web on “Ultimately this translates into OTC swaps and OTC options. One of
demand and inviting clients to interact constant pressure to evolve and keep in the big projects we are working on right
with their data in a way not previously step with investments we need to track,” now is counterparty exposure and being
required or possible.” says Boor. “The initial challenges often able to consolidate that across all the
But it’s important to note there are relate to integrating pricing and OTC positions a client has.”
exceptions to increasing demand. It reference data and the special processes Clients will always want a monthly
depends on the individual client, says around the unique instruments they are cycle report detailing their complete
Giles Drury, senior manager, Alternative buying. This puts us in a position where valuation, but if the diversification into
Investments Group, KPMG in the UK. we can consolidate all the traditional commodities by funds continues, there
“Over the last few years, many pension instruments with the newer, more exotic will be an increase in clients
funds have made their first investments ones, and put it into one picture of the wanting more complex services. “In
into more complex products such as entire investment strategy.” volume terms we are not seeing an
hedge funds. If anything, they are Boor says that most of the challenge increase in the amount of information
probably looking for simple reporting for consists of integrating customised clients are looking for – if anything, it’s
these complex products, he explains. investments information and the decreasing,” concludes BNY
“More specifically, simple reporting technology the technology that requires Mellon’s Boor “What they are asking us
which includes additional explanation into the bank’s processes. This lets BNY for is more complex and more
and education from managers and is Mellon put together the total picture for sophisticated information.” ■
delivered in a format that allows for
integration with data from other
investment portfolios so they can view
overall exposures and interrogate this
information more proactively. Very
Which services are most highly prized by clients:
sophisticated investors have always “Clients want reports and information analysis that tells them how close they are to retirement, a
demanded a high standard of reporting. second home purchase, or a child or grandchild’s education fund. You can’t get this information
Perhaps what has changed is the ability from the Financial Times, but your investment partner can provide it to extend value to you”
of technology to meet those high Todd Paoletti, Director, Customer Self Service Solutions, Actuate.
standards.”
The technology is certainly there now “The ability to rapidly produce customised reports which conform to the corporate “look and feel”
for clients to adopt, if they are prepared and are accurate remains a key problem area for many Asset Managers. Even where they manage
to put up the cash to do so. More of them to achieve, many organisations then struggle to automate the regular production of these new
will need to, however, as the reports and so the volume of manual reporting keeps increasing”
sophistication of funds increases. The Peter Bambrough, Management Consultant at Citisoft, specialising in Client Reporting
Bank of New York Mellon’s clients are
turning towards alternatives, derivatives “One view on this is that some clients are after brevity and more frequent reports. To offset that, a
and new types of instruments, says Steve great deal of wealth is in the hands of generally quite conservative people working within strict
Boor, global director of Information boundaries as to what is acceptable, from an investment perspective”
Delivery at the bank. “Our average client Mark Deakin, Business Development Consultant, Rhyme Systems
at BNY Mellon Asset Servicing has over
11% in alternative investments. It’s been “An absolute basic requirement is to have a consolidated view across a client’s entire portfolio.
growing gradually. Across our client Additional elements such as attribution, risk and performance analysis are highly desirable”
base, some have been in alternatives for a Jonathan Hammond, Consultant, Morse
longer period of time, but it is becoming
more the norm now and you get to the “Meaningful information, compliance reporting, exception reporting, graphical presentation of the
point where the average is above 10%,” information, and then drill down analysis”
he continues. Steve Boor, global director of Information Delivery at BNY Mellon Asset Servicing
In the end, it all comes down to risk –
if you can’t see your positions you are “Customized reporting of the alternative asset holdings complete with independent valuation”
unable to manage risk and the trend is Kate Homewood, RBC Dexia’s head of Client Service in the UK”
for funds and money managers to want
REPORTING TO CLIENTS
PROXY VOTING
The Crossroads
Brian Bollen reports on XML message
standards and the new era of proxy voting
roxy voting stands on the brink of a fully standardised way. This facilitates Giovannini Barrier 1 gap analysis.
PROXY VOTING
derived from stock lending”. sales for securities lending at JPMorgan, no room for development around time.
“Voting versus lending is an argues that while he understands the We want to make sure the industry has
investment decision, and as with any theoretical issues, in reality the topic of budgets available to develop the
other investment decision, it is important proxy voting/securities lending has necessary capability with the aim of
for clients to be informed,” he continues, become something of a non-event in the being ready with a solution by
adding that Northern Trust has a recent past. “As Shakespeare might have 2009/2010.” With this in mind, she adds,
consultative approach and works with said had he been writing about it, it is SWIFT is developing testing tools and
clients to determine their requirements Much Ado About Nothing,” he quips. “It aids to help developers drive the work
and offer advice, in a lending context. is clear to me that there is a well- forward. “A lot of money needs to be
spent by the industry, but cost savings
and greater efficiencies will outweigh
This is much, much more than a technical issue that spending.”
The driving forces behind attempts to
with implications and ramifications beyond the industry’s automate proxy voting are well
IT help desks documented, if only by SWIFT itself, but
are worth revisiting nevertheless. As
Linda Bookheim observes in a paper she
“Securities lending provides an additional developed best practice that if all those published on the subject, the pressure to
revenue stream in a low risk involved in lending adhere to (beneficial improve participatory corporate
environment, and so for this reason it is owners, agents, prime brokers, etc) then governance continues to increase, and
attractive, however, some clients may any issues can be easily avoided. At the international investment across all
place higher value on representation. heart of the matter is the balance that markets is expanding. “When combined
Northern Trust has particularly each beneficial owner needs to strike with increasing attention from
observed this relationship in the Nordic between enhancing their overall revenue regulatory bodies, proxy voting
region, where representation has a fair by lending securities and running the standardisation and automation has now
deal of significance, and has developed a potential risk of incurring an economic become a critical industry need,” she
track record of working with clients to loss arising from any failure to vote.” observes. “The current landscape makes
reconcile their voting and revenue Every situation is different, he adds, compliance with growing regulatory
requirements. Ultimately, clients and the decision to recall or not to recall requirements costly with its non-
shouldn’t consider any aspect of this a stock will depend on the significance or standard processes, frequent manual
topic in isolation, but rather view their not of the subject being voted upon. He requirements, and multiple proprietary
decision in an overall investment does specifically say, however, that short- solutions. Until now, industry processes
context.” term temporary holders of stock have failed to provide a standardised end-
“There has been a lot of heat and light, acquired via borrowing who do not have to-end audit trail that could prove that a
particularly in the media, around a long-term economic interest in that vote was lodged with every intermediary
speculation of an industry trend of stock should not be allowed to vote. “As in the process. Success has been isolated
market participants borrowing stock to
obtain cheaply the right to vote on
contentious issues. (eg: Fortis and ABN).
In terms of “borrowing to vote” as an
“The problem: regulatory and reputational risk.
industry trend, there is a growing The solution: standardise and automate the proxy
recognition that there is no empirical
evidence to suggest this is happening. voting process” Linda Bookheim, SWIFT
Nevertheless, the perceived lack of
transparency around borrowed versus
purchased positions can cause disquiet, an agent lender, we do not allow our and limited in the several attempts to
and so it is helpful if the industry makes clients to vote on stock they have lent automate and standardise Proxy Voting.
some firm statements in this area – such unless it is returned prior to the record Proprietary methods, inadequate
as the International Securities Lending date. Indeed many prime brokers won't standardisation, and manual
Association’s recent statement which allow their hedge fund clients to vote on requirements create a laborious and
states that “shares should not be shares they have borrowed." costly exercise for investors and
borrowed knowingly for the principal Building up the usage of its new intermediaries.”
purposes of acquiring voting rights”. So messages quickly will be a challenge for The history books show that in June
one can certainly say, the industry is SWIFT, if only because of the cyclical, 2005, the SWIFT Board of Directors
making strides towards consistency and seasonal nature of proxy voting, Linda endorsed the community request for
clarity in terms of the relationship Bookheim believes. “Everyone is involved SWIFT to develop new ISO 20022 Proxy
between lending and proxy voting.” in getting through the season; with Voting messages and to deliver a
Paul Wilson, the literary-minded around 80% of proxy voting taking place SWIFTNet-based solution using these
global head of client management and in the period from March to June, there is messages. In concert with a group of
PROXY VOTING
PRIVATE
Dillon Eustace focuses on providing advice and innovation in For more information, contact:
alternative investment products such as single and multi-strategy David Dillon, Andrew Bates, Donnacha O'Connor,
hedge funds, private equity vehicles and real estate. Etain deValera, Stephen Carty or Peter Stapleton at:
33 Sir John Rogerson’s Quay, Dublin 2, Ireland.
Tel:+353 1 667 0022, Fax:+353 1 667 0042,
With one of the largest alternative investment teams in Ireland,
e-mail: info@dilloneustace.ie
with in-depth experience from all sectors of the industry, Dillon
Eustace advises on all aspects of alternative investments or Brian Dillon or Gregory Noone at:
Dillon Eustace, Tokyo.
including product design, launch, listing, tax and compliance for
Tel: +813 5219 2042 Fax: +813 5219 2021
international and domestic managers, prime brokers and other
e-mail: brian.dillon@dilloneustace.ie
service providers. gregory.noone@dilloneustace.ie
ISJ
Evolution
Our panel of experts PANEL DEBATE
debates servicing
the hedge funds
HEDGE
industry... FUNDS
IIt has been a rough time for hedge funds in Dermot S L Butler is chairman of Dublin
the public eye over the last few months – how based Custom House Administration &
has the increased public and regulatory scrutiny Corporate Services, which specialises in
affected the hedge fund community? advising and assisting clients on the
structure and the incorporation of offshore funds and, once established,
Butler: The first point I would make would be to providing a full administrative service through globally integrated offices
repeat the endorsement that Mr. Charlie in Dublin, Chicago and Singapore. Dermot is also Deputy Chairman of AIMA
McCreevey gave in a recent speech. Mr. (the Alternative Investment Management Association).
McCreevey, the EU Commissioner, slated
SocGen for their lack of controls and then went
on to say that, under the circumstances, it was
ironic that Sovereign Wealth Funds and Hedge
Funds had been demonised, when it was clear Donnacha O’Connor is a partner in Dillon Eustace, which he joined in
that Hedge Funds have provided liquidity to the 2001, where he works principally in the area of investment fund and
market when it most needed it and Sovereign investment services regulation and derivatives. He is a law graduate of
Wealth Funds had provided capital to the banks University College Dublin, and a member of the Law Society of Ireland
when they most needed it. and the New York State Bar.
His is, of course, one lone voice in the
wilderness and you are quite right that Hedge Ross Munro, partner - Investment
Funds have had a rough time in the public eye, Funds & Regulatory. Ross Munro is
as a result of ill thought out or biased media involved in advising upon all
reports which have resulted in more regulatory aspects of the establishment and
scrutiny, again, a lot of it ill thought out and, in restructuring of investment funds under British Virgin Islands law, with
my opinion, based on ignorance. particular emphasis on funds set up as Segregated Portfolio Companies.
I think it is fair to say that the Hedge Fund Before joining Harneys in January 2005, Ross Munro practised in the
Working Group (HFWG) came about as a direct corporate finance department at Hammonds in Manchester, England.
response to the German led attack on Hedge
Funds. HFWG has, I think, been a successful
project, led by 12 major UK Hedge Fund Groups, and Managers input. regulated lenders, structured product providers,
together with one Swedish and one US Hedge It can be seen, therefore, that the Hedge Fund rating agencies, etc.
Fund Group. HFWG introduced their Best Community is endeavouring to demonstrate that
Practices Report for Hedge Fund Managers. it is well regulated, albeit, to a certain extent, self Munro: Given the success of the industry over
This report followed on from two Guides to regulated. Nevertheless, it is likely that more the last few years it is no great surprise that it is
Sound Practices, published by AIMA and by MFA regulation will appear, particularly as a result of coming under greater scrutiny from regulators,
and, it is fair to say that, not only did the HFWG the Sub-Prime and Credit Crunch crises and that the tax man as well as the general public. Almost
carry many of the same recommendations that Hedge Funds will have to live with it. daily it seems, newspapers and news websites
the AIMA Guide carried, but that a very high post stories of hedge funds being held
proportion, if not the vast majority, of Hedge O’Connor: I think that hedge funds are learning responsible for the latest crisis in the financial
Fund Managers already follow most of the Best to communicate more effectively with the media sector. In part, this is a reflection of just how
Practices outlined in the HFWG. – It seems to me like the lack of information on wide spread the influence of hedge funds is. The
In addition to the above, it is likely that, by the hedge funds is partly causing inaccurate media industry is certainly maturing as well as growing.
time this Panel is published, we may have the US speculation about them, for example, at the start Investors are becoming more sophisticated and
President’s Working Group Report, which will be of the subprime crisis, hedge funds were being have larger amounts invested in hedge funds –
a two-pronged affair, sub-divided into Investors demonised, whereas the problem, lay with as a result, they demand and are getting higher
levels of corporate governance. That is one of the impacts that volatility may at one particular sector, has, under the Law of
have on the market. The other is that Hedge Unintended Consequences, a dramatic effect on
Despite the troubles, global asset growth in Funds which provide a truly hedged portfolio, another sector. I do believe that, internationally,
the hedge fund industry was estimated to be i.e. some kind of arbitrage or long-short strategy, regulations with regard to retailisation of hedge
more than 50% over 2007, is this likely to thrive on volatility.One final point with regard to funds is an area of concern. In this regard, I
continue this year and what will be driving this growth – I was interested to read a report by believe that regulations specifically targeted at
growth? What impact has the volatility had on Camden Media and Merrill Lynch that found that the sales process – the marketing of hedge
the market? European Family Offices are planning to shift funds (or any other financial product for that
O’Connor: Anecdotally the volatility has caused investments from traditionals into alternatives, matter) to the retail clients needs to be
some hedge fund strategies to significantly such as Hedge Funds and Commodities and tightened up considerably and a perfect example
reduce their exposure to the market to keep that, in three years, these could make up more of this is the Sub-Prime Mortgage Market, where
within their mandates. Obviously hedge funds than 50% of a typical Family Office Portfolio in all our current troubles started. If the Sub-Prime
have shipped heavy losses and some investors Europe. mortgages had been sold to people who could
are loathe to put new money into what they support them, then I think it is unlikely that we
perceive as risk strategies. The in-flows to hedge would have the current problems that we have
funds, particularly funds of hedge funds from Regulation of hedge funds has also been much with the Credit Crunch and monoline insurers,
the final quarter of 2007 look very respectable so discussed by regulators such as the SEC and both of which appear to be derivatives of the
hopefully growth will continue this year. the UK FSA – is there a need for greater Sub-Prime fiasco.
Munro: Most commentators believe that the
increased flow from institutions into hedge
funds will continue as they look to further
Significant changes to the existing laws and regulations
increase exposure to the sector. Against that, to target hedge funds specifically is unworkable
one might expect funds from high net worth
individuals to tighten particularly if concerns regulation of the sector and what impact would
about the US economy prove to be accurate. this have? O’Connor: I think that regulation of hedge funds
The volatility in the markets, however, is an really means regulation of the operators of
opportunity for top managers to demonstrate Munro: There is little justification for materially hedge funds and the managers and
that they are worth the fees they charge. Clearly, greater regulation of hedge funds. Some administrators and custodians of hedge funds,
some investment strategies, such as those additional regulation is inevitable but for so long at least in Europe, are fully regulated, and
investing in distressed debt or residential as hedge funds source the bulk of their funding increasingly so in the U.S. There seems now to
property, are likely to find it harder than others from institutions, high net worth individuals and be an acknowledgement in Europe and in the US
to attract new money. other sophisticated investors increased that significant changes to the existing laws and
regulation will provide few, if any, tangible regulations to target hedge funds specifically is
Butler: The growth of Hedge Funds in 2007 was benefits. unworkable (either for reasons identified in the
a result of organic growth as well as the US through Goldstein judgement or in Europe
increased institutionalisation of the Hedge Fund Butler: Hedge Funds continue to be affected by through a lack of support from the European
Market. In volatile times such as we have seen “blanket” regulations, such as the EU Savings Commission, the UK etc). The approach that
over the past six months or so, institutions are Directive and MIFID and it is likely that this will now has appeared to gained traction on both
keen, not just to achieve respectable returns, but continue. I should make it clear that I have sides of the Atlantic is that of a voluntary code of
to preserve capital and many Hedge Fund nothing against regulation, per se, but I do conduct for the managers of hedge funds and
continued indirect supervision of the way in
which financial institutions leverage hedge
There is little justification for materially greater funds. The one are which still appears to be
regulation of hedge funds unsettled in some quarters is the political
pressure for increased levels of disclosure of
hedge funds engaged in shareholder activism in
strategies achieve both of these objectives. I, resent bad regulation, of which there are many continental Europe.
therefore, think it is likely that we will see examples, not the least the ultimate failure of
continued growth throughout 2008 and that the SEC to impose it’s requirement that Hedge What impact are strategies such as hedge fund
growth will be primarily reflect the continued Fund Managers in the United States should be replication, indexation and investment in
interest from institutions who remain nervous of registered. Personally, I don’t see much need for 130/30 funds having on the hedge fund market?
the equity markets. It is also likely that investors greater regulation in the Hedge Fund Markets,
who might previously have invested in fixed providing the Hedge Fund Managers and other O’Connor: We are seeing a lot of interest from
income, credit and loan portfolios, will now look participants in the Market follow the Sound or promoters in these strategies, but the volume of
towards other strategies which provide hedged Best Practices, as outlined by AIMA and HFWG. finds actually setting up and trading this strategy
opportunities in the current markets, such as the I must also say that, although I am against do not seem to be making a significant dent on
Long-Short Equity Fund, which is where the “blanket” regulations, as opposed to targeted traditional hedge fund in-flows. Many traditional
whole hedge market started. regulation, which is when a regulation targeted hedge fund managers who we speak to hold the
view that the 130/30 strategy will turn out in continue to do so for so long as they deliver to NAV. I am not sure that counterparties or
performance terms not to be as adept at impressive performance at the cost of the less competitors would be greatly effected.
generating alpha as traditional hedge fund successful managers. On the other hand, those In the context of M&A activity, I can see this
strategies. 130/30 strategies orientated in the managers who have successful track records will having a greater effect on Hedge Fund
US and were partly driven by specific tax be concerned about being replicated or forming Administrators, as demonstrated by the
efficiencies which they offered under US federal part of an index and the impact that has on “consolidation” or “acquisition” trail over the
tax rules and the same considerations do not
apply in Europe so it remains to be seen whether
they will really thrive in Europe.. There is a risk that a reduction in liquidity and lending
If these strategies proliferate in the retail
investor market as alternatives to traditional
power in the Prime Broker market could adversely affect
hedge fund investment, this would seem likely to the ability of Hedge Funds to go short
result in a reduction in investment opportunities
for traditional hedge funds, pressure to reduce
fees, reduction in the investment management comparable performance. A further factor is past several years. This has affected the clients
talent available to traditional hedge funds. that the scope for conflict of interests within (the Hedge Funds and Hedge Fund Managers)
service providers grows with the introduction of in instances where the Hedge Fund
Butler: I am not sure that any of these strategies such products. Administrator has been consumed by a larger
are having a huge effect on the market, traditional Fund Administrator and where the
although, obviously, there is some demand, How has increased M&A activity and IPOs in “Big Bank” culture relating to minimum client
otherwise they wouldn’t still be about. I am not the hedge fund market affected the community? size has prevailed. We have seen several funds
familiar with Hedge Fund Replication, although What impact does this have for clients, moving from some of the big banks, because
I have heard a number of presentations on the counterparties, competitors and the fund they were deemed too small. I think it is fair to
subject. Indexation is another matter and still services market? say that the majority of the big Hedge Fund
remains problematic, because of the very nature Administrators around Dublin and the world will
of Hedge Funds and the fact that so many Hedge O’Connor: I think the resources and now not look at funds of less than
Funds close, either totally withdraw from the infrastructure that institutional buyers of hedge USD200million or will price themselves out of
market, or just close to new investors, with the fund service providers bring should be positive the market, by introducing high minimums,
result that they no longer remain valid for the market. It may be that hedge fund notwithstanding the fact that something like
components of the index. Thus, in my opinion, manage IPOs will disincentivise the traders and 70% of all hedge funds in the world have a total
notwithstanding the fact that there are several the traditional alignment of their interests with Net Asset Value of less than US$200million. As
tradable Hedge Fund Indices, I still think that it those of the investors might not be as strong. a result, smaller competitors of the big
is dangerous to rely on them as a true indication administrators are thriving.
of the Hedge Fund Market’s performance. Butler: Depending upon which area of the
As regards 130/30 funds, which, as far as I can Hedge Fund Market you are talking about, it The hedge fund services market has become
see, include 120/20 and 140/40 funds, appear to seems to me that the big get bigger and the increasingly competitive – how are players in
me to be variations on the Long-Short theme, small carry on. It all seems an inevitable the market adapting to the needs of the hedge
which are, as far as I can see it, unnecessarily consequence of the Hedge Fund Market funds?
restrictive in the context of the ratios 130/30. It maturing and those who have been in it for the Munro: As fund managers grow, they will
seems to me that it is an unnecessary and longest seeking an exit, on the one hand. On the inevitably become more demanding. This is an
dangerous restriction to prohibit a Manager other hand, there is no doubt that some Hedge opportunity as well as a threat. As ever, getting
from changing the ratio from 130/30 to, say, Funds and Managers that have set up Publicly the basics right will be key for any service
100/90, if the Manager believes that is the best Traded Vehicles have an agenda to create an provider but as the demands on compliance
way to attack the market, but maybe I am Investment Bank in the relatively near future. officers and in-house counsel grow there will be
missing the point. If we are talking about Managers being listed, opportunities for those that services providers
Be that as it may, Hedge Funds Markets and then this should not have a major difference for who understand the industry.
the numerous different strategies that are their clients (investors) or the counterparties
currently employed are thriving and will (Prime Brokers) except that, as a Manager gets O’Connor: I think there is more focus on
continue to thrive, despite Hedge Fund bigger, whether listed or not, so that Manager service levels now. Increasingly the larger hedge
Replication, Indexation or 130/30 funds. will be able to negotiate better terms from their fund managers are taking are more institutional
Prime Brokers. I am not sure that there is any approach to service provider appointments and
Munro: It is in part a sign of the growing great effect on competitors, because the Market looking for tighter, and legally binding, service
maturity of the market. Exactly what impact it is is getting bigger and there is enough cake for levels. And with increased competition, there is
having right now is difficult to gauge but in time everybody. some downward pressure on prices.
replication and indexation is likely to make life If it is the fund that is being listed, then Promoter loyalty to a particular service provider
more difficult for those managers who have not clients/investors will have the opportunity of seems to be a thing of the past with more
consistently generated alpha returns. The lower greater liquidity, although the prices for the promoters willing to move from one service
fees offered by replicated and synthetic funds shares of their funds may not correspond with provider to another.
are attracting a following and are likely to the NAV and could run at a premium or discount
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ISJ28 pp52-67 ML 13/3/08 6:30 pm Page 58
Butler: There is no doubt that the Prime applies here. What are likely to be the main challenges and
Brokerage Market has become increasingly opportunities for the hedge fund market over
competitive, although I am not really qualified Is there likely to be further consolidation in the the next year?
to discuss it in any depth. What will be hedge fund services market and will it be the
interesting is to see what effect the larger players that win out? Butler: The main challenges for the hedge
Subprime/Credit Crunch debacle will have on fund market is going to be the survival in a low
some of the Prime Brokers, which are divisions Butler: By further consolidation in the hedge liquidity environment and this will depend upon
of major banking institutions who have suffered fund services market, I presume you mean fund how soon the market recovers from the Sub-
substantial losses in this area. As already administration. It is, I think, a case of swings Prime/Credit Crunch problems. Against this,
stated, there is a risk that, a reduction in and roundabouts. As I have already said, the there is still a huge pool of cash, around and
liquidity and lending power in the Prime Broker larger players restrict themselves to larger ironically some lending requirements are now
market could adversely affect the ability of accounts and there are thousands of smaller being met by hedge funds that have become the
Hedge Funds to go short and that could have a accounts. Therefore, the smaller players will lender of last resort, as the banks have pulled in
knock-on effect, as discussed above. still be able to make a very healthy living, subject their horns.
With regard to the increasingly competitive only to the possibility that too many people will So this, in itself, becomes one of the
nature of the Hedge Fund Administration try to get into that market and there will be some opportunities for certain hedge funds. Other
opportunities include the development of totally
new markets. We have seen in the last few years
the development of Carbon related funds, Green
As fund managers grow, they will inevitably become funds, Africa funds and the growth in
more demanding - an opportunity as well as a threat commodity funds. The Emerging Markets will
always be emerging, whether it is China and
India or Vietnam and Uganda. Obviously, China
Service, this is true, but in a rather stratified natural culling, over time. What the larger and India are the greater opportunities, purely
manner. The consolidation at the larger end of players should also be aware of is the reluctance on a volume related basis.
the market is introducing competition, but the of some larger managers to go with the larger Perhaps the main challenge for hedge funds
market is certainly big enough for all parties at administrators, for a variety of reasons, is to ensure that their strategies maintain
the moment and there doesn’t appear to be any including the belief by many that Chinese Walls capital and that they can take advantage of any
sign that the large traditional administrators are are made of Gruyere cheese and the fact that a volatile situations to generate real returns,
suffering in the hedge fund area. small to medium sized firm is likely to provide a whilst the rest of the market is either in decline
At the smaller – under USD200million – end better and more personal service than the larger or, probably by mid-year, just out of favour.
of the market has become increasingly firms. We have clients who have indicated that
competitive because several new smaller hedge they would not join us or would leave us if we O’Connor: I would image that performance will
fund administration companies have been set were to sell out to one of the major banks and I be the main challenge this year, as it is every
up in order to capture part of the very large don’t think it was an idle threat. year, due to the difficult few months funds have
group of small hedge funds. experienced. On the legal side, the work that the
As to hedge fund administrators adapting to Munro: I expect there to be some consolidation EU Commission is undertaking on the removal
the needs of hedge funds – this has always been but not perhaps at the same rate of recent years. of obstacles within Europe to the private
the case, whether it be with regard to providing The credit crunch is likely to impact on the placement of non-UCITS funds will hopefully
systems to enable compliance with new willingness of the banks to make acquisitions at result in some positive opportunities for hedge
regulations (EU Savings Directive), or least in the short term. In addition, the industry fund distribution.
facilitating risk monitoring and specialist is still receptive to new entrants who can offer
pricing services. Other areas in which hedge good service at reasonable prices. The barriers Munro: There can be little doubt that the
fund administrators are meeting the needs of to entry are not huge in an industry that still volatility and, in some cases, lack of liquidity in
hedge funds is, in our case, the provision of an counts on recommendations and personal the markets will help investors to distinguish
automated German Tax Reporting module, relationships. The reality or perception of those managers who are capable of generating
which we hope to have in place very soon. conflicts of interest when a single organisation alpha returns and those that who have merely
One of the things that clients have got to provides multiple services will also act as a successfully ridden the bull market of recent
appreciate is that, regardless of the competitive brake on consolidation. years. For those with a track record of
nature of the market, margins are finite and generating alpha returns, there is an enormous
costs aren’t. Therefore, as clients seek more O’Connor: Perhaps with the cost of money and opportunity to attract new money. For those
and more, so they will have to be prepared to the turbulence in the financial sector at the who can not, life is likely to get harder. A
pay more. It was, I think, Nicola Horlick, who moment, the first half of this year might see number of funds are facing liquidity issues and
recently berated the value of outsourced reduced activity in this area, but we feel that will be reviewing the fine print of their offering
services generally, but explained the poor quality there is still appetite there and that increased for suspension of redemption rights, gates, side
that she, and many of the mutual fund industry, competition will inevitably lead to further pockets and other mechanisms for controlling
suffered because the clients’ weren’t prepared consolidation over the medium term. the outflow of funds. ■
to pay. The old joke about peanuts and monkeys
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ISJ28 pp52-67 ML 13/3/08 6:31 pm Page 60
Static
Analysis of the key indicators on securities
borrowing by hedge funds from Data Explorers.
Securities lending is a major global
activity and an integral part of the efficient
operation of the global capital markets. The
vast majority of beneficial owners, asset
managers, banks and investment banks
play some active role in the securities
lending industry. This is a vibrant and
growing business. Spitalfields Advisors
estimates the annual gross revenues paid to
borrow securities exceeds USD20 billion.
Building upon years of experience in the
more developed markets, and in recognition
of its broader role in the capital markets,
securities lending activity is increasingly
gaining support from regulators in the
developing markets. To refer to it as
disreputable or to call for it to be curtailed
shows a lack of understanding of this
practice and its importance to the efficient
functioning of markets.
The graph (left) estimates the scale of the
equity activity on a global basis as at 31
December 2007. Lendable Assets represents
the total value of holdings for securities
lending, while the Total Balance represents
the total value of assets on loan. The graph
shows that, while sec lending and
borrowing, predominantly by funds,
The graphs below represent some actual activity at the end of represents over USD2 trillion, this is only a
February in 2007 and 2008. the graph to the left shows the considerable small percentage of those securities
increase in revenue from securities lending and reinvestment activity, available for loan. There is massive
scaled by the lendable assets, in basis points. American equities have potential for growth therefore.
more than doubled in return to lendable, demonstrating the increasing
demand for high-quality equities borrowing by funds during the
subprime crisis. Fewer owners were prepared to lend out their equities
over the summer while fund were increasingly keen to borrow them.
PAYMENTS REVOLUTION
revolution internationally.
Faster Payments will also have a
dramatic effect on the banking industry. At
a business level, banks will no longer have
The UK payments the financial benefit of the current cash
fl o at that results from today’s longer
market is set to get a payments process. “The result will be a loss
in revenue for banks, which will therefore
revolutionary revamp be looking to other business opportunities
to generate additional, replacement
in May this year with revenues. These include initiatives such as
in financing the supply chain. It is expected
the launch of the that this will increase competition betwe e n
banks in order to obtain this new business,
Faster Payments and that this competition will ultimately be
to the benefit of their clients,” says
initiative. Nicolson.
At a technology level, banks have had to
Virginie O’Shea reports change their business processes and adapt
their IT accordingly in order to allow for
espite the delays, it seems that the clearing times on phone, internet and
SEPA REVIEW
SEPA REVIEW
Attempts to replicate the aggressive monetary easing that industry. Something of great significance was created and
helped alleviate the adverse economic effects of the terrorist the protagonists are merited in feeling a sense of
attacks in the USA are not so far having a similar outcome achievement. Around 4000 banks have signed the
today. This has focused new and widespread attention on the adherence agreements and have declared themselves
importance of efficient and effective cash management in compliant to the SEPA standards.
corporates, financial institutions, central banks and But what happens now? It is a question that is being
households across the developed world and the emerging asked inside and outside the industry. There is a sense in
markets. some circles of SEPA being somewhat of an
In an era of relatively scarce credit, cash is not just king; anti-climax, that the rush and initial euphoria of meeting
cash has become a master of the universe, and all indications the starting deadline has not led to anything concrete.
are that it will remain so for the foreseeable future. There have been many been pronouncements from
Corporates and financial institutions who make the best use various industry players on the introduction of SEPA
of their cash resources will surely gain a new competitive payments and the volume passing through their systems.
advantage. This all very well but on close examination the volumes
In such an environment, a holistic approach to making the are not high. In fact, one ACH admitted privately that the
most of working capital will almost literally deliver more volume of SEPA payments being made through their
bangs per buck than the traditional piecemeal approach to system has not been anywhere near expectations. Some
handling cash, trade finance and foreign exchange major banks have made only token transfers in order to say
requirements. For those who know where to look, that they have processed SEPA payments. The
opportunities exist for corporates to cement, or even enhance, number of SEPA payments so far has been only a very
their market position. small percentage of the overall payment volumes.
In practical terms, for example, as credit remains hard to So the take up has been low after the launch but there are
come by, and expensive for those who find it, a company’s some encouraging signs that SEPA is not being ignored.
ability to offer access to supply chain financing could spell the Some smaller banks have started to introduce SEPA
difference between success and failure. Where a supplier payments in online banking services. They are offering
might be experiencing difficulty in obtaining its own finance, their retail clients the option of choosing a SEPA Credit
an injection of liquidity at the right link in the chain could Transfer as opposed to the traditional credit transfer.
lubricate business. This could enable corporates to grow their Debate is moving into how to leverage SEPA to achieve
own sales and improve their profit and loss account without the intended benefits. A straw poll shows that some of the
incurring significant additional risks. larger banks are not publicising SEPA products and the
The devil, as always, is in the detail, and the advice and fear is that, after the initial fanfare, the introduction of new
support of those who know and understand the detail services will be quietly forgotten.
intimately could well prove crucial in the difficult months that A key factor in this debate has to be education. It is
still lie ahead. There are many institutions that can provide a apparent that there still needs to be a greater effort to
single solution to a single problem. But fewer can engineer sell the concept of SEPA to the wider community.
customer-specific solutions across the entire working capital Public education campaigns have been low-key to say the
cycle, freeing up cash for deployment elsewhere. Fewer still least. Even now, some corporates are still mystified as to
can boast a strong balance sheet, strong liquidity and what SEPA is and what it will mean. It has to be of
therefore a strong position from which to lend. great concern that stakeholders are not fully informed
nor really aware of the benefits that SEPA is designed
to bring.
Instead of focusing on the deadline for the introduction
of SEPA, the deadline for the migration of
domestic payment systems to SEPA schemes should be the
focus. Public education has to continue and, it can be
argued, increased following the poor efforts that have been
attempted previously.
To be fair, the real volume for SEPA payments
will be delivered by the migration of the current domestic
SEPA – What Next? systems. Considering that domestic payments account for
between 92 and 98 per cent of payments, this is the critical
mass.
Andrew Foulds, Director, Directory Services, cb.net We can hope that there will be an increase in
education and publicity activities leading up to this
The launch of the first SEPA scheme in January 2008 deadline at the end of 2009. Will it be then that we see the
was heralded as a great achievement in the banking real benefits that SEPA promises?
SEPA REVIEW
In Europe, when it comes to successive waves of what With over a month since the SEPA Credit Transfer (SCT)
some industry commentators perceive to be poorly went live, most banks should be fully able to accommodate the
conceived regulatory change, ‘unprecedented’ is a pretty new payments instrument. And while most are now able to
reasonable word to use. For the Eurozone finance sector, send and accept SEPA payment instructions from clients, the
SEPA is now past the point of no return as, with effect from strategic approach – or lack of – taken by some banks is still
28 January, the implementation timeframe is ticking away. showing some shortcomings.
It’s also past the point of very little return in the revenue The failure to realise that SEPA will be a key enabler of the
context, with many banks still uncertain of the real impact next generation of treasury best-practice lies behind some of
that SEPA will have on their payments revenue profile. this neglect. While the technical changes are certainly a
According to the European Central Bank, by October 2007, primary concern in the time before and immediately after
a significant number of banks and infrastructures had implementation, the harmonization of payments procedures
committed themselves to be ready for SEPA credit transfers across the eurozone will give corporates the opportunity to
by the January 2008 start date. Being ready is not eliminate duplicate processes across national subsidiaries.
necessarily the same as doing, and many are still keeping This will enable greater centralization and automation of
their implementation and compliance options open. The treasury functions – measures that will create considerable
SEPA change program therefore will continue to roll cost savings and efficiencies.
through 2008 and 2009, with an understandable tendency It is these considerations that have been the driver behind
by some participant organisations to defer the associated Deutsche Bank’s SEPA strategy – a strategy designed to yield
revenue risk for as long as they reasonably can. immediate benefits to clients while also dealing with concerns
Even when SEPA credit transfers are established across regarding the SEPA migration. The key components of this
the Eurozone community, the legal and mandate issues approach are the decisions to treat all transnational payments
surrounding SEPA direct debits remain to be finally with SEPA criteria identically (including in terms of pricing)
resolved, with direct debit implementation now unlikely from day one of implementation – which exceeds the
until late 2009 at the earliest. SEPA direct debits will result statutory requirements by some margin – and the decision to
in further change in the revenue profile for banks and enhance the payments formats currently in use to
payment processors, and consequent changes to the shape accommodate XML, the standard SEPA format. This second
of the Eurozone payments business are likely through 2008 measure is specifically designed to insulate clients from some
and 2009. In addition to systems adaptation by those of the technical difficulties during the migration process. And
organisations that can continue to sustain a profitable Deutsche Bank has taken several further measures such as
payments business, other organisations will be outsourcing deciding to use the new XML format globally, and not just in
some or all payments processing to third party banks or to the SEPA area.
shared service centres, and others again will be scaling up Above all, the strategy has been designed to ensure that the
their existing infrastructures so that they can host SEPA initiative is as successful as possible for Deutsche Bank
payments processing for larger numbers of banks, so clients. A similar approach industry wide would doubtlessly
becoming major payments ‘hubs’. multiply the benefits available to all parties and provide
incentives to Corporates for a fast SEPA migration.
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ISJ28 pp52-67 ML 13/3/08 6:32 pm Page 66
effect have a passport to operate across available in Europe in 1999, BoISS was uplift, sometimes 20 or 30 basis points,
Europe, and funds can invest in a greater one of the first administrators in the to our clients’ fund performance. This
variety of financial instruments, thus region to launch an ETF. uplift is no additional cost to our client
clearing barriers to cross-border market “We’ve seen our assets under but a revenue sharing agreement is in
of units of collective investment funds. management grow to over USD30 place.”
Lately mangers have been putting billion this year, making us the largest BoISS took what Heffernan described
fund vehicles together, with structured third-party administrator of ETFs in as “a big step” in 2007 by opening a unit
vehicles in these products – effectively Europe. From an Irish perspective, we solely dedicated to hedge fund servicing
using UCITS III as a “wrapper”, have the majority of ETFs in terms of in Belfast. The new unit will deal with
Heffernan says. assets – 80-90% perhaps,” Mr Heffernan all new offshore funds business.
He continues, "Typically the says. Last year also saw BoISS’ Sterling
structured product is done on a Most ETFs in the EU are traded cross Liquidity Fund voted the best
proprietary index of the asset manager border as UCITS III. performing liquidity fund in the world
or as a capital protected product. Heffernan added that the credit crunch by Moody’s Investors service.
Structured products have been around resulted in a “large demand” for fixed And BIAM, the highly successful
for a number of years, but putting them income securities lending, which include investment management arm of the
into fund wrappers is relatively new – 18 US treasure bills. Bank of Irleand Group reached a
months to two years." The bank’s securities lending trading landmark in February when it
Now UCITS III is starting to expand desk has also seen growth, Heffernan announced that it now manages more
out of Europe to other regions. In Asia, says, with the bank now being able to than EUR ten billion for institutional
UCITS are now recognised in the indemnify clients against those risks investors in Ireland. ■
financial hubs of Hong Kong, Japan, traditionally associated with securities
Singapore and Taiwan. Heffernan says, lending. Of this, he says: “This gives
"They [UCITS] are also recognised in
parts of Central and South America. So
the UCITS brand is expanding beyond BoISS performance in ETFs and AUA from 2005 to 2007
Europe and, because of the well-
regulated structure they have, are
recognised by other jurisdictions." The number of BoISS’
exchange traded funds
He added that with the progress of
(ETFs) climbed
UCITS III there is an opportunity for significantly from 2005 to
“different types of strategies and 2007. This growth has
instruments”. been mirrored across
As UCITS III products become more Europe and the world as
popular, the FSA has recently issued a ETFs gain in popularity
warning to managers using UCITS III with investors. These days
that there is a lack of trained staff, which there are ETFs for almost
could lead to what the regulatory body any area of the market,
calls “incorrect trades, mandate breaches allowing investors to more
or valuation errors”. specifically target their
Another area of high activity for investments.
BoISS recently has been fund of hedge
funds, Heffernan says.
“We don’t operate a production line The last three years has
approach or a Ford T model approach seen the assets under
where we tell our clients how things administration by the
work and tell them to sit on one platform BoISS steadily increase. In
– we offer something different, tailored 2005 there was USD133.6
and bespoke”, the business development billion under management
manager claims. by the outfit, a figure that
Clients are offered a “turnkey rose to USD 180 billion by
solution” where BoISS puts in place a the end of 2007. This
structure to deliver their needs. Later represents a rise of
BoISS uses this structure to deliver in approximately 36% over
other relationships. three years – a positive
The recent global growth of ETFs result by anyone’s
(Exchange Traded Fund) has also standards.
benefited BOI in the past year, according
to Heffernan. After the pool fund became
PEOPLE MOVES
International: Olivier Storme CACEIS is an Investor Services company with six offices across Europe. Owned in
equal parts by Crédit Agricole and Natixis, CACEIS provides Custody, Fund
T: +352 4767 2847 Administration and Corporate Trust services to demanding Corporate and
E: olivier.storme@caceis.com Institutional clients. We have considerable expertise in Cross-Border Fund
Distribution Support as well as Alternative Investment and Private Equity servic-
ing.
France: Patrick Lemuet Our staff have the language skills and industry knowledge to develop business
T: +33 (0)1 57 78 03 34 relationships into strong partnerships and our powerful IT systems are constantly
E: patrick.lemuet@caceis.com updated to ensure high levels of process automation.
CACEIS is responsible for over EUR1.75 trillion held under custody, and over
W: www.caceis.com EUR850 billion under administration.
DnB NOR is the largest and leading provider of Custody, Clearing and
T: +47 22 94 92 95
Remote Member Service in Norway. In addition, DnB NOR provides a wide
F: +47 22 48 28 46
range of value added services to both Foreign and Domestic clients.
Contact: Bente I. Hoem
Through an Alliance solution with banks in Sweden, Finland and Denmark,
E: bente.hoem@dnbnor.no
DnB NOR can offer seamless regional products, which can be customized to
W: www.dnbnor.com our client's needs.
W: www.handelsbanken.com The cornerstone of Handelsbanken’s philosophy is to put the client and the
/nordic_custody_services client’s needs in focus. Nordic Custody Services are locally present in all the
T: +46 8 701 2988 Nordic markets and offer a wide product spectre to a diverse client base.
F: +46 8 701 2990 Each client is allocated an account manager in each market, fully
C: Johan Wennerberg responsible for the day-to-day activities, as well as a regional relationship
E:custodyservices@handelsbanken.se manager. Handelsbanken provides specialised and tailor-made custody services
A: Blasieholmstorg 12, including complete corporate action services, securities borrowing and lending
SE - 106 70, for all Nordic countries, as well as settlement and clearing services to clients
Stockholm, Sweden that are remote members of the Nordic stock exchanges.
ING Wholesale Banking Securities Services provides award winning local and region-
al custody services for investment professionals. We are proud to be the largest cus-
todian provider in terms of assets and number of foreign clients in Central & Eastern For further information please
Europe. ING has been providing Securities Services in CEE since 1994 and we will contact
continue our ongoing pursuit of excellence through new technology. Innovation and Lilla Juranyi, Global Head
client focus are the key drivers to service our clients the best way. Custody
at + 31 20 7979 435
Other activities of ING Wholesale Banking Securities Services are Paying Agency or contact her by email:
Services and web-based management of employee stock option & share plans. Lilla.Juranyi@mail.ing.nl
ING is your local partner in: Belgium, Bulgaria, Czech Republic, Hungary, Poland,
Romania, Russia, Slovak Republic and Ukraine.
Business Development –
Investment Fund & Global
KBL, leading service provider in the Luxembourg fund industry, offers one-stop shop Custody Services
facilities to international fund promoters. 43, boulevard Royal
Product structuring (of SICAV, FCP, SIF, SICAR, SEPCAV, …), global custody L-2955 Luxembourg
services as well as an efficient fund administration and transfer agency infrastructure Stéphane Ries e-mail :
are some of our fields of expertise that will bring added value to the management of stephane.ries@kbl-bank.com
your assets. Sandra Cortese e-mail :
For all kinds of Undertakings for Collective Investment going from plain vanilla sandra.cortese@kbl-bank.com
cash, money-market, equity and bond funds to sophisticated alternative, venture Stéphane Pesch e-mail :
capital/private equity, pension pooling and funds of hedge funds, KBL offers expert stephane.pesch@kbl-bank.com
legal, fiscal and technical advice as well as access to the global markets. Tel. : (352)4797 3512
Fax : (352)4797 73910
www.kbl.lu
Nordea is the leading financial services group in the Nordic and Baltic Sea region
and operates through three business areas: Nordic Banking, Banking & Capital
Market Products and Savings & Life Products.
Nordea is the leading custody services provider in the region. Nordea provides high T: +47 2248 6238
quality, tailor-made custody services for local and foreign investors dealing with Contact: Anne-Lise Kristiansen
Nordic, Baltic or global securities. Head of Sub-custody and
- The leading financial services group in the Nordic and Baltis Sea region Clearing
- A world-leading Internet banking and e-commerce operation E: anne-lise.kristiansen@nordea.com
- 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
Santander is Spain’s leading financial institution and the largest bank in the euro zone
by market capitalization. Our commitment and contribution to the securities industry is
well established after more than a century of providing services in this field. T: Europe: (34) 91 2893932 / 28
T: USA: (1212) 350 39 02
Santander’s cutting edge technology enables it to offer a comprehensive array of inno- W: santanderglobal.com
E: globalsecurities@
vative services in a broad range of markets. Santander currently has full local capabili- gruposantander.com
ties in Iberian and Latin American markets along with a franchised presence in many
others. Santander`s experience and product range ensures that every aspect of the
securities business is fully contemplated.
SEB is the leading provider of securities services in the Nordic and Baltic area. We
are committed to custody and clearing processes for the wholesale market. We hold
securities worth over 560 bn EUR and provide services in more that 75 markets, 10 T: +46 8 763 5770
of them under the SEB name (Sweden, Norway, Finland, Denmark, Luxembourg,
F: +46 8 763 6930
Germany, Estonia, Latvia, Lithuania and Ukraine).
C: Goran Fors, Global Head of
We offer a full range of securities services including corporate action and informa- Custody Services
tion services, securities lending and services to remote members of the Nordic and
Baltic stock exchanges. We continuously develop new products in connection with E: goran.fors@seb.se
clients and partners to ensure we deliver the high-quality products our clients W: www.seb.se
demand. We always strive to make the processes more efficient. With a history of
over 150 years in the securities industry; we know the market and our clients well.
Sébastien Danloy Société Générale Securities Services offers institutional investors, asset man-
Global Head of Sales,Investor agers and financial intermediaries a comprehensive range of financial securities
Services services: custody, clearing & trustee services, fund administration, asset servic-
Société Générale Securities
ing and transfer agency. SGSS currently ranks 3rd European custodian and 9th
Services
T: +33 (0)1 41 42 98 65 worldwide custodian (Source: Globalcustody.net) with EUR 2,580* billion in
E: sebastien.danloy@socgen.com assets held and valuates 4,354* funds representing assets of EUR 405* billion
W: www.sg-securities-services.com (as of June 2007).
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
C: Neil Daswani, branches (including subsidiaries, associates and joint ventures) in over 50 countries
Global Head, Securities Services in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom
T: +65 6517 0022 and the Americas.
E: Neil.Daswani@sg.standard-
chartered.com As one of Asia's leading custodians, Standard Chartered has an impressive track
record across the 16 Asian markets in which it provides securities services. It serves
W: www.standardchartered.com
global, regional and local custodians and broker-dealers, as well as local and regional
fund managers. The Bank plays a key role in promoting the development of these
markets and keeping the international investor community informed of industry
developments across the region.
Unicredit Markets & Investment Banking (MIB) serves as UniCredit Group's global
product and competence center for global financial markets and investment banking
services, including Custody throughout Central and Eastern Europe, including Austria.
T: +43 50505-58510
Brand diversitiy under which the group operates (Bank Austria Creditanstalt, HVB,
F: +43 50505-58579 Bank BPH, Bank Pekao, Zagrebacka Banka and International Moscow Bank), has its
C: Andreas Petzl , Head of Sales roots in local market presence and knowledge, contributing into a single unified
and Relationship Management product across the region. In 2006 the group was recognised by no less than 3
E: Andreas.petzl@ba-ca.com independent surveys as being the best region custodian
W: www.hvb-custody.com/ The group's ability to deliver service excellence across 13 markets is the cornerstone
of our success. From participation in local market associations to our inter group
training sessions, to a client consultative approach, the group continues to work
towards making a single impression - excellence.
Data Services .
Avox
Redwither Tower Market Data & Analytics provides high-value real-time market data, indices and back
Redwither Business Park office services. Information from diverse sources are provided to its customers,
tailored to their specific information needs. Accuracy and reliability are ensured by
Wrexham, LL13 9XT
collecting the data from the Group’s own trading platforms, such as Xetra® and
United Kingdom Eurex® and cooperation partners like STOXX Ltd. and the Irish Stock Exchange.
Avox®, a majority-owned subsidiary, validates, corrects, enriches and maintains
T: +44 (1978) 661 813 business entity data. With an operational model, unique in the industry, Avox®
F: +44 (1978) 661 668 enables clients to comply with regulatory requirements and to achieve a holistic view
W: www.avox.info of the risk exposure towards a client.
SmartCo is a leading provider of data management solutions for the financial industry.
SmartCo’s software, Smart Financial Data Hub, covers all the data area, including SmartCo
financial instruments, market data, third parties, funds, transactions, and provides 37 rue de Liège
full connectivity, a powerful and user friendly front-end, traceability, quality control, 75008 Paris
data enrichment and customisable workflow. France
Our solutions are based on SmartPlanet, an innovative technology focused on data
management, and able to meet evolving business requirements. T: + 33 1 58 22 29 60
SmartCo offers to its customers the ability to respond in the fastest way to regulatory E: info@smartco.fr
and business changes. W: www.smartco.fr
For further information: www.smartco.fr or info@smartco.fr
Fund Administration
Apex Fund Services Ltd is a global hedge fund administration solution for hedge C: Peter Hughes
funds and private equity clients located in 9 separate jurisdictions across the globe. Group Managing Director
The company uses the software solution, PFS PAXUS, which is a fully integrated T: +1 441-292-2739
hedge fund accounting system combined with web-based reporting to allow clients F:+1 441-292-1884
and investors to access their information 24/7 securely online. We will tailor all
E: info@apex.bm
solutions to meet your needs and our continuing focus on the quality of service and
the relationship with each and individual client ensures that we retain our ethos of A: 31 Reid Street,
providing a personalized service rather than a generic solution. Hamilton,HM11
Highly qualified and experienced staff, mirrored with top tier technology and Bermuda
competitive fee structures make Apex Fund Services Ltd the clear choice for your
fund administration needs. WWW.APEX.BM
CACEIS is an Investor Services company with six offices across Europe. Owned in International: Olivier Storme
equal parts by Crédit Agricole and Natixis, CACEIS provides Custody, Fund T: +352 4767 2847
Administration and Corporate Trust services to demanding Corporate and E: olivier.storme@caceis.com
Institutional clients. We have considerable expertise in Cross-Border Fund
Distribution Support as well as Alternative Investment and Private Equity servic-
ing. France: Patrick Lemuet
Our staff have the language skills and industry knowledge to develop business T: +33 (0)1 57 78 03 34
relationships into strong partnerships and our powerful IT systems are constantly
updated to ensure high levels of process automation. E: patrick.lemuet@caceis.com
CACEIS is responsible for over EUR1.75 trillion held under custody, and over W: www.caceis.com
EUR850 billion under administration.
www.imfcfundservices.com
Established in 2002, IMFC Fund Services B.V. is a boutique hedge fund
t +31.20.644.4558 administrator and a trustee with its offices in Amsterdam and Sydney. IMFC
f +31.20.644.2735 offers third parties administration and related services to all type of onshore and
Mrs. Consuelo Nardon offshore funds combining high quality, independency, technology, timely
e: consuelo.nardon@imfc.nl calculation with flexibility, experience, custom-made solutions and competitive
Rivierstaete Building, rates. Our services include: fund set-up and corporate services, NAV calculation
Amsteldijk 166, 1079 LH and other accounting services, R&T agent and other investors and compliance
Amsterdam, Netherlands services. For more information visit our website: www.imfcfundservices.com
C: Fred W. Jacobs, III PFPC is a premier provider of processing, technology and business solutions to the
A: PFPC, 301 Bellevue Pkwy global investment industry. Our core offering includes accounting, administration,
Wilmington, DE 19809 USA investor services, middle-office services and regulatory administration services. Whether
T: 302-791-2000 your products are U.S. or non-U.S. domiciled funds, trust vehicles, limited partnerships
F: 302-791-1570 or commingled investment products, PFPC’s multi-jurisdictional, multi-fund capability
E: Information@pfpc.com allows us to process your complex fund structures - from hedge funds, fund of funds
C: Fergus McKeon and private equity funds to master/feeder and multi-managed funds.
A: PFPC Riverside Two
Sir John Rogerson’s Quay PFPC offers personalized alternative investment solutions tailored to your unique
Dublin 2, Ireland needs. With more than 30 years in the fund servicing industry, our seasoned and
T: +353-1-790-3500 responsive professionals bring you the know-how, focus and dedication to deliver the
E: Information@pfpc.com services you need, when and where you need them, any way you want them.
C: Stuart Mauger
T: +44 (0) 1481 744479 Our clients have access to a broad range of value added services and tailored solu-
F: +44 (0) 1481 744529 tions including global custody and fund administration services for funds domiciled
E: stuart.mauger@rbc.com in the Caribbean and Channel Islands.
A: PO Box 48 Canada Court
St Peter Port Guernsey GY1 3BQ Our services include Trustee, banking and credit facilities, treasury and foreign
C: Deanna Bidwell (Cayman) exchange, trade execution, financial accounting, corporate services, derivative sup-
T: +1 345 949 9107 port services and online access, leveraging a custody network that covers 80 plus
F: +1 345 946 1288 markets worldwide. Our service combines leading edge technology with professional
E: deanna.bidwell@rbc.com expertise and a truly integrated service delivering creative, customised solutions.
W: www.rbcprivatebanking.com
Sébastien Danloy Société Générale Securities Services offers institutional investors, asset man-
Global Head of Sales,Investor agers and financial intermediaries a comprehensive range of financial securities
Services services: custody, clearing & trustee services, fund administration, asset servic-
Société Générale Securities
ing and transfer agency. SGSS currently ranks 3rd European custodian and 9th
Services
T: +33 (0)1 41 42 98 65 worldwide custodian (Source: Globalcustody.net) with EUR 2,580* billion in
E: sebastien.danloy@socgen.com assets held and valuates 4,354* funds representing assets of EUR 405* billion
W: www.sg-securities-services.com (as of June 2007).
Hedge Fund Services, based in the Cayman Islands, Ireland and Canada holds a
leading position in the area of hedge fund administration, offering a complete range
of services including accounting, NAV computation, share holder services, banking W: www.ubs.com/fundservices
and credit facilities. With the dedication and experience of a professional team of C: Mr Gerhard Fusenig
200 and our state-of-the-art web reporting, accounting and shareholder systems, we T: +41 44 235 4992
are well positioned to provide clients with a first class service. E: gerhard.fusenig@ubs.com
With specialist expertise in both single manager and fund of hedge fund adminis-
tration, we provide facilities for both onshore and offshore funds. A: UBS Global Asset
Capabilities also extend to services for investment funds through our teams in Management, Fund Services,
Luxembourg, Switzerland and the UK. Stauffacherstrasse 41, PO Box,
Cayman Islands: Darren Stainrod, tel. +1-345-914 1076 CH-8098, Zurich, Switzerland
Ireland: Don McClean, tel. +353-1-436 3636
Canada: Pearse Griffith, tel. +1-416-971 4702
DIFC
The DIFC is the world's newest international financial centre. It aims to develop the Dubai International
same stature as New York, London and Hong Kong. It primarily serves the vast Financial Centre
region between Western Europe and East Asia. Level 14, The Gate
P.O. Box 74777, Dubai, UAE
Since it opened in September 2004, the DIFC has attracted high calibre firms from
E: info@difc.ae
around the globe as well as its region. Firms operating in the DIFC are eligible for
benefits such as a zero tax rate on profits, 100 per cent foreign ownership, no T: +971 4 362 2450
restrictions on foreign exchange or repatriation of capital, operational support and M: +971 50 4958902
business continuity facilities. F: +971 4 362 2333
W: www.difc.ae
Prime Brokerage
Newedge Global Prime Brokerage Group is a global, multi-disciplinary, solution-
providing team dedicated to delivering superior services to alternative investment Philippe Teilhard de Chardin
industry participants including hedge funds, commodity trading advisors (CTAs), fund T: + 44 20 7676 85 36
of hedge funds, family offices, and institutional investors (insurance philippe.teilhard@
companies, banks and pension funds). newedgegroup.com
The Newedge prime brokerage team offers a global range of brokerage services Vincent Tournant
covering a wide range of asset classes including equities, bonds, currencies, T: +44 (0)20 7676 8171
commodities, and their related listed and OTC derivative products. We also offer an vincent.tournant@
innovative portfolio-based cross-margining solution, a dedicated account management newedgegroup.com
desk, hedge fund start up services, quantitative information on the hedge fund Duncan Crawford
industry, capital introductions services, and recently prime brokerage services to T: +44 (0)20 7676 85 04
Sharia compliant hedge funds. duncan.crawford@
Newedge is a major new force in finance, resulting from the merger of the two broker-
newedgegroup.com
age firms - Calyon Financial and Fimat - on January 2nd, 2008. Newedge is wholly W: www.newedgegroup.com
owned by Calyon and Société Générale, with both companies having 50% ownership.
VocaLink
Drake House VocaLink is the transaction specialist. We pioneered electronic payments four
Three Rivers Court decades ago and many of the world’s top banks have been relying on our services
Homestead Road ever since. Our automated payment system processes over 80 million transactions
per day and has the capacity to handle all of Europe's automated payments. Our
Rickmansworth
switching platform powers the world’s busiest ATM network.
Hertfordshire
The VocaLink CSM delivers reach for our clients throughout the SEPA and beyond
WD3 1FX with a range of value-added services that leverage our know-how and technical capa-
bilities.
T: +44(0)870 1650019 VocaLink is the partner of choice in the transactions business. Find out why at
F: info@vocalink.com www.vocalink.com
W: www.vocalink.com
Securities Lending .
Data Explorers Limited, a specialist and independent company, offers impartial
W: www.dataexplorers.com
T: +44 (20) 7392 4000 quantitative measurement of securities lending performance services to the global
F: +44 (20) 7392 4004 securities financing industry. We help our clients monitor and understand the
A: 155 Commercial Street, relative performance of their lending activity and risk, and turn raw lending, borrow-
London E1 6BJ United Kingdom ing and collateral data into useful, actionable information. We also provide proxies
London: Julian Pittam for short selling information.
T: +44 (20) 7392 5018 Working with the industry we ensure information flows are appropriate and peer
E: jp@dataexplorers.com groups relevant. We are not involved in transactions.
Boston: Tim Smith All of our services: Performance Explorer, Transaction Explorer, Risk Explorer,
T: + 1 (617) 973 5099 Index Explorer and Report Explorer are web based and available to clients
E: tim.smith@dataexplorers.com
over the internet.
T: +1 212 901 2224 EquiLend Holdings LLC was formed by a group of leading financial institutions to
C: Michelle Lindenberger develop a global platform for the automation of securities finance transactions.
E: Michelle.lindenberger@equi- The EquiLend platform is designed to increase efficiency by standardizing, cen-
lend.com/info@equilend.com tralizing and automating front and back office processes, while delivering global
access to liquidity, reduced risk and scalability. The EquiLend platform is
A: 17 State Street, 9th Floor
designed to process equity and fixed income securities finance transactions on a
New York NY 10004
global basis.
T: +44 20 7743 9510 Investors include: Barclays Global Investors; Bear, Stearns & Co. Inc.; Credit
A: 54 Lombard Street Suisse; The Goldman Sachs Group, Inc.; J.P. Morgan Chase & Co.; Lehman
London EC3V 9EX Brothers; Merrill Lynch; Morgan Stanley; Northern Trust Corporation; State Street
W: www.equilend.com Corporation; and UBS.
Eurex is one of the largest derivatives exchanges and the leading clearing house in
Europe. Wherever you are located, we provide you with access to the benchmark
W: www.eurexseclend.com futures and options market for European derivatives. Eurex also offers short term fund-
T: +41 58 854 2066 ing products, such as Eurex Repo. Eurex Repo is among the forerunners in providing
F: +41 58 854 2455 integrated trading and clearing for repo transactions. Eurex’s latest innovative market-
E: info@eurexseclend.com place is called Eurex SecLend.
Eurex SecLend. Europe’s leading investment banks participate as borrowers in the
Eurex Zurich Ltd., Selnaustrasse Eurex SecLend marketplace, acting as principal brokers, dealers and intermediaries.
30, 8021 Zurich, Switzerland They all benefit from Eurex’s leading state-of-the-art trading and processing services.
For Eurex, service and technology innovation is not just a buzzword. New trends are
being transformed into inventions through the adoption of advanced trading practices.
Find out more on www.eurexseclend.com.
Securities Lending .
FINACE® is the only fully integrated solution today which supports the future busi- T: +41 (0)44 218 14 14
ness model within the area of Securities Finance and Collateral Management. The F: +41 (0)44 218 14 18
architecture of FINACE® is based on a stable, leading edge technology platform,
E: info@finace.ch
which was developed with performance and robustness as the focus of design. With
A: COMIT AG, Buckhauserstrasse
flexibility at its core, customer-driven extensions and modifications can be quickly
and easily applied to the standard component set. 11, CH-8048 Zurich, Switzerland
W: www.finacesolution.com
Pirum provides a full suite of automated reconciliation and straight through process-
ing (STP) services supporting Operations within the global securities finance T: +44 20 7220 0961
industry. The company's on-line SBLREX service encompasses daily contract F: +44 20 7220 0977
compare, monthly billing comparison, mark-to-market & exposure processing, C: Rupert Perry
pending trade comparison, income claims processing and custody reconciliation.
E: rupert.perry@pirum.com
Subscribers to Pirum’s services significantly increase their operational efficiency
A: Pirum Systems Limited
and reduce their risk by using Pirum’s solutions, as staff are able to focus on fixing
the exceptions instead of using their time to check and process routine business. 37-39 Lime Street
These automated processes are more scalable and risk controlled too, allowing London, EC3M 7AY
significantly higher volumes to be managed without corresponding increases in W: www.pirum.com
operations headcount.
Santander is the only Spanish financial institution with a team exclusively dedicated
to securities finance & with the purchase of Abbey in 2004 has expanded its
capacity on a Global basis with trading teams in London (UK) & Connecticut (USA). W: www.gruposantander.com
T: (3491) 289 39 42/54
Santander's leading local capabilities in Spain, Portugal, UK, USA & Latin America,
E: securitieslending@
along with its solid balance sheet & combined with the state-of-the-art technology,
provides its clients with the broadest range of solutions in securities lending & gruposantander.com
financing, including availability across all assets classes, as well as access to
uncommon emerging markets.
Email: securities.finance@sun-
gard.com
Around the world, USD9 trillion in securities financing is managed on SunGard’s
proven solutions for international and U.S. domestic securities lending and repo for Contact: Switch board: +44 (0)
over 250 clients. Through our Loanet, Global One, Martini and Astec Analytics prod- 208 081 2000 Marketing: +44
ucts and services, we provide comprehensive business solutions and information with (0)208 081 2853
worldwide reach for equities or fixed income securities financing. These solutions –
all in an integrated, exception-based processing architecture – includes order rout- Visit: www.sungard.com/loanet
ing, pre-trade analytics, trading, position management, operations, accounting, set- www.sungard.com/globalone
tlement and reconciliation. www.sungard.com/martini
www.astecgroup.com
Technology .
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 A: One Bedford Avenue,
continue to improve their businesses using Advent’s suite of integrated investment London WC1B 3AU, UK
management solutions. Advent Software EMEA is part of Advent Software Inc. W: www.advent.com
(Nasdaq: ADVS), a global organisation that has been providing solutions to the
world's leading financial professionals since 1983. Firms in more than 50 countries
using Advent technology manage investments totaling more than US $8 trillion.
Aquin are the market leader in investment compliance software with MIG21® pow-
Annette Lindinger ered by Aquin LawCards® for global compliance including UCITS III and SEC 1940.
press@aquin.com The company has built its reputation on solid compliance and IT experience in long
T: +49 69 21 93 66 600 term relationships with its clients.
F: +49 69 21 93 66 650 Aquin services a blue-chip client base of the world’s leading investment
Mainzer Landstr. 199
60326 management companies, hedge funds, fund administrators and custodians. These
Frankfurt am Main include Citi, State Street, BNP Paribas, Credit Suisse, CACEIS Investor Services,
Germany Allianz Global Investors, Pioneer Investments and Commerzbank. The company has
W: www.aquin.com its headquarters in Frankfurt, Germany with subsidiaries in Boston, London, Paris,
Dublin, Luxembourg and Zurich.
Broadridge Financial Solutions, formerly ADP Brokerage Services Group, with nearly
$2.0 billion in revenues and more than 40 years of experience, is a leading global
Broadridge Financial Solutions provider of technology-based outsourcing solutions to the financial services industry. Our
The ISIS Building integrated systems and services include international securities processing, investor
193 Marsh Wall communication and outsourcing solutions. We offer advanced, integrated systems and
services that are dependable, scalable and cost-efficient. Our systems help reduce the
London E14 9SG UK need for clients to make significant capital investments in operations infrastructure,
T: +44 (0) 20 7551 3000 thereby allowing them to increase their focus on core business activities.
E: info@broadridge.com Proxy Edge – comprehensive solution for institutional global proxy voting management.
W: www.broadridge.com Gloss – leading international STP system which automates the trade processing lifecycle from
trade capture through confirmation, clearing agency reporting and settlement.
Tarot - a UK retail and private client stockbroking, custody and fund management solution.
Securities Data Management – outsourced data services for securities operations.
DST International is the world’s premier vendor of technology solutions to the global
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
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FORESIGHT
FORESIGHT
Analysts are suggesting alternative managers are learning
from traditional managers, with the adoption of strategies such
as 130/30. Can alternative managers learn from
traditional managers?
This is a poor question. It really depends on who you regard as
being an “alternative” manager and whether you regard their
stategies as being genuinely alternative. In my view, many
managers are not truly alternative and the strategies they employ Christopher Cruden
are merely a nod in the direction of alternative. - Just enough to
get them the classification and access to the alternative industry. perately short of commodities and has a relatively recent history
They are, in some cases, merely re-branded “traditional” of violent revolution. Now, should there come about something
managers and they started to arrive very shortly after their own other than a global, free-market system... That’s another scenario
bath water drained away. - Curiously, this was around 2001. altogether.
A guy called Richard Bernstein, who is the chief investment The above implies that there are fabulous trading opportunities
stategist at Merrill, just produced a paper that says (such as commodities) for hedge funds resulting from the rise
"Whereas hedge funds were an effective diversifying tool in the (and fall?) of China, in particular, and in other emerging markets.
late 1990s, there is a very limited diversifying effect today. The And, no, I don’t believe that China is, in itself, a bubble, but the
efficient frontier for hedge funds and stocks is now virtually a game will end and probably in spectacular fashion. It may be a
straight line." Any guesses why that may be? replay of the Asian Crisis... but more painful.
“They” have become “us” and, therefore, we have become them. I just can’t help but feel that like the story for other so-called
So, the question should be: “Can we learn from us?” Looking at “emerging” markets, we have heard it all before. Tigers. BRIC’s,
some of the 130/30 stategies, the answer has to be no. whatever...
My mother-in-law was a stalwart of the Womens Institute.
Even she couldn’t tell me why people will flock to a “BRIC-a-brac
Negative press from the Japanese hedge fund space has Sale” but there is no such thing as a “BRIC-a-brac Buy.”
abounded recently - will the market continue to decline? Don’t cross my mother-in-law and don’t argue with the WI.
Yes. Or no. Definitely. To extend the housewife theme, if you do want to enter into this
kind of market, put liquidity at the very top of your
shopping list. Shop ’til you drop but make make sure you parked
your car near the exit, pointing in the right direction and leave
How will the emerging markets and particularly China affect the
the engine running. You just never know.
hedge fund space?
As trend followers, we take “price” as being the sum total of the
worlds information and knowlege. Quaintly old-fashioned, but
Have you seen risk growing over the past 12 months and what is
we do. We don’t have any fundamental “views” that would influ- the biggest risk you face?
ence our trading. Yes, risk is growing at every level. Complexity, leverage,
That was the disclaimer: This is the personal opinion. volatility, transparency, you name it.
China is not going to replace the US, Europe or any other major The biggest risks we face are exactly the same as all investors
financial center. They are totally unsuited to do so in a global, face: The risk that our own emotions and egos become an
free-market ecconomic system. China is a communist, totalitaian impediment to successful trading.
state with an enormous disparity between rich and poor, it’s des- Its tough being human and we fight against it every day. ■