ISJ026

ISJ26 Cover 30/11/07 5:10 pm Page 1
ISJNEWS.COM
GBP 25 - UK, ROW
USD 45 - America
INVESTOR EUR 35 - EMEA
S ERVICES
JOURNAL
VOLUME 4 No. 26 - 2007
SKY’S THE LIMIT

Are the Chinese capital markets
finally taking off?
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ISJ26 pp1-18 FINAL 29/11/07 7:54 pm Page 1
HEADS UP
INVESTOR Glad tidings?

S ERVICES G
iven that most of the market has
been predicting a tough 2008, it
gone down in China over the course of
this year are indicative of the appetite of
JOURNAL may not be such a happy holiday
for the financial services community this
both the global players to get into the
lucrative domestic market and the
VOL 4 No. 26 - 2007 year. According to figures from UK Chinese players to diversify and gain
consultancy the Centre for Economic and reach into the global market. Access to a
Business Research (CEBR), the City JV partner’s experience is also likely to
bonus pool is due to shrink by 16% to reduce the potential of costly mistakes as
GBP7.4 billion this year and GBP6.2 Chinese institutions begin to venture
billion in 2008. To make things worse, into foreign markets. Many of these can
job security has become a serious issue – be used as “test beds” for best practices
CEBR has forecast a 6,500 drop in the in risk management, investment
number of City jobs. management and corporate governance
Obviously this is not limited to the UK with a Chinese flavour. See page 14 for
– the US was hit hardest by the the full story.
summer’s sub-prime mortgage crisis and As it is the end of the year, we
its effects rippled across the globe over thought it timely to provide a selection
the ensuing months. The market turmoil of forward looking features on the
has so far claimed the jobs of three chief future of both European custody (see
executive officers and prompted more page 39) and the securities lending
than USD45 billion in writedowns at the market (see page 52).
world’s biggest banks. In fact, a recent Our panel discussion this month looks
conference in Florida for the asset backed at the Luxembourg fund services market
securities industry was dubbed the and explores how the jurisdiction has
“survivor’s conference” and the defended its position as a funds domicile,
atmosphere described as “grim”, as given the rise of the new contenders
speaker after speaker explained why 2008 such as Malta and Dubai. Turn to page
may be their worst year ever. 28 for the expert opinions.
It has not been bad news for all parties, All that remains
however – there have been those that for me to say is
have profited from the market downturn season’s greetings
– I imagine the consultancy business is and a prosperous
seeing a significant increase in business, new year.
for example.
The emerging markets have also
weathered the storm. On this subject, our
cover feature examines the potential that
China represents for the global custody
THE LEADING GLOBAL and asset servicing market. The sheer Virginie O’Shea
SECURITIES SERVICES number of M&A and JV deals that have Editor
PUBLICATION
INVESTOR SERVICES JOURNAL
Editor: Virginie O’Shea (Virginie@isjnews.com)
Senior reporter: Jamie Darlow (Jamie@isjnews.com)
Contributing editor: Giles Turner (Giles@isjnews.com)
Contributors: Brian Bollen, Fabien Buliard, Nicholas Pratt
MEMBER - PERIODICAL PUBLISHERS ASSOCIATION
Publisher: Justin Lawson (Justin@isjnews.com)
Publishing manager: Monique Theart (Monique@isjnews.com)
Account managers: Peter Lines (Peter@isjnews.com), Kaz Ayoade (Kaz@isjnews.com)
Directory sales: Craig McCartney (Craig@isjnews.com)
Systems manager: Jon Gunnarsson (Jon@isjnews.com)
Operations manager: Sue Whittle (Sue@isjnews.com)
TOTAL NET CIRCULATION 12,133 Sales administration: Kim van Berkel (Kim@isjnews.com)
Analysis for the Audit Issue Vol 4, No 22 distributed June 2007. Managing partner: Mark Latham (Mark@isjnews.com)
Source: AUDIT BUREAU OF CIRCULATIONS, www.abc.org.uk
Investor Intelligence partnership
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CONTENTS
VOL 4 No. 26 - 2007
■ Funds
19 Irish funds
Is there life outside of Dublin?
24 Alternatives
Back office impact
26 Domiciles reports
Jersey and Guernsey
28 Panel discussion
Luxembourg fund services
■ Custody
Controlled explosion
14 Dublin or quits 19
37 Australia and New Zealand
China: Following the herd 50 FIMA 2007 report
Examining the state of Dealing with data
play in the capital 39 European custody market
markets A year in review
■ Securities lending
43 Greek custody
1 Heads up 52 Market in retrospect
Market in bloom?
Editor’s letter 2007 in a nutshell
4 Letters ■ Technology 54 RMA conference

Points of view Hot topics
44 Performance measurement
Requirements moving on
■ Legal
■ News
47 Treasury services
Cracking under pressure? 55 MiFID month
6 Global snapshots & mandates Where are we now?
Round up of securities services
headlines from isjnews.com
■ Regulars
10 News analysis
Reading between the lines 58 Analyse this
Future of global custody
12 CEO profile
Jim Buckley of Scotia Capital 60 People moves
72 A different kind of foresight
■ Special Report ■ ISJ Directory

14 China
61 The directory of securities
Capital markets take off
Services providers
Breaking barriers? 39
2 INVESTOR SERVICES JOURNAL

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LETTERS TO THE EDITOR
The ISJ letter prize of a Cross writing instrument

The pen is mightier than the sword...If you are affected by, or have an opinion on,
any aspect of investor services please write to the editor on virginie@isjnews.com
and enter into the running to win an exclusive Cross pen.
tailor made reports across a broad
Winning Letter range of documents, rather than
Wanted: a new breed of manager the alternatives world is not in those produced in-house.
In order to take advantage of
lients are very cynical of the doubt; that there are no shortages
C
outsourcing, firms need to take a
word innovation: it stands for of investment opportunities is not in
‘panoramic’ view to determine what
the latest con trick, stated a doubt either. But this, in itself, will portions of their reporting process
well known UK pension fund we not ensure clients get the products can be outsourced in order to retain
interviewed as part of our recent they want. That requires processes the competitive edge. For that to
report (entitled “Convergence and that provide enhanced oversight of happen, they must consider attitudes
Divergence: New forces shaping the investments through to, and the culture of, working with
investment universe”) examining the standardisation, principal protection external partners.
investment management industry. and independent reviews. It is wrong to dismiss outsourced
As institutional investors continue The future for the alternative reporting completely. It merits regular
to demand hard asset products, like industry remains bright and despite review and re-evaluation by senior
real estate, private equity and all that is written to the contrary, executives. The case for collaborative
the era is now set for the rise of the outsourcing to deliver increased
infrastructure, investment managers
structured product. capability and results, demands
want to place more emphasis on
that firms examine this question in
those hedge fund strategies for more detail.
which they can charge relatively Anthony Cowell,
high fees. The gulf between these Financial Services audit partner Abbey Shasore, managing director,
sets of players could not be wider. with KPMG in the FactBook
The expectation gap is largely led Cayman Islands
by the alternative investment
industry, an industry that has Client reporting concerns
successfully built a model around a
s a client retention tool and
management and performance fee
structure, without any regard for the
increasing complexity of trading
strategies. Traditional long only
A with a greater need for
transparency, especially in light
of new regulations such as MiFID, Since its founding year in 1846,
managers can see an opportunity client reporting is at the top of the Cross, the leading luxury writing
agenda. However, for some in the instrument manufacturer, has had a
and are now fighting for their share.
industry, outsourcing client reporting reputation for innovation,
A large part of inflows into craftsmanship and design. Today,
is for the most part, a no go area. It
alternatives has been made by long- would be erroneous to conclude that the Cross collection is comprised of
only managers who have created in- outsourcing takes the process away well designed and always
house capacity to deliver new from businesses, when outsourcing appropriate lifestyle accessories for
strategies in their original, or where you work – whether that’s at
relieves this burden, by improving the the office, at home, on a plane, or
mimicked, form (for example, overall reporting process so that firms in your car. These include personal
130/30 strategies). The war for can focus on their core competencies. leather accessories, timepieces,
money continues and alternative Companies have traditionally pieced cufflinks and reading glasses.
investment managers would do well together reports from multiple The winner of the letter of the
to take notes from the traditional applications, faxing or posting them month will receive an Apogee
industry. While clients chase returns out to clients. Outsourcing can ensure Ballpoint Pen from Cross in a Black
and not assets, alternative invest- timely delivery and eliminate manual Star Lacquer finish, hand polished
processes. Yet, customisation of to perfection and accented by
ment managers will not only need to
polished chrome plated
continue to deliver performance, but reports is certainly one of the main
appointments, worth GBP60. For
also minimise the risks their clients reasons why asset managers feel they further information see
find hard to live with. cannot outsource to a third party. www.cross.com
That the pool of alpha resides in Outsourcing has the ability to create

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NEWS
by number of ADRs fiduciary duty. They also call Jersey has risen by 5% over
News outstanding. Claudine
Gallagher, global head of
for a joint effort across the
industry and collaboration
the last quarter and by over
30% over the last 12 months,
CUSTODY, CLEARING AND depositary receipts at with asset managers among bank deposits have grown by
SETTLEMENT JPMorgan, says: "We are others, to design a policy for 3.7% to GBP219.5 billion and
Casablanca - Citi Markets & very pleased to be working this. "The Dutch pension by 17% since the same point
Banking is to provide direct with a blue chip company like fund industry has been at the last year. Meanwhile, expert
custody and clearing services Sanofi-aventis. We look forefront of innovation in funds continue to perform
to clients in Morocco, forward to helping Sanofi- terms of investment strongly, with numbers
expanding Citi's proprietary aventis fully leverage its strategies and we welcome established rising by 9.4%
direct custody and clearing ADR programme to support the increased importance that and the NAV increasing by
network to 50 markets, the the company's global growth is being given to ESG issues 13.6% during the quarter.
largest in the world. Andrew initiatives. This mandate is in this market because we
Gelb, global head of Direct testament to JPMorgan's believe these are fundamental Shanghai - BNY Mellon
Custody and Clearing for strong position in the drivers of long term Corporation and Western
Citi's Global Transaction depositary receipt industry, in corporate performance," says Securities have signed an
Services business, says: both developed and emerging Karina Litvack, head of agreement to establish a joint
"Reaching 50 markets is a markets." Governance and Sustainable venture fund management
milestone for our direct Investment (GSI) at F&C. company in China. The new
custody and clearing business Moscow - Shares in five new company, which will be called
and a testament to Citi's issuers will now be serviced Singapore - LaSalle Investment BNY Mellon Western Fund
unrivalled ability to support by the NDC-DCC Bridge, which Management, real estate Management and owned 51%
our clients as the allows same day transfers of investment manager of the by Western Securities and
globalisation of the capital securities between Russia's Jones Lang LaSalle group, 49% by BNY Mellon, will be
markets inevitably continues. National Depository Center has joined Taishin headquartered in Shanghai
We are proud to provide our (NDC) and the DCC. The five Investment Trust to launch a and is expected to launch in
clients with a proprietary new issuers include VTB global real estate securities 2008, subject to regulatory
network that delivers a Bank OJSC, Sistema JFSC, fund for Taiwanese investors. approval. The joint venture
consistent high quality Sistema-Hals OJSC, Taishin Global Real Estate will initially manage domestic
standard of service, Territorial Generating Securities Fund, which will Chinese securities in a range
technology and support in Company #5 OJSC, and strategically invest in REITs of local retail fund products.
more markets than any other Fourth Generation Company across all regions, has been Over time it is hoped that the
provider. The addition of of the Wholesale Electric available to investors in venture will develop further
Morocco showcases our Power Market OJSC. NDC is Taiwan since 5 November, products using the scale and
commitment to expanding Russia's only settlement using the UBS Global expertise of the Bank of
our network to meet the depository servicing the full Investor Index as its New York Mellon group.
growing needs of our range of securities issued by benchmark. It is distributed BNY Mellon Western Fund
clients." Russian issuers. The NDC- by Taishin, a subsidiary of Management will aim to
DCC Bridge now services 97 Taishin Financial Holdings, leverage distribution within
Paris - The American securities on behalf of 62 with LaSalle acting as the Chinese banking and
Depositary Receipt (ADR) issuers. investment advisors. securities sectors, building
programme of awareness of the new
pharmaceutical company FUNDS AND St Helier - The NAV of funds company in the region.
Sanofi-aventis has named ADMINISTRATION under administration in
JPMorgan Worldwide Securities Amsterdam - The Dutch Jersey has overtaken the level LEGAL AND COMPLIANCE
Services depositary bank, associations of pension funds of bank deposits held on the New York - Eight pension
succeeding the Bank of New (VB, OPF and UvB) have island for the first time, funds representing
York. The average daily published a report advising reaching record levels of institutional investors have
trading volume of Sanofi- pension funds on how to GBP221 billion, according to again voiced their opposition
aventis ADRs is USD78 approach ethical investments, Jersey's financial regulator. to two SEC proposals that
million year to date, with encouraging funds to Figures for the third quarter would limit shareholder
total ADR holdings in consider social, of 2007, compiled by the rights. Directors of pension
Sanofi-aventis exceeding environmental and Jersey Financial Services funds and industry
USD9 billion at 30 October. governance (ESG) criteria. Commission, indicate that all associations, including the
Sanofi-aventis' ADR The associations aim to sectors of Jersey's Finance California Public Employees'
programme is the largest in encourage pension funds to Industry are continuing to Retirement System, California
France and is among the top consider ESG criteria in their experience steady growth. State Teachers' Retirement
10 ADR programmes in investment policies as these While the NAV of funds System and the Council of
Western Europe, as measured fit with their mission and under administration in Institutional Investors, called
6 INVESTOR SERVICES JOURNAL NEWS DAILY AT WWW.ISJNEWS.COM

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NEWS
for SEC chairman this historical step by the Directive (MiFID). Icap said
Christopher Cox to delay a SEC on the road towards Frankfurt - The real-time in its first half results
vote and "not act on these global accounting standards. gross settlement (RTGS) statement that it believes
flawed proposals" until the I have congratulated SEC system for large value there are opportunities in
SEC panel has a full bank of chairman Cox for this payments across Europe, several markets to offer
staff. One of the proposed decision, which will benefit Target2, has been successfully trading on an "Icap
laws would permit EU companies with a US launched, the European Exchange" and it intends to
shareholders to get election listing.” Central Bank (ECB) says. apply to the FSA for
bylaws changed only if they Target2 will replace the regulated market status
have a 5% stake or more in MARKET INFRASTRUCTURE decentralised technical under MiFID so that it can
the company for at least a Seoul - Shinhan Bank has platforms operating under launch new products in
year. The other rule would become a shareholder of CLS the name Target. The launch markets such as emissions,
limit shareholder access to Group, bringing the total of Target2 saw the energy and transport.
proxy material. number of banking and connection of the first
In other news, the SEC has financial institutions as migration group composed of TECHNOLOGY
approved rules allowing shareholders to 70 and the national central banks Wickham, NSW - Australian
overseas issuers to report joining a shareholder group and the respective Target corporate Independence Group
using International Financial that consists of many of the user communities in Austria, has selected Broadridge's
Reporting Standards (IFRS), world's largest commercial Cyprus, Germany, Latvia, International Shareholder
eliminating the need for and investment banking Lithuania, Luxemburg, Malta Communications Programme
foreign companies to organisations. Shinhan Bank and Slovenia. to electronically distribute its
reconcile their financial will in due course apply to general meeting information,
statements prepared under become a settlement member London - Interdealer broker corporate news and investor
IFRS with US Generally of CLS Bank International, Icap has applied to the UK's relations (IR) materials to its
Accepted Accounting the provider of Continuous Financial Services Authority Australian and non-
Principles. Charlie McCreevy, Linked Settlement (CLS), a (FSA) for the status of a Australian shareholders. ■
European Internal Market global banking settlement regulated market under the
and Services Commissioner, system for the foreign provision of the Markets in
said: “I very much welcome exchange market. Financial Instruments
NEWS DAILY AT WWW.ISJNEWS.COM
Mandates round up of awards

RBC Dexia had a typically strong month, expanding its expanding its toehold in China in November. The bank won
relationship with the Australian asset management its third mandate to act as overseas custodian for a Chinese
company Maple-Brown Abbott Funds, while also winning a Qualified Domestic Institutional Investor (QDII) fund.
mandate to provide global custody and securities lending BNY Mellon was appointed by the Industrial and
services for Cayman National Securities. Commercial Bank of China (ICBC) to service the overseas
The deals build on the bank's success over November, with investments of China Southern's latest QDII launch.
a USD4.2 billion mandate win with Canada-based Seamark The fund launched at a capped USD4 billion in assets
and a deal with Ark Fund in Toronto. having received USD6.5 billion in subscriptions from
BNY Mellon Asset Servicing made significant progress Chinese investors.
Mandates awarded in November 2007

Month Winner Client Location Assignment Mandate size
November JPMorgan Sanofi-aventis London Depository Services USD9bn
November RBC Dexia Maple-Brown Abbott Sydney Custody Services n/a
November RBC Dexia Cayman National George Town Custody/Sec lending n/a
November JPMorgan Michigan State New York Reporting Services USD61bn
November BNY Mellon Islington Borough London Custody Services GBP718m
November BNY Mellon ICBC Hong Kong Custody Services USD4bn
November RBC Dexia Ark Fund Toronto Custody Services n/a
November BBH ICBC Hong Kong Custody Services n/a
November RBC Dexia Seamark Halifax Custody Services USD4.2bn
November State Street Royal Cosun Amsterdam Custody Services EUR620m
8 INVESTOR SERVICES JOURNAL NEWS DAILY AT WWW.ISJNEWS.COM

NEWS ANALYSIS
Peas in Making a
a pod splash
Will BlackRock give the Is UCITS III set to cause
superfund a vote of a splash in the market?
confidence? lternative investment funds will
T
he USD75 billion superfund,
created by a consortium of Wall
Street banks to help shore up the
A become more readily available to
the mass market in the coming 12
months, as asset managers and banks
either adapt old funds to UCITS III
market for asset backed securities, may be legislation or launch new ones.
managed by BlackRock, if recent reports Last month, ABN AMRO Asset
are to be believed. Management converted 11 of its fixed
Should BlackRock be named as the income range of funds to UCITS III
main asset manager it will be responsible sophisticated status, while HSBC has
for managing the securities sold into the released plans to launch new investments
fund’s portfolio, set up by Bank of based on its HSBC GIF Climate Change
America, Citigroup and JPMorgan. It Fund, a UCITS III compliant vehicle.
would also prove to be a vote of Northern Trust Global Investments has
confidence in the fund, which has come been extending its list of Dublin
under harsh criticism over the last domiciled, UCITS III qualifying, pooled,
month. quantitative funds, with a Global
It is understood that Bank of America, Emerging Markets Index Fund.
Citigroup and JPMorgan will invest the default rates or the mortgages UCITS III allows regulated funds to
between USD5 billion and USD10 billion backing these bonds and other securities. make greater use of derivatives and
in the fund. The remainder – USD60 Former chairman of the Federal invest in a wider array of assets,
billion – is expected to be raised by a Reserve Alan Greenspan last month something that is expected to take off
multitude of US and global financial questioned the purpose of the superfund: over coming months as they are made
institutions. A custodian bank is yet to be “It is not clear to me that the benefits available to retail investors across the
named, but Bank of New York Mellon’s exceed the risks. The experience I have globe where UCITS is accepted. 130/30
name has been linked to the fund. had with that sort of intervention is very funds may be just the beginning, as hedge
The fund was announced in mid- mixed,” he said. “What creates strong funds look to launch new and innovative
October, to a mixed reception from markets is a belief in the investment products.
market participants, many of who community that everybody has been Hedge funds have also been active in
questioned whether the plan would offer scared out of the market, pressed prices creating UCITS III compliant vehicles in
swift relief to the beleaguered credit too low and there are wildly attractive Europe. JPMorgan Highbridge has been
markets. bargaining prices out there. If you particularly active in this space, with
Deutsche Bank chief executive Josef intervene in the system, the vultures stay success from its Luxembourg domiciled
Ackermann, speaking on behalf of the away. The vultures are sometimes very Statistical Market Neutral fund – a Sicav
Institute of International Finance, said useful.” with a minimum investment threshold of
in October that the group of financial Further pressure is also being piled on USD25,000 that raised USD10.5 billion
institutions would welcome market-based the consortium’s plans as a result of before closing over the summer.
initiatives, but it was “premature to make HSBC Holdings' announcement at the But it seems fund managers aren’t
a firm judgment” about the fund. end of November that it would bail out quite ready to take up these products just
The superfund will function by issuing its SIVs to the tune of USD35 billion. yet. Over half of UK fund managers are
short term notes, then use the proceeds HSBC said it would move Cullinan not taking advantage of the UCITS III
to buy mortgage-linked assets from Finance and Asscher Finance, two of its rules to hedge their portfolios in
structured investment vehicles (SIVs). SIVs, onto its balance sheet to prevent uncertain markets, according to research
SIVs issue short term debt to invest in forced sales of what it called "high from Hargreaves Lansdown. The
longer term securities. A lack of quality assets". majority of managers polled said they do
confidence in what these vehicles hold HSBC’s decision to tackle the problem not currently use the additional powers
has put them under pressure to sell their alone shows the superfund – expected to in any of their funds, although some have
assets. The fund will hold these shaky be up and running in mid-January – will received permission to do so or plan to in
assets until investors can better evaluate be too late to help some SIVs. ■ the future. ■

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CEO PROFILE - SCOTIA CAPITAL
Deriving force
ISJ speaks to Jim Buckley of Canadian investment bank Scotia Capital
about his career highlights and the complex world of derivatives
im Buckley, current managing then chaired in its third year. “The
J director and head of Global

Equity Finance for Scotia
Capital, has worked across a number
work I did with ISDA showed me the
power, responsibility
accountability of industry groups.
and
of financial market sectors over his These groups have tremendous

career, beginning with Citibank as a bargaining power and influence
management associate in treasury within the industry. ISDA has been
operations. “Citibank was a successful in lobbying for changes in
tremendous training ground. I the law in many jurisdictions to
learned the value of hard work and support collateralisation and close
dedication early. The effort I put in out netting to support the integrity
was rewarded. One of my early of the OTC derivatives market,” he
mentors at Citibank gave me an explains.
analogy that I have not forgotten to However, with that power, comes
this day: ‘The only way to provide great responsibility: the
yourself self assurance on job responsibility for education. ISDA,
satisfaction is to provide more value as part of its lobbying efforts, did an
to your organisation than they excellent job of educating regulators
provide to you through and interested parties on the reasons
compensation and benefits.’ I try to for the reforms that were being
live by this philosophy day in and day lobbied for, says Buckley. One of the
out.” key factors in the education process
Buckley feels that this was a very was to balance the local country
valuable lesson for his future, as it needs with those of the global
made him responsible for his actions financial markets. It was important
and development: “The people I to have an understanding of the
worked for explained to me up front local sensitivities and how individual
that I was expected to know what I markets function within the global
was doing, and if I needed an financial system. According to
explanation or assistance it was incumbent upon me to ask. I Buckley, one of the keys to this was to ensure that the financial
didn’t sit back and wait for the organisation to provide me with institutions within a particular country were not relegated to
learning or opportunities, I went and sought them out.” working from a competitive disadvantage to their peers in other
And Buckley is certainly not afraid of a challenge; his passion countries as a result of local legislation.
for derivatives is proof positive of that. He started in the “The organisation is ultimately accountable to its membership.
business in the late 1980s, when derivatives were developing, he The membership holds them responsible and sets the agenda for
says: “We didn’t learn about the math or the applications of the the year. This needs to be balanced across its many members all
products in school, so all of the learning was done on the job.” of whom have very different needs,” he explains.
The first major project Buckley worked on was the conversion to His passion for derivatives and furthering the industry agenda
present value accounting from accrual accounting for swaps. It in this space was an integral part of the reason for his move to
was a complex project for a number of reasons but it taught him Scotia Capital. “I hadn’t really considered Scotia Capital as an
the most about the area, he explains. He thus learned all of the alternative for employment. However, while I was starting my
valuation standards, how to build and evaluate yield curves and job search, Scotia announced the hiring of John Schumacher (the
see the financial implications of how the models work and prices current co-CEO of Scotia Capital). I took this as a sign that
change. “I recall that my assistant manager and I worked for 16 Scotia was looking to ramp up their presence in the OTC
hours a day, five and a half days a week for a few months to derivatives market. I had a friend deliver my resume to John and
complete the project.” followed up diligently. After five or six interviews with John and
Buckley has continued his championing of the issues around Mike Durland (John Schumacher’s current deputy head), they
derivatives in the Canadian market – he was one of the founding extended me an offer to start as their chief of staff.”
members of the International Swaps and Derivatives Buckley is proud of Scotia’s achievements and he states that
Association’s (ISDA) Canadian Steering Committee, which he Schumacher has led its trading businesses to reach new pinnacles

CEO PROFILE - SCOTIA CAPITAL
of success. “His prudent risk and in the end everyone was proud of and the United States over the last two
management and forethought around what we had built.” years. The challenge is to keep the desks
industry trends has placed Scotia Capital Buckley began running the operations talking to one another and keep the
in the right places at the right times. unit, which included accounting, organisation efficient. It is easy for desks
Through the growth of the businesses, valuation and risk. As back office and to feel isolated but I believe that our
John has been able to maintain the feeling middle office functions were combined at culture and team structure allows us to
of a small entrepreneurial organisation that time, in the end this meant that he maintain the efficiency and close
across his business line.” was responsible for everything other than communication necessary to be
The work I did with ISDA showed me the power, responsibility and accountability
of industry groups. These groups have tremendous bargaining
power and influence within the industry
“I have been lucky to work for John and trading and marketing. “We ran a successful,” he elaborates.
Mike for over 10 years now,” adds proactive service model that was Securities lending isn’t the only
Buckley. “I have been given every responsive to both marketers and traders component of the framework, however.
opportunity to succeed and believe that I to ensure that they could respond to The firm is constantly looking for more
have served them and the organisation client or market demands in a timely efficient ways to deliver its services,
well over the years. As the organisation manner,” he says. continues Buckley. The proper systems
has grown and evolved, I have been Unfortunately, the good times at TMG infrastructure to deliver information and
afforded many opportunities that may not did not last – the organisation went processing is therefore a must: “This
have been available in other through a number of changes, and finally, allows personnel to focus our customers’
organisations.” its parent company decided to make a expectations rather than administration
Prior to joining Scotia Capital, Buckley strategic exit from the business. One of and fire fighting. It is incumbent on me to
was head of risk management and the changes was a consolidation of the get the organisation as efficient as
operations at TMG Financial Products services into the US company. “I needed possible and empower people to be
(Canada), a subsidiary of Mutual Life to inform all of my staff and provide proactive and focused on our clients.”
Assurance Company of Canada, and this them with their packages. It was the To Buckley, the people are the
role represented a number of challenges hardest thing I have ever had to do,” business. “I do not believe that you can sit
at the other end of the spectrum. TMG Buckley explains. back in an office and manage from afar.
was small and entrepreneurial, he It is lucky then, that he has found new With offices in five countries and a
explains: “My first interview was in the challenges at Scotia to keep him as diverse set of products and clients, I find
middle of the new office space before the passionately engaged in the industry as myself travelling quite a bit to be in the
walls were even planned. We were trying ever. “My current position is all about offices and working with my people. I try
to carve out a niche that the banks were strategy and building scaleable solutions. to empower them and support them in
having difficulty servicing and specialise It is easy to just try and fix the current each of their initiatives but phone
in particular product segments.” problems without a view as to how the calls are not enough. I believe I have to be
Just as there weren’t walls, there world may look in five years. I don’t just on the ground with them regularly in
weren’t any policies or procedures either, want to put out the fire of the day; I want order to show them the proper support,”
he adds. The team therefore had to start to solve the real problem. Some of this is he adds. The internal organisation with
from scratch based on their collective through systems, but quite often it is the Scotia’s support groups also requires
experience. This was both beneficial and infrastructure and people. Business time and attention, he says. After all,
challenging, he continues: “We strategy needs to be built and bought Scotia is in a service oriented
challenged our ways of doing things at into. I need to sell my long term solutions business that requires it to deliver the
our old organisations and took the to both business partners and clients. I firm to clients every day.
effective controls and processes and threw also need to listen to their feedback and The people with whom he works
away the ones that we didn’t believe in. refine as required.” are also the most rewarding part of his
We held each other to tough standards The next year will be full of exciting career, says Buckley. This includes
and worked towards building something challenges, he explains. He will be clients, co-workers and peers: “The
special and unique. The people hired did focusing on a targeted growth strategy, industry attracts all kinds of people and
whatever it was that was necessary to get as a number of markets may contract. getting to know the people and
things up and running and then maintain Scotia’s main aim has been and will developing relationships with them has
the business once we got operational. The continue to be the building out of the been tremendously rewarding. I only
small company atmosphere was international prime brokerage hope that I can exemplify the best
conducive to everyone pitching in and infrastructure. “We have launched that I have taken away from the people
helping out. We worked long and hard, securities lending desks in Europe, Asia, that have taught me.” ■ ■
INVESTOR SERVICES JOURNAL 13

CHINA
hina’s stellar ambitions for the
C future have moved one step closer

to being realised this year. Not
only has the country launched a satellite
into orbit around the moon, the feverish
Shanghai stock market has witnessed the
rocketing of the share price of a number
of Chinese stocks. Not least of these was
the much reported price of the country’s
largest oil refiner, PetroChina, which
soared to a phenomenal USD1 trillion at
the start of November (equal to Exxon
Mobil, Shell and BP combined). In fact,
on the basis of its Shanghai share price,
PetroChina was the world’s most
valuable company at that point in time.
If China’s technological ambitions are
being demonstrated to the world by its
Chang’e satellite, which it says is the first
step on the road towards a manned lunar
mission, then its financial ambitions are
surely indicated by the government’s
landmark announcement in August to
allow individual investors to begin
directly trading in Hong Kong listed
shares. China’s State Administration of
Foreign Exchange (Safe) released the
plans on 20 August for a “through train”
pilot project to allow all Chinese
residents to invest in Hong Kong’s stock
market for the first time via the Bank of
China’s operations in Tianjin.
The announcement had the immediate
impact of buoying the Hong Kong stock
market, as local and international
investors were cheered by the prospect of
an inflow of Chinese money (this may
have already hit a stumbling block, but
more on this later). Furthermore, the
news at the start of November that the
Hong Kong stock exchange is effectively
being forced to increase its capacity in
order to keep up with processing
demands is indicative of the fervour that
surrounds investment in the Chinese
market. Hong Kong Exchanges and
Sky’s the limit

Clearing revealed its plans at the start of
November that it will spend USD58
million on its computer systems before
the end of 2008, in order to up its
capacity to be able to handle 7.5 million
The Chinese economy is the fastest growing trades per day, up from 1.5 million at the
moment.
in the world, but exactly how much progress The spectacular performance of the
Chinese stock market has helped to
has been made in the domestic capital attract the flow of foreign investment
into the country and this in turn has
markets space? Virginie O’Shea investigates aided the development of the domestic
fund management industry. The Chinese

CHINA
fund management market is just represents one step forward for the adds LJ Jia, China country manager,
beginning to develop its experience in Chinese brokerage’s global strategy (see Brown Brothers Harriman. Under the
international investing and, as of the box on page 17 for more information). existing regulations, QFIIs are subject to
time of writing, four internationally “This sets a precedent for entry of a lock in period of one year, after which
invested funds have so far been launched Chinese securities companies into global only 20% of the principal can be
under the Qualified Domestic financial arena,” he says. repatriated every three months. Until the
Institutional Investor (QDII) scheme. As well as encouraging international new stock exchange rules are announced,
The QDII scheme allows domestic investment from domestic investors, the QFIIs continue to be limited to
investors to invest in foreign securities Chinese government has started the investment through one broker, even
markets via certain fund management process of approving new quotas for though the new QFII regulations allow
institutions, insurance companies, foreign investment in the country’s stock for up to three brokers.
securities companies and other assets market through the Qualified Foreign Regardless of the spectacular growth
management institutions that have been Institutional Investment (QFII) of the Chinese market this year, there
approved by China Securities Regulatory programme. In May, China and the US may be trouble ahead, as the global
Commission (CSRC). reached a preliminary agreement during economic slowdown looms on the
The scheme, which was announced in their strategic economic dialogue to raise horizon and the ambitious plans of Safe
April 2006, was initially limited to fixed the quota from the current level of are put on a backburner. China’s
income and money market products but USD10 billion, to USD30 billion. commerce ministry has warned that a
this was extended to include stocks on 11 slowing US economy could trigger a
May 2007. The process of liberalisation Chinese custody players drop in Chinese exports, which could
has been progressing over the last year in mark a “turning point” for China’s rapid
■ Industrial and Commercial Bank of
order to allow outbound investment by economic growth. The drop in US
China (ICBC)
Chinese nationals and provide a source of demand that has ensued from this
■ China Construction Bank (CCB)
diversification away from the domestic summer’s sub-prime mortgage market
■ Bank of China (BOC)
stock market. The fourth fund launched woes could pose a significant threat to the
■ Agricultural Bank of China (ABC)
at the start of November and gathered stability of the Chinese economy, as
■ Bank of Communications (BoCom)
USD14 billion in subscriptions in the domestic exporters are impacted by a
■ China Merchants Bank (CMB)
first day of sales. China International rapid and continuous fall in orders. The
■ Industrial Bank
Fund Management had targeted an government report, released in mid-
■ Everbright Bank
equivalent of USD4 billion, scaling back November, also noted that continued
■ China CITIC (China International Trust
the offer to match the allocated quota. turmoil in global financial markets could
and Investment Company)
Two more funds are expected to be encourage greater capital inflows to
launched before the end of November. China, straining the country’s financial
Lisa Robins, JPMorgan’s head of Laurence Bailey, JPMorgan’s and regulatory system and increasing
Treasury Services in China, believes that Worldwide Securities Services APAC inflationary pressure.
the interest and over subscriptions in the CEO, feels this would be a major step In many sectors, margins have come
first QDII funds suggest that there is a forward for the market: “Foreign down – but only from unreasonably high
growing and sustained interest in
diversification of investments.
Regulatory and legal infrastructure to The spectacular performance of the Chinese stock
support the development of capital
markets is rapidly evolving and the
market has helped to attract the flow of foreign
symbiotic relationship of China’s investment into the country and this in turn has aided the
enormous economic base and Hong
Kong’s market expertise has been an development of the domestic fund management industry
excellent match. Robins cautions,
however, that the right regulatory investment via the QFII vehicle has been levels, explains Daswani. The public
framework would be essential to limited by the regulatory quota system accounts remain very robust, meaning
continuing the momentum and the and the ability to gain certain exposure to there is considerable scope for a fiscal
appropriate environment will only China via the Hong Kong market, but if boost if private investment slows. “The
enhance safety and soundness. and when the regulations ease, given the chief risk remains a significant US
Citic Securities was among the first current economic mood globally, we slowdown – but China’s exports are
batch of Chinese securities companies to expect to see a hearty pick up in foreign actually quite diversified, with only 20%
receive approval as a QDII. Neil Daswani, investment.” going into the US. A short lived US
global head, Securities Services, The government issued revised QFII slowdown would not present a big issue
managing director, Transaction Banking, rules in August 2006, but operating for China (perhaps it would lose one or
at Standard Chartered, believes the Bear guidelines for foreign exchange, the stock two percentage points of growth) –
Stearns partnership with Citic will exchanges and clearing and settlement although a longer and more widespread
facilitate its international strategy and policies have not yet been announced, global downturn would clearly present a

CHINA
much bigger challenge,” he elaborates. far, the Chinese economy appears to have Hernan Rodriguez, managing director,
The government has not been sitting weathered the economic storm rather Depositary Receipts, at the Bank of New
on its laurels, however, and facing equity better than the rest of the world. The York Mellon, is positive that, as far as
prices at unsustainable levels, Beijing World Bank released a report on the East portfolio investment is concerned, there
seems to be aiming to quietly talk the Asian region in November, which is continued acceleration in the mutual
market down. It has attempted to crack indicates it expects the region’s economy desire of Chinese resident companies and
down on bank lending into the market to have grown by 8.4% this year and a international investors to finance start-up
(albeit tricky to achieve) and it has raised further 8.2% over 2008. Rather than and established ventures in the country.
interest rates and reserve requirements. It joining the chorus of doomsayers, the “Along with India, China is offering the
has also been encouraging companies to report highlights the precedent set by most varied and most interesting
list shares and may encourage blue chips past economic crises in which US opportunities of the emerging markets.
to start selling their locked up legal slowdowns have represented a As investors rapidly abandon the ‘sub-
person shares. It has encouraged capital “significant” but not catastrophic impact prime tainted’ developed markets, vast
outflows, for instance via QDII, adds on the Asian market. The World Bank is pools of capital are looking at
Daswani. therefore forecasting that China will opportunities in the SME space within
On the bond side, there are also efforts continue to drive the region’s economic emerging markets; these opportunities
underway to enliven the bureaucratic expansion with expected growth of are simply too few relative to the amount
corporate bond market. These efforts 11.3% this year and 10.8% in 2008. of capital seeking them out. An educated
involve regulatory authority passing from “We still think there will be one more observer might take the view that it will
the National Development and Reform interest rate hike this year, of 27bps, and take another unexpected market shock of
Commission to the China Securities two more by the first half of 2008, some size to derail this trend in the short
Regulatory Commission, simplifying the although the risk of more clearly exists term,” he explains.
issuance process, improving the credit given People’s Bank of China’s concerns China has also made significant
rating and bankruptcy frameworks. This about inflation and recent official investments in the domestic capital
is taking some time but in the meantime, commentary about the real negative market, most noticeably in the regulatory
the central bank has been an active deposit rate,” says Standard Chartered’s framework for its capital markets, says
promoter of the short term corporate bill Daswani. “In addition, loan growth Northern Trust’s chief representative in
market, he explains. quotas are now in place for the all banks China, Kevin Tan. “When the People’s
Bank of China created the China Banking
Regulatory Commission, the China
The process of liberalisation has been progressing over Insurance Regulatory Commission and
the last year in order to allow outbound investment by the CSRC, it sent a clear message that
China was prepared to adopt best
Chinese nationals and provide a source of diversification practices in separating monetary policy
from its regulatory function. At the same
away from the domestic stock market time, China adopted the principle of
using custodians as a way to separate the
The bad news doesn’t end with the (no lending growth in November- investment decision making function
impact of the summer’s crisis and the December is being recommended). The from the safekeeping and valuation
threat of regulatory risk, however. Hong short term re-discount lending market functions. These changes to the capital
Kong listed shares suffered their worst has seized up. Lending quotas should be market infrastructure in China have
fall since September 2001 at the start of relaxed in 2008, but the risks are that presented opportunities for foreign
November, following the confirmation by constraints remain.” institutions such as Northern Trust to
Wen Jiabao, China’s premier, that the Standard Chartered’s year end forecast provide services that were previously
scheme to let Chinese investors buy Hong shows that USD-CNY (dollar-yuan) has lacking in the Chinese financial services
Kong stocks directly would be delayed. resumed a sharper appreciation pace over industry.”
The Hang Seng China Enterprises Index, the last month and has now hit 7.42 The growth of the equity markets in
which tracks Chinese companies listed in against USD, he adds. “We have revised China, supported by the stock exchanges
the territory, fell by nearly 7% and the our views, becoming more bullish – and and the equities depository China
Shanghai Composite Index fell 2.5%, for are looking for 6.8 at the end of 2008, or Securities Depository & Clearing
example. The Hong Kong and 7.5% against USD. There is also a revived Corporation (CSD&C), has been
international investors who were hoping debate in Beijing about the CNY, as we all remarkable, adds Philip Reichardt,
to benefit from an inflow of Chinese recognise that 2008 will be a tougher year director of international cooperation at
money have been left hanging indefinitely for Beijing, as inflationary pressures Euroclear. The volumes transacted daily
as the Chinese government conducts remain and political tensions with the US dwarf what most advanced markets
“scientific judgment and analysis” about and EU rise. We also expect more experience; the Chinese authorities have
how to put the plans into action. volatility in USD-CNY, as the central invested in systems that are capable of
Despite the threats posed by regulation bank attempts to undermine one way handling these high volumes and their
and market instability in the future, thus appreciation bets.” predicted growth, he explains.

CHINA
Euroclear signed a Memorandum of introduces risk to the settlement process. account. In the event of a broker
Understanding (MoU) with the CSD&C There is no mechanism to prevent executing an error, it must be handled on
a few years ago and with the government settlement occurring in the investor’s a post-facto basis. There is a mechanism
bond depository, the China Government for correction of trade errors before cash
Securities Depository Trust & Clearing settlement, but this is only to be used in
Corporation, earlier this year. The Give and take the event the error results in an overdraft
purpose of these agreements is to share This year has seen a flurry of M&A in the QFII’s account. The nature of the
expertise about international post-trade and joint venture (JV) activity in QFII scheme requires that the QFII must
processing standards for the benefit of China, as Chinese banks scour the have funds available in its account before
the Chinese market. “In Euroclear’s case, market for suitable partners and a purchase order is executed on their
we have very regular contact with both foreign suitors court them in a race to behalf or securities for a sale transaction.
depositories across a range of technical get a piece of the action. The latter Kenneth Tse, senior vice president and
and operational topics, which are being half of 2007 has seen the Chinese head of Asia Pacific Depositary Receipts
analysed in China. Senior Euroclear banks take the initiative, as Western Group at JPMorgan, however, is positive
financial institutions have struggled to
management regularly visit executives at deal with the direct impact of the about the future of the market
the Chinese depositories and they do credit crisis. These banks are seeking infrastructure in China: “The clearing
likewise,” says Reichardt. to diversify out of the domestic and settlement infrastructure in China
According to Euroclear, its aim in Chinese market and gain foreign was built relatively recently compared
sharing knowledge with the Chinese is to expertise and global reach via with other stock markets around the
help the post-trade infrastructure service offshore acquisitions. world, allowing it to taking advantage of
providers adopt international standards Industrial and Commercial Bank of the latest IT technology. Through its
as early as possible so that they can more China (ICBC) kicked off the year in recent MoU with the US DTCC, China
readily interconnect with international January, when it bought a 90% stake will gradually move more in line with
in PT Bank Halim Indonesia for
markets at the appropriate time. “By international compliance, regulatory and
USD10 million. The acquisition trail
analysing practices from the US and sped up towards the end of the year, corporate governance standards. This
Europe, which have taken many years to as Chinese banks profited from the bodes well for the long term development
evolve, we can expect the Chinese market fallout of the sub-prime mortgage of the China stock market. Also, the
to take a much shorter period of time to market woes. In July, China cooperation might lead to the cross
reach a similar stage of maturity,” he Development Bank paid USD3.14 listing of stocks between the two
explains. million for a 3.1% stake in Barclays markets. While today Chinese companies
The CSD&C signed a similar MoU UK. ICBC has had a spectacular year list in US stock exchanges in the form of
with the Depository Trust & Clearing in the market – it picked up an 80% ADR, we might see in the future of US
Corporation (DTCC) in June this year, in share of Macau’s Seng Heng Bank in companies listing in China in the form of
August and a 20% stake in South
order to foster greater international Africa’s Standard Bank in October. CDR.”
cooperation in the area of clearing and Also in October, Minsheng Bank Northern Trust’s Tan feels that all
settlement. CSD&C vice chairman and became the first mainland commercial parties in these MoUs will benefit: “The
general manager Ying Jin commented at Chinese bank to invest in a US lender, clearing and settlement environment in
the signing: “DTCC and CSD&C share when it paid USD200 million for a any country, not just China, should be
the privilege of serving our respective 9.9% stake in UCBH Holdings. constantly evolving and adopting best
capital markets industries, and both The most recent acquisition, which practices as new and more complex
organisations have a common has garnered a fair number of instruments are introduced to the
understanding of the importance of that headlines over the last month, is Citic market. The MoU between the DTCC
Securities’ investment of USD1
role, which spurs the beginning of our and the CSD&C is a formalisation of the
billion for a 6% stake in Bear Stearns
cooperative relationship. CSD&C firmly and the US bank’s reciprocal exchanges in information and
believes that we have bright perspectives investment of USD1 billion for a experiences from which both institutions
and enormous cooperative opportunities stake of just over 2% in Citic. will benefit. Both institutions will learn
regarding securities clearance, settlement Chong Jin Leow, head of Asia from each other, and this will lead to
and depository business and hope that Pacific, BNY Mellon Asset Servicing, faster development of more efficient
the signing of the MoU will promote our explains the appeal for Chinese clearing and settlement environments for
cooperative relationship.” institutions: “These JVs continue to the capital markets in general.”
Improvements are certainly required in bring much needed capital, training, The Chinese are also building their
the clearing and settlement environment, education, and stability to the experience base in the domestic and
Chinese domestic market. Global
adds BBH’s Jia. Under the current institutions have significant foreign capital markets, says Daswani.
structure, securities are transferred on experience in domestic and global The Chinese government and the
trade date, and cash on the following day markets and are in an ideal position regulatory bodies have been very prudent
and the environment does not allow for to train and educate China's future in slowly opening the capital markets to
pre-matching. Transactions are settled financial services professionals to more complex instruments such as
based on the stock exchange’s trading recognise opportunity while also derivatives. Deng Xiaoping talked about,
report sent to the depository. This minimising risks.” “crossing the river by feeling for stones”,

CHINA
and this is the model by which China is

progressing. “The regulatory
environment in China will always be a
concern, but we must remember that the
Chinese regulators will change
regulations in their own time, at a pace
that is appropriate for the level of
expertise and experience that the Chinese
capital market payers can manage,” he
explains.
BNY Mellon’s Rodriguez feels that
progress could be hastened on the
regulatory front: “The rest of the world
would be delighted with the opportunity
to bring the latest technology and
trading techniques to the Chinese
market, but much of the drive would
depend largely on the willingness of an
unwieldy bureaucracy to permit the
introduction of multiple simultaneous
innovations.”
JPMorgan’s Bailey agrees that
regulation is one of the main
impediments to the speed of foreign
investment: “The obtuse and dynamic
regulatory framework in China is causing
some sluggishness in foreign investment. Exploding onto the global stage
As most local companies are still state major regional custodians that have cases domestic Chinese banks operate the
owned and often not audited by established custodial operations in China. same underlying custody and fund
internationally recognised accounting The vast gap between these institutions administration systems (a by-product of
a single software provider) and product
differentiation is extremely limited, thus
The growth of the equity markets in China - supported the ability of buyers to differentiate
by the stock exchanges and the equities depository between providers is difficult and
therefore price becomes the primary
China Securities Depository & Clearing Corporation - has differentiator,” says Leow.
been remarkable The outlook for the Chinese custody
market in the next five years is
and their Chinese competitors will outstanding, says Northern Trust’s Tan.
firms, foreign investors could be reticent ensure that the vast majority of global The growth will come primarily from the
about investing in local businesses.” assets will be funnelled through these cross border investments. As China
As a consequence of the barriers to institutions. Domestic assets will continues to open its doors to domestic
entry, the domestic market is still continue to be the domain of the major institutions investing overseas through
dominated by local players. The Chinese Chinese custodial banks as they leverage the QDII programme, the opportunities
fund administration and custody services their domestic corporate relationships as for global custodians will only grow. “At
market is dominated by big local banks as well as their wide distribution capabilities the same time, as foreign investors seize
they have country wide distribution to secure additional assets. opportunities to invest in domestic
networks in place and have built up their “From a competitive standpoint, we Chinese securities in order to participate
client base, Daswani elaborates. “We see expect to see competition intensify in the growth story that is China, the
that in the near future, there will be significantly among the domestic and opportunities for domestic custody in
increased competition from locally regional custodians over the coming China will develop. This is an exciting
incorporated foreign banks and even years. Regional custodians will continue time to be in the custody market in
second tier Chinese local banks with the to fight for global assets, while the China, and institutions such as Northern
evolution of securities market.” domestic banks will compete for Trust are making significant investments
Chong Jin Leow, head of Asia Pacific, domestic assets, and although the to grow our market share of what will be
BNY Mellon Asset Servicing, agrees that competition appears stratified based upon one of the largest capital markets in the
for foreign assets coming into the the source of the assets, the point of world,” he concludes. It seems for the
Chinese market in the short term, the leverage used by both custodians will be Chinese custody market, the
dominant players will continue to be the consistent: price. In a great majority of stratosphere’s the limit. ■

IRISH FUNDS MARKET
When
one door
closes…
t is 20 years since the International
I Financial Services District was

established in Dublin – a move that,
helped by a massively reduced
corporation tax rate, rescued Ireland’s
economy from third world status. Over
time, it has encouraged all of the major The Irish funds
international fund servicing companies to industry has grown
set up shop in the emerald isle and
Dublin more specifically. enormously in the
As of June 2007 there were 5,646 funds
being serviced from Ireland, with a value
last 15 years, but
in assets of USD1.633.3 billion, with so much of it
according to the Ireland Fund
Encyclopaedia, produced by Reuters- centred in Dublin,
owned research firm Lipper. has the ‘fair city’
Furthermore, this is an increase of 35%
from last year’s total, which indicates that reached saturation
the industry is continuing to grow.
In terms of fund servicing companies,
point? Nicholas Pratt
four companies share the majority of the reports
market, with State Street, BNY Mellon,
JPMorgan and Northern Trust
accounting for USD740 billion in assets
under administration and USD745
billion in assets under custody. All four
have their main offices in Dublin, as do
many others, including 342
fund management companies, a
smattering of Irish law firms and the extent that the financial district now Irish Funds Industry Association (IFIA),
usual collection of consulting firms – stretches to a square mile. The says: “An increased focus on operational
PricewaterhouseCoopers, KPMG, government’s Transport 21 initiative efficiency through straight through
Deloitte, Ernst & Young and Grant hopes to extend the city tram service – processing is one way of relieving the
Thornton account for the majority of known as the Luas – introduce a need for greater capacity that is available
funds. Docklands light railway and city metro to all but the one thing that Dublin’s
But such growth has placed a strain on system, develop more motorways and funds industry can count on is the rest of
Dublin which has been reflected in the revamp the country’s train network. Ireland.”
high cost of living – Dublin property But even with all of this work, Dublin So far, there are 14 companies that have
prices are now among the top five in the still faces a stiff task to cope with the established offices outside of Dublin in
world – and the transport issues, as continual growth of the industry. This nine counties – Louth, Meath, Galway,
anyone who has ever experienced the concern over the capital’s capacity has Kilkenny, Cork, Wexford, Limerick,
daily commute to the capital will testify. been noted by the various government Kildare and Waterford. The notable
Furthermore, Dublin is one of the few agencies and industry associations offices are Citi Hedge Fund Services
major European cities without an operating in the funds market. As a (formerly Bisys) in Waterford; BNY
underground or metro network. result, efforts have been made in the last Mellon in Cork; Northern Trust in
Efforts have been made to address two years to encourage firms to establish Limerick and Fortis in Galway.
these issues. The redevelopment of satellite offices in other parts of Ireland. The Industrial Development Agency
Dublin’s docklands has continued to the As Gary Palmer, chief executive of the (IDA) Ireland, a government agency

IRISH FUNDS MARKET
charged with attracting and maintaining an office for its asset servicing business in telling us that they are planning to
the level of foreign direct investment in Cork that employs 200 people. According launch new funds so we are looking to
Ireland, has been a key influence in to Harley Murphy, country head, Ireland grow with them.”
encouraging the funds industry to look for BNY Mellon’s offshore business, the O’Caoimh says there is no real
beyond Dublin for business premises. Cork office has the usual components of difference between the two offices, with
IDA has developed a regional strategy an asset servicing business and there is Limerick acting as a scaled down version
for administrators and custodians based no real difference between the Dublin and of its Dublin counterpart. “Some of our
around a number of locations outside the Cork offices. competitors have taken a whole
capital. As part of the process of Due to the concentration of support department to its satellite office but we
preferred to take elements of it all so that
we could offer a complete service out of
The strategy behind the IDA’s efforts to grow the funds Limerick.” The only difference at present
is the lack of client servicing in Limerick,
industry outside of Dublin was to give the fund something that O’Caoimh says will be
administrators and custodians a new pool of talent to decided by the amount of growth and
volume of work that comes down to the
recruit from town.
“It is really important that companies
regionalisation, companies are taken to services (audit and law firms, for look to expand out of Dublin and across
meet the local authorities, other example) in Dublin, it will remain the Ireland,” says O’Caoimh. “There are very
companies working there, recruitment central destination for the commercial, experienced people centred in Dublin but
consultants, estate agents and, in most client facing elements of BNY Mellon’s with the establishment of satellite offices,
cases, spend a couple of nights there fund services, but Cork does hold many that experience is spreading out around
experiencing the local hospitality. Added different advantages, says Murphy. “Cork the country with many management level
to these introductory tours, the IDA in is an additional labour pool and the people moving back to where they came
certain circumstances can offer financial quality of life can be attractive to those from. It gives us all a bigger employment
assistance to companies looking to that want to live outside of a major city. pool to draw from.”
establish in these areas. There is also the It is also a more stable market than It has been three years since Citi Hedge
promise of financial inducements in a Dublin because there is less competition Fund Services (or Bisys as it was then)
selected few locations, which offer grant and a less high turnover of staff.” began to look outside of Dublin as part of
assistance to companies looking to set up Northern Trust opened the doors of its capacity planning. Citi has a five year
there. its Limerick operations in March 2007, plan for the Waterford operation, by
“The strategy behind the IDA’s efforts after beginning its search for a satellite which time it expects to have 250 staff.
to grow the funds industry outside of office in the summer of 2006. “We felt a Having just celebrated its second
Dublin was to give the fund satellite office would be an advantage for anniversary, the Waterford office now
administrators and custodians a new pool those working at Northern Trust and employs 90 people – meanwhile the
of talent to recruit from,” says Deirdre they would have the option of working in Dublin office has grown from 300 to 360
Lyons, head of the International the city or the country, relatively people over the same period.
Financial Services Division of the IDA. speaking,” says Meliosa O’Caoimh, head Tyrell also insists that there is no
“It was also to show that there was a of Northern Trust’s Irish operations. difference in the operations at Waterford
strong infrastructure in these areas in The company began its search ‘beyond and those at Dublin. “The fund
terms of premises, education and the pale’ and in the neighbouring Dublin accounting business is split into seven
broadband and to show that it was county regions, before deciding to spread divisions, five of which are in Dublin and
possible for people to move from Dublin its search further afield and to offer a true two in Waterford and everything is
and enjoy a high quality of life.” alternative to Dublin and eventually identical. Clients from the UK have
These satellite centres cater for all settled on Limerick. “It had a sizeable visited the Waterford branch and even
ranges of business activity says the population, it was surrounded by other though it is 150 miles from Dublin, the
IFIA’s Palmer, dismissing the suggestion towns, it had two good colleges, a major reporting and communication lines
that they are merely low cost, processing airport nearby, good rail links to the rest between the two offices are very clear.”
centres devoid of any client facing of Ireland, a good quality of life and Recruitment was not an issue in
functions. “There is no basis for any affordable house prices,” says O’Caoimh. Waterford, says Tyrell, something she
image of a high level/low level There are now 69 people in the puts down to the close link between the
separation between these offices and their Limerick office, compared to the 430 in college in Waterford, the IDA and Citi.
Dublin counterparts,” he says. “The Dublin, but this is expected to rise to the While this link has helped recruit
business model has been determined by mid 100s by next year, with the Dublin graduate level employees, enticing more
the needs of each individual company office likely to remain at the same level. senior staff has relied on there being
involved.” “Limerick is our growth solution,” says enough middle management types that
BNY Mellon has the majority of its O’Caoimh. “Over 75% of our business have lived in Dublin for a number of
operations in Dublin but has established comes from existing clients and they are years but would jump at the chance to

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IRISH FUNDS MARKET
return to their roots and to get on the alternatives outside of Dublin, says Carin recruitment – particularly for the
property ladder. Bryans, country head, Ireland for graduate and associate level staff they
In all three cases previously mentioned, JPMorgan. are looking to employ.
the advantages have been clear – While there are various resources that But Dublin and Ireland are facing
recruitment costs are cheaper and can assist with the search for premises, renewed competition not only from the
because of the lack of competition in notably through the IDA, there are more likes of long term rival Luxembourg, but
these cities, replacement and turnover challenges around the recruitment of also some of the newer jurisdictions in
costs are also lower. But how long will experienced management level staff, says Eastern Europe, the Channel Islands and
this remain the case? It is notable that, Bryans. Additionally, the pressure on Malta. Can Ireland remain sufficiently
competitive?
BNY Mellon’s Murphy feels that
There is no basis for any image of a high level/low level Luxembourg has experienced many of
separation between these offices and their Dublin the same ‘saturation’ issues as Dublin,
while the likes of Malta can expect to
counterparts have some capacity issues in establishing
themselves as a rival to Ireland, says
with the exception of Cork, where Citco, capacity that has threatened Dublin’s Murphy. “It has a population of 400,000
Apex and BNY Mellon have all continued success has eased somewhat spread over several islands and does not
established offices, it is largely the case over the last 12 months, allowing have the same location advantages of
that it is one major fund servicing firm everyone to catch their breath. “I think Luxembourg, so I cannot really see it as
for each county. Does this mean that the this year has seen it calm down due to the major competition.”
likes of Waterford, Limerick and other amount of consolidation in the market And while Luxembourg has its central
similar Irish counties are only big enough and a general slowdown in the economy,” European location as a key advantage,
for one major player? says Bryans. Ireland can count on its proximity to the
Tyrell feels that there is enough room Another company that has resisted the UK and London, which is commonly
for at least two players in Waterford, but urge to spread beyond Dublin is viewed as the centre of the European
suggests that over time certain counties alternative investment services company hedge fund market. Thanks to the
will develop a good reputation for fund SEI, which first established its Dublin growth of shorthaul air travel, the
administration or some other specific office back in 1996. “We have seen a lot of development of the Port Tunnel in
funds related service and that will open competition in those 11 years,” says Dublin and the availability of City
the door for a second wave of smaller David Morrissey, director for new airport, a fund administrator can
players. After all, she says, you cannot business development and sales at SEI’s conceivably get from the IFSC to Canary
afford to be too remote and pick a European operations. “When we first Wharf inside three hours.
location purely because you would be the came here there were less than 20 Unfortunately it can take longer to
only company there. providers, whereas now there are closer commute to Dublin from neighbouring
The IDA, through its grant assistance to 60.” Meath than it can to fly in from London.
for selected locations, has played its part Nevertheless, Morrissey feels that This is why it is so important that the
in encouraging firms to settle in specific Dublin has developed “really well”, various initiatives such as Transport 21
locations and therefore spread the coping with the increased need for deliver on their promises – 2015 is
industry as far across the country as is capacity and embracing regulatory currently the end goal – thus making
feasible. “Our intention is to develop non- change and sees no reason to move out of Dublin more accessible to the rest of the
competing clusters,” says Lyons. the city. He highlights the role of the country and vice versa.
“However, we would not and could not various industry associations such as the Regardless of the improvements in
prevent a company moving to where it IFIA in ensuring that the industry and its infrastructure and the ability to exploit
wants to be, but the ideal scenario is to regulators remain in close contact and the rest of the country, it is vital that
give a company establishing a satellite are able to monitor industry issues, from Ireland maintains its high standards,
office every chance of succeeding.” Swift implementation to the regulation of insists Palmer of the IFIA. He is perhaps
There are some firms that have chosen UCITS funds. wary of the fate that has befallen a
to remain in Dublin, at least for now. In terms of the funds industry itself, number of football teams that invest in
JPMorgan has its main office in the IFSC, many of the providers are working larger stadia with a greater capacity, only
where 250 staff run its UCITS funds closely with the associations and the Irish to see the team get relegated out of the
servicing business. The other office is on colleges of higher education to develop big leagues. “Using the whole of Ireland
the north side of Dublin, in Malahide, funds specific qualifications for both as a means of increasing capacity is
where 200 staff work on the hedge fund graduates and mature students looking important, but so is the ability to keep
administration side, a business that has to retrain. And although Dublin has Ireland as an attractive jurisdiction
grown out of the acquisition of Tranaut. become one of the top five most and responding to the industry’s needs,”
So far there are no plans to look outside expensive cities in the world in which to says Palmer. After all, there is no
of Dublin, although should it need buy property, Morrissey says that there point in extending Ireland’s capacity if
another office, it would look to has been no discernible effect on there is a decline. ■

Innovation Expertise Resources

Dillon Eustace focuses on providing advice and innovation in For more information, contact:
David Dillon, Lorcan Tiernan, Andrew Bates,
alternative investment products such as single and multi-strategy
Donnacha O'Connor, Etain deValera
hedge and private equity vehicles. 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, www.dilloneustace.ie
with in-depth experience from all sectors of the industry,
or Brian Dillon or Gregory Noone at:
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for international and domestic managers, prime brokers and e-mail: brian.dillon@dilloneustace.ie
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DUBLIN CORK BOSTON TOKYO
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e-mail: info@dilloneustace.ie, www.dilloneustace.ie
In alliance with Arendt & Medernach

ALTERNATIVE INVESTMENTS
s the hedge fund industry is
A burgeoning into a USD1 trillion

industry, the need for an efficient
back office is ever pressing. The funds
themselves are busy luring back office
specialists in compliance, accounting,
marketing and technology away from
banks and technology boutiques. New
products are also springing up by the
dozen. In mid-October, Merrill Lynch
launched an ‘outsourced, prime broker-
neutral platform for various middle and
back office services for the hedge fund
industry’. These new developments are
certainly needed, as the obsession with
alpha is putting pressure on back office
systems.
Exactly one year ago, Age Bakker, chief
operating officer of Norwegian asset
manager Storebrand Kapitalforvaltning,
warned against creating a generation of
“Excel professors”, as the move into new
alternative asset classes was forcing the
back office to become dependant on
manual processing techniques. Yet
companies are unwilling to spend money
on the back office because it remains a
high cost area. According to a recent
Tabb Group report, although electronic
trading has created cheaper commission
bills, the accompanying increase in
transactions has resulted in higher back
office expenses.
It is not only cost, but also complexity.
Because a fund manager has to deal with
an increasingly fragmented market, from
dark pools to ECNs, he has to deal with a
number of brokers and venues in one day,
driving up the cost of trading for the
clients of the fund. Matters will only get
worse, as many managers will be looking
to alternative asset classes after our sub-
prime summer. As the volume of
transactions in this area increases, so will
Coping with the problem of clearing these trades.

Iain Roache, managing director,
Investment Banking division, ea
complexity Consulting, explains: “A lot of the

alternative asset classes are what I would
call spreadsheet-based products.
Anything that is bespoke is generally a
spreadsheet, so basically it has a series of
Is it possible to price the unpricable? conditions and if those conditions match,
you might receive a payment or you
Giles Turner looks at the complex world of might not. Clearing in this case is very
complex. There is a backlog already
alternatives and the impact they have on the because the inputs into their various
different systems cannot be homogenised.
back office Plus if you hire someone in your

ALTERNATIVE INVESTMENTS
operations group, they may not recognise identifiers, you can get an OTC derivative complex and esoteric, but that hedge
them as being distinct. You end up with a where you and I literally agree the terms funds are demanding more and more
queue in regards to offsetting the cash.” of deal, which is unique to you and I, and from their administrators. As a result, the
Alternative assets, if esoteric enough, it’s agreed on pieces of paper, which is business itself is becoming increasingly
can be near unpriceable. When you are backed up by swap documentation. institutional and will continue to become
trading an asset that has no observable Because they are bits of paper, you are even more so in all its aspects.
price, you will find it hard to state where adding a manual step that you don’t get As we have heard time and time again,
the asset traded today, what the best price with equities or bonds. Similarly, because if institutionalisation increases, then only
was and what the worst price was. As in the example I’m giving, which is a very the biggest will survive. Only the biggest
hedge fund managers become more and bespoke, unique deal in trading, you third party administrators will be able to
more adventurous with their asset classes won’t be caught by the Bloomberg or the deal with the multitude of assets the
and modelling systems, so the back office Reuters, you really have to flash your funds are investing in. This will require
has to try and keep pace. searchlight into the dark corners of very the biggest accounting, custodial and risk
David Aldrich, head of Securities specialist pricing vendors.” management services for the pension
Banking, Europe, at the Bank of New Another difficult asset class that, funds and endowments investing in those
York Mellon, explains: “The challenge according to Citi, is often overlooked is hedge funds. The biggest prime brokers
that we have is when we sit down with a private equity. A significant number of that have the broadest geographical
manager and they say ‘these are the asset hedge funds are trading pre-IPO equities, reach, richest product offering and
classes we are going to invest in, this is and although this is not a novel trading largest balance sheet capacity will thrive.
our strategy, these are our volumes’. phenomenon, the problem arises when The past seems to point to
Because opportunities often arise and the fund buys a share in a company that is consolidation. Most hedge fund
disappear very quickly, they will want to not listed anywhere. How do you price it? administrators five years ago were small,
exploit that anomaly immediately. We The problem of pricing is something privately owned companies. Almost all of
have to be able to adapt and account for that should give one pause for thought. these companies are now owned by large
new instruments on a 24 hour notice; we Hasn’t it always been difficult to price banks. Funds are also becoming
have to be able to help them trade new assets? How else do people expect to extremely institutional and they like
markets at very short notice. If you look make profits? Although this is a rather dealing with institutional counterparties,
at the long-only world, they might take glib rhetorical question, it moves the and they prefer to deal with service
three to six months to make that move. problem of pricing away from the fund providers who can give them a whole raft
The hedge fund managers see that as an manager and towards the administrator. of different solutions to different
opportunity in terms of first mover Fund managers are now listed on the problems.
advantage. That’s the challenge for us. stock exchange. No longer are they five Size, it seems, matters. Yet time and
There is no status quo.” old boys sitting in a small office in time again we have been proven wrong.
BNY Mellon’s response to the hedge Mayfair. Now, hedge funds are 200 The growth in managing alternative
fund addiction and the race for first
mover advantage was to jump up the
pace. In the past, third party
administrators produced their clients’ net Anything that is bespoke is generally a spreadsheet, so
asset value (NAV) on a monthly basis. As
a result, a lot of work becomes
basically it has a series of conditions and if those
concentrated around the end of the conditions match, you might receive a payment or you
month. BNY Mellon has shifted to a
daily environment, with a daily might not. Clearing in this case is very complex
reconciliation on assets and cash to make
sure that the books and records are up to
date every day. strong teams with compliance, HR and assets opens up a large number of niche
While this approach is very efficient, marketing departments, running a whole markets and administrators and brokers
there may be problems dealing asset raft of investment strategies from plain that specialise in various asset classes will
classes that are difficult to price. Ronan vanilla hedge funds to 130/30 funds. pop up under the radar of the global
Daly, head of alternatives investment These funds need someone who can financial servicers. Now matter how good
EMEA and Asia Pacific for Citi Global help them across the whole range of a one stop shop the big boys offer, there
Transaction Services, states: “The two investment strategies. It is an will always be cracks in the market for
areas where you run into a bit more inevitability that investment strategies niche third party administrators to
difficulty is, both on how you process are going to change, from the exploit. Alternative asset classes will
them, and on how you price them, OTC traditionalists investing in property to prove to be a challenge to third party
derivatives for example. The reason why the mathematical magicians inventing administrators, but they will also bring a
some funds can be cumbersome to ever innovative complex trading models. healthy dose of competition that is
process is because they can be very The problem is not that alternative essential for any financial industry to
paper-based. They won’t have common investment strategies are becoming more perform effectively.

DOMICILES REPORT
Jersey and Guernsey report

View to 2008 on the outlook for next year
with simplicity, certainty and speed very
opening an office in the island.
These ringing endorsements come on much in mind – features that promoters
the back of Guernsey listed fund and fund introducers undoubtedly look
transaction, KKR Private Equity for when setting up certain types of
Investors, from Kohlberg Kravis Roberts specialist fund. A key feature of the new
& Company, raising more than USD5 regime is that there will be no need to
billion before being launched on seek regulatory approval from the Jersey
Euronext Amsterdam. Financial Services Commission when
Following on from KKR, there have establishing the fund.
been other notable Guernsey private Set for introduction in early 2008
equity funds, including the largest following some fine tuning, the new
regime includes an unregulated eligible
Private equity success story central European buyout fund – in excess
investor category (UEIC) and an
Since 2000, Guernsey has been growing of EUR1 billion – Mid Europa III;
Valdivia Private Equity Fund; Energy unregulated exchange traded category
its reputation as a leading private equity (UETC). Both of these are only suitable
domicile. However, the events of the past Ventures III; AA Development Capital
India Fund – a joint venture between for professional and expert investors and
few weeks and months have really a number of criteria are in place to
crystallised the fact that the island is now Ashmore and Alchemy; and EQT V
Limited (Clifford Chance), which raised ensure that this is made absolutely clear.
the jurisdiction of choice for private Amongst the key features of the UEIC
equity. EUR4.25 billion.
This body of evidence is just the tip of is a minimum investment of
The latest statistics released by the USD1 million or a need to be a
regulator, the Guernsey Financial the iceberg but it clearly illustrates
Guernsey’s credentials as a jurisdiction of sophisticated investor, and its
Services Commission (GFSC), show that applicability to both open and closed
overall fund business in Guernsey grew choice for private equity – the island is a
private equity success story. ended funds structured using companies,
by GBP8.9 billion (5.7%) in the three unit trusts and limited partnerships.
months to the end of September, despite Peter Niven, chief executive of
GuernseyFinance There is also no requirement for a Jersey
significant market turbulence during the domiciled administrator, directors,
quarter. That took the total value of custodian or an audit.
funds under management and The UETC, meanwhile, applies to
administration to a new high of closed ended funds only, again including a
GBP164.5 billion – an increase of choice of structures, and a choice of
GBP44 billion (36.5%) year on year. exchanges on which a listing can be
The value of private equity funds made. Similarly, there is no requirement
trebled between the end of 2002 and the for a Jersey domiciled administrator,
end of 2006 and by the end of September directors, custodian or audit.
this year, there were 226 such funds with It is envisaged that these unregulated
a total value of GBP28.4 billion – up funds will offer fund promoters of
GBP8 billion (40%) in the first nine structures aimed at high net worth
months of 2007 and GBP2.4 billion (9%) individuals, sophisticated investors and
during the third quarter alone, in spite of Unregulated funds launch institutions greater flexibility when
the ‘credit crunch’. The last couple of months have been
choosing Jersey. The speed with which a
These impressive figures have also busy and exciting for Jersey’s funds
product can be brought to market will
been backed up by third party industry. Months of preparation work
also be appealing.
endorsements from the likes of leading culminated in Jersey’s annual Alternative
With specialist funds, including private
City of London lawyer, Bridget Barker of Funds Debate, held in London in October
equity, alternative investment and hedge
Macfarlanes. Speaking at a major and organised by Jersey Finance and the
funds now standing at a record
Institute of Directors event on the island Jersey Funds Association.
GBP110 billion in Jersey, this latest
she asserted that Guernsey was “the Around 150 delegates attended the
development is seen as a natural,
jurisdiction of choice for private equity”. event to listen to a range of speakers who
significant progression as the island
This was still being digested when Jon led a discussion on Jersey as a leading
attempts to widen its funds offering and
Moulton, founder and managing partner centre for specialist fund administration
establish itself as the European
of Alchemy Partners and who now lives services. In particular, the event unveiled
jurisdiction of choice for the alternative
in Guernsey, told a local lecture lunch plans for the latest funds development in
funds sector.
that the island was “a terrific place in the island – the introduction of an
Graeme McArthur, representative of the
which to do business”. It is also unregulated funds regime.
Jersey Funds Association
understood that Terra Firma will soon be The new regime has been designed

PANEL DEBATE - LUXEMBOURG FUND SERVICES
Our panel of experts

ISJ
discusses the
position of
PANEL DEBATE
Luxembourg as an
international fund
Looking to
domicile Luxembourg
Francis Kass, Arendt & Medernach Francis Kass is a partner in the Investment Management Practice at Arendt
& Medernach, where he specialises in investment fund work, advising clients on the structuring, creation
and organisation of investment funds. He has been a member of the Luxembourg Bar since 1996. He
is participating in several working groups of the Luxembourg Investment Funds Association (ALFI) and
he is a lecturer at the Luxembourg Institute for Training in Banking (IFBL).
David Claus, Bank of New York Mellon David Claus is head of sales and consultant relationships, Continental
Europe, Middle East and Africa for BNY Mellon Asset Servicing. Claus runs the business development
function for BNY Mellon Asset Servicing for Continental Europe, Middle East and Africa. Based in
Brussels, Claus has been involved in the fund industry for the last 13 years.
Olivier Storme, Caecis Olivier Storme is head of business development and fund structuring with Caecis
Bank Luxembourg. Prior to his current role, he was head of marketing and communication and in charge
of the bank’s Fund Administration network and European partnerships. Previously, Storme was general
manager of Fastnet Europe, and has more than 10 years of experience in financial services activities.
Simon Barnes, European Fund Administration Simon Barnes is a key account, manager at European Fund
Administration (EFA). The team of key account managers oversees the setting up of Luxembourg and
foreign domiciled mutual funds, maintains strategic client relationships, and supports product
development. Prior to this role, Barnes worked for 12 years at a major Dutch banking and insurance
group, progressing through various roles within the investment funds department.
Jean-Paul Gennari, UBS Jean-Paul Gennari is head of Fund Services, Luxembourg and head of Operations
Investment Funds, managing director, at UBS. He is responsible for the management and organisation
of Fund Services in Luxembourg and a member of the Fund Services management board. He is also
responsible for the daily provision of fund administration services in line with internal and external client
expectations, quality standards and regulatory requirements.

How has Luxembourg defended its position as increasingly global world of fund Europe. A range of tax efficient
a funds domicile, given the rise of the new distribution, which has fuelled further structures is available. Funds are exempt
contenders? What differentiates the growth. Luxembourg is the major source from income tax and most of VAT and
Luxembourg market from the competition? of funds for global distribution, and pay little or no capital tax, while
Kass: Luxembourg is Europe’s leading attracts sponsors from all continents. benefiting from a large number of double
investment fund centre and the leading taxation agreements. Luxembourg’s main
hub for global fund distribution. This Storme: The combination of a regulator advantage stems from its size and
leadership position is the result of the that is attentive to the needs of the maturity, producing a gamut of high
combination of various factors such as: a investment community, a fund association quality service providers. As the world’s
very stable political and social that actively promotes the jurisdiction second largest fund administration
environment; a modern, dynamic and abroad and a group of service providers domicile after the US, it has the mass to
flourishing economy; an advantageous with a reputation for high quality and attract all the main players in the market
position in the centre of Western innovative services is key to maintaining from the US, Europe, Asia and the rest of
Europe, where the major financial centres Luxembourg’s position as a funds the world. Only in Luxembourg will you
such as London, Paris, Brussels or domicile. find such a concentration of specialist
Frankfurt can be easily reached; and a The regulator and the business fund expertise. Service providers are well
multicultural and multilingual working community have a very close working established and experienced in cross
community. relationship, so if for example, a new border distribution and related tax and
This generally favourable structure is required to help competition regulatory issues. Luxembourg has a
environment, combined with a both against a rival jurisdiction, the relative advantage in TA and distribution
flexible and robust legal and regulatory Association Luxembourgeoise des Fonds services for funds distributed throughout
framework, a pragmatic and flexible d’Investissement (ALFI) and its members Europe. Its famously multilingual
supervisory authority, a favourable tax are able to work with the CSSF to make workforce is able to communicate with
regime and an outstanding concentration sure new legislation is developed investors throughout Europe.
of specialist service providers with a promptly.
deep know how, is undoubtedly a major The Luxembourg regulator has created Gennari: Luxembourg has seen continued
reason for the success of Luxembourg in a regulatory framework that is strict and quite impressive double digit growth
attracting investment funds. As of today, enough to address institutional investors’ over the last few years. With more than
statistics from the Commission de protection concerns, while remaining EUR2 trillion, Luxembourg has more
Surveillance du Secteur Financier (CSSF) flexible enough to encourage continued funds and greater assets under
show that as of 30 September 2007, growth and innovation in the fund management today than any other
aggregate net assets under management industry. domicile, behind the US. This
amounted to EUR2,059.1 billion, The growth area of the investment demonstrates that Luxembourg still
representing an aggregate number of fund market is alternatives, hedge funds, manages to stay flexible as well as
10,415 fund units. private equity and real estate. maintaining and further developing an
Luxembourg has set out to provide a environment that satisfies the
Claus: In my opinion, Luxembourg did favourable legislative environment, requirements of the market for new
more than just defend its position as a designed to attract more business and products and services. Promoters
fund domicile. Looking at the most recent ensure the continued growth of its continue to be attracted by
EFAMA stats, I noticed Luxembourg market. Luxembourg’s legal and fiscal
doubled its asset size since the end of Many of the smaller jurisdictions environment, a unique concentration of
2003; an impressive 98% growth rate, suffer from recruitment related issues, specialist service providers, a
higher than the European industry in where they are finding it hard to recruit multilingual workforce, and a strong
totality at 65%, which in turn did the skilled staff the investment fund expertise in retail distribution across the
better than the worldwide industry at industry requires. Luxembourg, located globe. ALFI has played a very important
55%. So Luxembourg has been able to between Belgium, Germany and France role in defending Luxembourg’s position
increase its share of a growing pie - if is able to draw from a huge pool of as well. As an example, 45 road shows
you want to call that a defence, it's a people who have the technical and have been organised over the last 22
pretty aggressive one. language skills the market needs. months, in five continents, to promote the
I think the critical success factor lies in benefits of Luxembourg across the globe.
the excellent alignment between Barnes: Luxembourg has reacted by Competition is growing and offshore
industry, supervisors and regulators to putting in place SIF legislation, centres like Dubai and the Channel
continue to create a favourable providing a product comparable to QIFs Islands are determined to grow market
environment for the funds business to and PIFs from Ireland and Malta. share. Luxembourg is aware of this and
prosper. And as often happens in life, Luxembourg has a number of benefits has been promoting itself in the Middle
success attracts more success: the and particularities as a domicile. The East for quite a few years. To date, over
virtuous circle. This favourable minimal investment restrictions and 640 Luxembourg domiciled funds are
environment has allowed the industry to lighter regulation make Luxembourg one registered for distribution in Bahrain and
develop and play a major role in the of the most attractive domiciles within companies are becoming increasingly

familiar with the servicing of Sharia promoters that are not subject to domiciled and administered in
compliant funds. regulatory approval. Luxembourg. The SIF law enables
Furthermore, there is no need for the Luxembourg to offer a structure
Why was the Specialised Investment Fund investment managers to obtain comparable to a Cayman Islands SPC,
(SIF) law introduced earlier this year and what regulatory approval. The Luxembourg with the advantage of an EU domicile.
are its aims? supervisory authority will however Reduced regulatory requirements
Kass: One sector that over the past 10 examine the qualification, expertise and mean there is no need for the manager to
years has seen a considerable good repute of the directors, in order to be approved by the regulator. Other
development is the institutional ensure adequate investor protection. advantages include fewer regulatory
investment sector. Indeed, between 1997 Regarding investor information, there reports and relatively few investment
and 2006, the number of institutional is no minimum content for the issuing restrictions. At the same time, the SIF
funds has been multiplied fivefold, with document and no specific format has same tax advantages as existing
an aggregate amount of assets under required. Furthermore, the annual Luxembourg funds. Finally, the SIF has a
management of more than EUR78 reports only need to disclose the most fast issuing procedure – no pre-approval
billion as of 31 December 2006. On the important quantitative and qualitative required before issue.
basis of this constant development and in information permitting investors to make
order to respond to the requirements of an informed judgment on the Gennari: The introduction of the SIF law
the investment funds industry, a new law composition of the portfolio. in February of this year was driven by a
on specialised investment funds (the Law market need for a ‘lightly regulated’
on SIFs) was enacted at the beginning of Claus: The SIF law was introduced to structure, with less stringent
this year. modernise a respectable but ageing piece requirements on the promoter of a fund
and a greater flexibility in terms of
investment restrictions. The new SIF law
As of 30 September 2007, aggregate net assets significantly simplifies the setting up of
under management in Luxembourg amounted to fund structures and the distribution of
them to ‘informed investors’ via private
EUR 2,059.1 billion placement. Funds under SIF law will
tend to be riskier, alternative types of
The Law on SIFs offers numerous of legislation, the 1991 law for funds, and are intended for institutional,
advantages. Time to market is reduced institutional investor funds. It allows professional and high net worth
and the regulatory approval of SIFs may access to a significant range of investors.
be granted ex-post, meaning that a SIF investment strategies for a wider range of The introduction of the SIF law is a
may start its activities and file an investors. good example of the capability of the
application for approval with the month Luxembourg authorities to very quickly
of the creation of the SIF. The scope of Storme: The SIF was launched to respond adapt to an upcoming demand and create
eligible investors has been broadened – to the demands of the investment the legal environment for the business
the concept of “institutional investors” community for a structure that provides development.
foreseen in the past has been replaced by greater flexible to alternative strategies
the concept of “well informed investors”, such as hedge funds, private equity and How has the introduction of the SIF affected
allowing sophisticated investors, real estate funds. We have clients that are the domicile and what are the main benefits
including high net worth individuals, to either just more comfortable with a for the market?
access the flexible regime offered by SIFs. European regulator or actively require Kass: The lighter regulatory framework
The investment purposes of SIFs may one to sell their funds to institutional created by the Law on SIFs is expected,
target a broad range of assets, such as clients. in particular, to benefit the real estate,
transferable securities, debt instruments, The SIF allows us to compete with private equity and hedge fund sectors.
money market instruments, real estate, structures in regulated and non- Indeed, the initiators of these types of
private equity, commodities and financial regulated offshore jurisdictions, as well as funds often are small firms with a low
derivative instruments. Furthermore, onshore structures such as Germany’s financial surface that, under the previous
SIFs may adopt alternative investment Spezialfonds. Being able to set up a SIF regime, would not have been approved as
strategies or may be created as fund of fund without having to wait for formal promoters or investment managers of a
fund structures. The Law on SIFs authorisation from the CSSF allows our retail fund. In addition, the previously
maintains the principle of risk spreading, clients far greater responsiveness to outlined flexible provisions regarding the
but does not set out any quantitative marketing opportunities. organisation, rules of functioning and
investment restrictions. A general eligible assets will broaden the scope of
quantitative investment restriction (a Barnes: This was partly a reaction to investment strategies that can be pursued
30% rule) is only foreseen in an similar products in competing domiciles within the framework of a Luxembourg
administrative circular, from which it in Europe. The conception of the product fund vehicle, while at the same time
may, however, be derogated on a case by is part of the Grand Duchy’s efforts to limiting the regulatory or administrative
case basis; SIFs may be launched by increase the number of hedge funds requirements to be complied with.

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Claus: The SIF law has given the fund. However, the market has seen an service provider, lawyer and fund
sophisticated segment of the market a increasing need for ‘lightly regulated’ promoter, which ensure that any launch
new boost. Sophisticated investors, products for a specific group of investors. dossier complies with regulations. If
whether institutional or private, now get The introduction of the SIF law has now there is any doubt that a new fund project
access to a wider set of strategies from a covered this need. Sponsors, who may not receive approval from the CSSF,
wider range of product providers, in a preferred Luxembourg as a domicile in a pre-check with the regulator can be
very fast manner given the specific the past but who may have had to launch made.
approval process. I think Luxembourg as their products in other offshore
a domicile has intelligently applied the domiciles, can today realise their fund Barnes: Obviously, with wider investor
‘segmentation’ concept we all apply in projects in Luxembourg. Since the choice comes greater risk as a wider
our businesses, offering different introduction of the law on 7 February, range of products has been made
products that cater for client types with more than 100 new funds have been available to investors. In principle, the
different needs. That is a good move. launched under SIF risk to be managed by custodians is
similar to that of existing funds, but as
Storme: By launching the SIF, the Have there been any negative impacts on the the range of instruments covered
Luxembourg regulator has demonstrated jurisdiction – for example, an increase in risk? increases, custodians must adapt their
to the investment community that it is Kass: Although the legal framework processes to cover a wider range of
flexible, rapid and attentive to their within which SIFs may be set up is very investments. Custodians are more likely
needs. The SIF gives Luxembourg flexible, it does, however, not seem that to sub-contract to specialist depositaries.
another, more flexible alternative focused
structure, which should help the
jurisdiction attract a more substantial
amount of alternative business, while Luxembourg has doubled its asset size since the end of
remaining the leading centre for vanilla 2003; an impressive 98% growth rate
retail funds.
We are now able to offer our clients a
structure that really competes with the new legislation has increased the They must adapt to the ensuing complex
alternative fund structures in rival risks in a manner that would be line of custody of assets. Change of
jurisdictions. The SIF is an especially detrimental for the investors. Indeed, work flows also brings increased
attractive structure for boutique since SIFs remain subject to permanent operational risk.
promoters, many of which are currently regulatory supervision, the CSSF will
operating out of unregulated offshore ensure that there is an adequate level of Gennari: As with the introduction of any
jurisdictions. The SIFs’ flexibility, investor protection. The CSSF will in new law, the first experiences provide
coupled with the security of the particular verify the experience and ideas for improvement or further
Luxembourg market, should see reputation of the directors, the precision. The SIF law did not, for
Luxembourg attract more new boutique compliance with risk diversification example, specify any detailed investment
business and may even help attract requirements, as well as the appropriate restrictions or leverage rules. It simply
existing funds from the hedge fund disclosure in the issuing document of stated that a SIF should apply the
powerhouse, the Cayman Islands. any specific risks related to each fund principle of risk diversification. This
product. raised questions, when applied in
Barnes: This year has seen a large practice.
increase in volumes, as Luxembourg wins Claus: I don't think it has negative impact The CSSF circular (07/309) on risk
business that may otherwise have gone to on the jurisdiction along the lines you’re spreading in the context of specialised
Cayman Island and Irish companies. suggesting. While these funds indeed investment funds, dated 3 August 2007,
Service providers have had to adapt to benefit from a more flexible and lighter complemented the SIF law and provided
the lighter regulations and use of regulatory environment, they are also clarification on the investment
unusual structures and products. New aimed at investor types that are old and restrictions that must be adhered to, in
assets classes are possible: besides wise enough to know what they are order to ensure adequate risk
financial investments, we have seen doing. The SIFs are not aimed at the diversification.
requests for investments in wine, art and general retail public, and hence there is From an operational point of view, we
diamonds. The market is still finding new no need to offer the same level of have decided at Fund Services to apply
uses for the SIF: an unexpectedly large protection to investor types that are very exactly the same processes and controls,
number of private banking SIFs have different. as we would for the UCITS structures we
been set up this year, providing cost administer.
effective tax efficient investment vehicles Storme: There are risks in allowing a fund
for a family or small group of investors. to launch prior to being officially Who are the main players in the fund
authorised, however, they are largely administration and services market and why?
Gennari: The primary product for balanced out by a reduction in funds’ time Has this market become more competitive
Luxembourg is and will be the UCITS to market and the professionalism of the over time?


Kass: From a service providers’ view, investments. This high level of Harriman. These are the biggest in terms
there is a unique concentration of complexity acts as a barrier to the of assets under administration and have a
specialist service providers in smaller players. full service offering (TA, administration
Luxembourg having expertise in the Promoters seek a service provider that and custody). Fund administration
areas of fund administration, can handle their needs across the board, requires continuous and considerable IT
management and distribution. This from fund administration to custody, investment, so size does matter to a
certain degree.
For traditional funds, administration
The lighter regulatory framework created by the Law on has reached a high level of automation
through the processing chain and an
SIFs is expected to benefit the real estate, private equity administrator has to offer more ancillary
and hedge fund sectors value added services in order to provide a
competitive advantage. This could
expertise enables fund initiators to offer a foreign exchange services to securities include be the full support in risk
wide range of investment products that lending, and traditional funds to management or the provision of full
can be tailored to meet the needs of sophisticated funds. Administrators with brokerage services around the clock and
specific market sectors. Given the large a network of local offices have a in all markets.
number of service providers in considerable advantage over those
Luxembourg, fund initiators very often operating out of one single location. A What will drive the growth of the funds
have the choice of appointing either network of offices increases industry over the next few years in the
Luxembourg service providers infrastructure costs for the service jurisdiction? Where will the investment be
originating from the same country as the provider, but this is outweighed by the coming from?
initiator, global service providers acting benefits for the client in terms of Kass: We expect that the flexibility
worldwide or smaller providers proximity and understanding of their offered by the new SIF regime will enable
specialising on a limited number of local market. the Luxembourg fund industry to further
specific fund products. Fund initiators The main players are those that have increase in size over the next few years.
will typically be able to compare the rates the necessary size to exploit economies of The most recent figures show that as of
offered by multiple competitors and to scale and spread the high costs of IT 30 September 2007, 366 SIFs are in
choose the most cost efficient service development needed to automate existence, totalling over EUR100 billion
providers, which meet their specific needs the complex processes inherent in of assets under management. We expect
and requirements. alternative funds. that the new SIF regime will be of
The asset management industry has particular interest to the real estate,
Claus: Luxembourg is a competitive fund become increasingly competitive in private equity and hedge fund sector. As a
services market, and, indeed, competition recent years and in turn, the pressure to matter of example, the Luxembourg
has increased. This is partly due to a revise service providers’ charges alternative investments market
relative large number of fund admin downward is ever present. Cost is always experiences a steady growth: as at 31
providers - 74 based on Fitzrovia 2007. an important factor in the choice of December 2006, total assets under
Interestingly, half of these players have service provider, however service quality management of Luxembourg domiciled
less than USD10 billion under and innovative products that really single hedge funds and funds of hedge
administration, and one may wonder if support the promoters’ business funds combined represented
they have enough critical mass to support objectives will remain the most EUR104,464 billion, according to the
their business. Also, nearly half of the significant factors. ALFI annual report 2006-2007. Another
Luxembourg industry is in captive hands, driving force for the attractiveness of the
and while that is certainly the case for Barnes: EFA is one of the main players in Luxembourg funds industry is the fact
smaller administrators I just mentioned, the fund administration services market – that in the area of UCITS funds, the
there are also a significant number of number one in terms of number of funds, scope of eligible assets is constantly
large administrators that are number five in terms of assets under expanding. In this respect, building on
predominantly captive in nature. And, administration. the provisions of the Implementing
last but not least, there is the category of The market is very competitive and is Directive and CESR Guidelines on
the third party service providers, like becoming more so as volumes increase. eligible assets, the CSSF’s administrative
ourselves at BNY Mellon, whose core This is good news for funds coming to practice is rapidly evolving.
business is servicing clients that come to Luxembourg, which can easily obtain
them without any ownership constraints, competitive bids for their business. Claus: In my view, as I mentioned earlier,
based on the competitive offering. the increasing globalisation of the funds
Gennari: In addition to UBS Global Asset industry will continue to drive growth. I
Storme: Although Luxembourg has many Management – Fund Services, the largest see two main drivers here. First, funds
fund administrators, only the largest administrators in Luxembourg include domiciled in Luxembourg get registered
players are able to handle the complex JPMorgan Bank, RBC Dexia, State and attract net new money from a
processing requirements of alternative Street, BNP Paribas and Brown Brothers growing number of countries – 75 or so

for the time being. That means

Luxembourg is able to 'import' growth Gennari: Alternative products continue to Claus: I would be worried if any of us
from places like Latin America or Asia show very high growth rates and answers yes to this question! Global
Pacific, where economic and savings represent the largest number of brands require real promotion and
growth is faster than in the US or inquiries/requests for the launch of new marketing focus, and cannot purely rely
Europe. Second, based on that success, funds. In Luxembourg, assets in hedge on proven track record and word of
investment product providers keep funds have grown by more than 13% over mouth. I think Luxembourg as a whole
coming to Luxembourg to domicile the first six months of 2007 and almost has certainly stepped up to the plate in
products they want to distribute globally. 60% over the last 12 months to reach recent years, and I view those efforts, like
These two drivers reinforce each other – EUR77 billion in June 2007. The fund of the promotional tours to the main
that is the virtuous circle I was alluding hedge funds industry has increased by financial centres, similar to the recent one
to earlier. 19% over six months and 38% over 12 in Asia in conjunction with EFAMA, very
months to reach almost EUR110 billion favourably. It is a big step in the right
Storme: The ALFI’s active promotion of in June 2007. direction, but the beginning of a journey,
Luxembourg abroad, which comprised an On the promoter side, we have started not at all the final destination.
extended series of road shows on five and are likely to continue to see increased
continents, has contributed markedly to interest from entities in Asia, Brazil, Storme: In recent years, ALFI has stepped
the jurisdiction’s growth. Asia and Latin Russia and the Middle East. Within Fund up its promotion of Luxembourg,
America were firmly in the scope of the Services, by the end of the year, we will touring worldwide to educate markets
ALFI delegations and we expect to see have established a business about the Grand Duchy and its strengths
as a jurisdiction. We are starting to see
the fruits of ALFI’s efforts reflected in
the market’s growth figures.
Standardisation throughout the funds industry is key to Standardisation throughout the funds
growth, profitability and reduced operational risk industry is key to growth, profitability
and reduced operational risk. Closer
relationships between Luxembourg’s
growth in fund distribution coming from development/client relationship fund association and those of other
there, but closer to home, there is still a management presence in Hong Kong to jurisdictions, such as Dublin and
massive potential in Eastern Europe. accommodate these developments. Caymans, can only help promote greater
The alternative fund industry will be standardisation.
the biggest growth driver. In Is Luxembourg doing enough to promote itself
Luxembourg, hedge funds have posted as a funds centre of excellence? What more Barnes: Luxembourg has an active fund
astonishing growth figures, reaching could be done? association, ALFI, which is frequently on
some 20% over the past six months, Kass: The official representative body of the road in Europe and worldwide. The
which show ALFI’s efforts to position the the Luxembourg investment fund big players are active in marketing and
Grand Duchy as a hedge fund domicile industry, ALFI, plays a very proactive promoting Luxembourg as a domicile.
are starting to pay off. If the SIF is able role in making of Luxembourg the most The financial regulator has proven itself
to draw in more hedge fund start-ups, attractive centre for fund promoters. to be effective and still relatively quick to
then Luxembourg can benefit from the ALFI is supporting the promotion of react to changes in the environment. The
growth of players that are potential Luxembourg as an international fund challenge to Luxembourg is to maintain
giants of the hedge fund community. centre, notably by helping the industry in the momentum built up over the past
developing new products, by years. Sourcing qualified staff appears to
Barnes: Luxembourg has been a private participating in global economic be a significant problem for employers.
banking centre for many years, due to the missions, by organising road shows and
tax efficient vehicles available to HNWI, financial seminars worldwide, in setting Gennari: Luxembourg is in a comfortable
and to the professional secrecy laws and up international press relations and by position today but this certainly provides
traditions which pre-date Luxembourg’s organising professional training courses no guarantees that it will remain like this
fund services industry. Hedge funds in collaboration with other organisations. indefinitely in the future. We have to
should be increasingly attracted to Furthermore, the Luxembourg continuously evolve in order to maintain
Luxembourg. The latest SIF regulations government and the main actors of the this position.
make it as easy to set up and run a hedge financial sector have created ALFI plays an important role in the
fund in Luxembourg as in the Luxembourg for Finance, an agency for promotion of Luxembourg. In addition
Cayman Islands. The EU domicile and the development of the financial centre, to the 45 road shows around the world,
double taxation agreements push the which will be active as from 1 the two annual ALFI conferences are
balance in Luxembourg’s favour, and so January 2008. The objective of the another good platform for the promotion
we expect the rate of creation of SIF agency is the development of the of Luxembourg. These conferences have
funds to stay at its present high rate for Luxembourg financial centre and its seen an increasing number of visitors
the foreseeable future. promotion abroad. every year. ■

AUSTRALIA AND NEW ZEALAND CUSTODY
Hang on a minute, I’ve just got to Bradley Kelly, product and strategy
“ rescue a baby possum that’s about to

be killed by a cat,” says David Travers,
head of State Street's investor services
manager JPMorgan Worldwide
Securities Services, Australia and New
Zealand.
business in Australia, as he suspends my “Pension fund assets have recently
interview with him, conducted from his exceeded AUD1 trillion, and are expected
car on route home from work. Possums to grow to AUD1.8 trillion by 2011 and
were brought to New Zealand from AUD3 trillion AUD by 2016, according
Australia in 1837 and are now considered to the Australian Finance Group, Global
pests, their numbers verging on 70 Funds Management Index,” Kelly adds.
million, but New Zealand’s latest import Australia has become the most
promises to be more of a success: important regional fund management
compulsory superannuation. centre outside Japan, with global
A glance at the Australian Custody providers choosing to run their Asia
Services Association’s table of assets Pacific operations from the
under custody, as of 30 June this year, Commonwealth. Northern Trust has
reveals the usual array of global custody been the latest in a string of global
players and some domestic faces too, with players to establish a representative office
very little change from previous years. in Melbourne, in the state of Victoria.
True, Westpac has been replaced by Driving the financial services sector
HSBC after a lift-out of the Australian ever onwards are the nation’s compulsory
bank’s custody services in July 2006, but superannuation funds, where mandatory
otherwise there has been little change, contributions increased to 9% in 2002.
apart from strong double digit increases “The favourable tax treatment of
in assets under management that is. A superannuation money has seen the
look at next year’s table will reveal a tripling of investment fund assets since
different story, as Northern Trust has 1995, and the further simplification of
entered the market with a bang, scooping tax introduced in 2006-2007 has
One way a AUD51 billion (USD42 billion)

mandate from the Future Fund Board of
Guardians.
Northern Trust won the mandate in
encouraged further growth in saving for
retirement and ultimately the continued
expansion of Australia's superannuation
funds,” explains Jeremy Hester, Australia
traffic May, the largest ever custody mandate to

be awarded by an Australian institution.
The Future Fund was created in 2006 by
the Australian government to accumulate
and New Zealand asset servicing sales,
Northern Trust.
In contrast, Northern Trust expects
the New Zealand market to double to
sufficient financial assets to offset the USD100 billion by 2015, sizable growth
government’s unfunded superannuation indeed but not as exceptional as the
liability, which is expected to grow to Australian market, which is expected to
over AUD140 billion by 2020. The win in triple in the same time frame. State
Australia follows Guardians of New Street’s Travers explains: “The
Zealand Superannuation’s selection of Australian market grows at a faster pace
Northern Trust as its custodian for the than the New Zealand market. Australia
New Zealand Superannuation Fund’s has a compulsory superannuation scheme
New Zealand is (NZSF) NZD11.5 billion (USD8 billion) and that fuels the size of the market,
assets. Northern Trust took custodial while New Zealand doesn’t have a similar
following in the responsibility for the fund’s assets on 1 scheme.”
The New Zealand market is much
footsteps of its larger July.
The New Zealand market, while smaller than its neighbour’s, with total
Antipodean neighbour, relatively underdeveloped today, is hoping
to emulate the successes of Australia over
assets of around USD50 billion, but the
nation has a strong focus on saving for
adopting compulsory the last 15 years. The Australian market retirement and the market is about to
dramatically change. The New Zealand
is currently the fourth largest in the
superannuation funds. world, which compares favourably with government is set to introduce new
its seventeenth place in terms of GDP. legislation in April 2008 that will make
Jamie Darlow reports “This is impressive when one considers contributions to the KiwiSaver scheme
we are a nation of 20 million people with compulsory. The scheme is currently a
an economy built on the back of a long voluntary savings scheme, with the
property and commodities boom”, says government offering an initial NZD1,000

AUSTRALIA AND NEW ZEALAND CUSTODY
subsidy, tax relief and other incentives. welcoming the global players through into the market has prompted pension
In Australia, the desire and compulsion which to invest it. funds to offer more comprehensive
to save money has fuelled an explosion in Global custodians have been drawn to financial services, including home loans
the fund management industry at large, the Australian market to take advantage or health care, as they seek to
explains Kelly. “The weight of money of the burgeoning opportunities. differentiate themselves from the crowd.
pouring into the system, coupled with a National Australia Bank (NAB) and JPMorgan’s Kelly explains the effect
desire to continually seek new and JPMorgan have the greatest presence in SuperChoice has had on funds: “Trustees
innovative methods of investment the master custody sector, with understand the economics of
return have fuelled the rapid rise in the AUD409.6 billion and AUD342 billion competition and portability, hence the
number of funds and the assets within respectively, as at 30 June 2007. Their central challenge they face in a post-
them,” he says. dominance is primarily down to choice environment is to provide a
This weight of money has a spiralling mandates from many of the largest contemporary product offering that
effect as it needs to find a ‘home’ – which superannuation schemes. State Street compares favourably with other funds in
these days can be a challenge in itself, Australia and BNP Paribas also have a the market. Trustees now need to
Kelly continues. “The fund management strong presence, but while State Street concern themselves with member
industry has responded in kind with a has been there since the early 1990s, retention and acquisition strategies and
proliferation of products. The latest BNP Paribas is a relative newcomer. And member lifetime value,” he says. “As a
example of this is the drive by pension newer still is Northern Trust. result, marketing and brand
funds to find sources of cheap portable “The ability to compete is dependent management have become critical
alpha and increase their risk adjusted on offering clients a unique and elements, as the battle for the ‘hearts and
returns. Trustees are leading the charge differentiated service proposition and minds’ of fund members is played out.
by awarding mandates in a broad range of focusing on core products with a global The rewards will go to the plan sponsor
non-traditional asset classes, including operating model, local client service and that ‘takes a leaf ’ from retail banking
130/30 strategies, hedge funds, outstanding technology solutions,” customer relationship management
infrastructure funds and private equity.” explains Hester. approaches, and is able to tailor and
Hester says the Australian custody Competition is fierce in the Australian intelligently apply them to the
model is evolving in a similar fashion to market, but this is not a recent superannuation industry.”
the models we have seen develop on a phenomenon, says JPMorgan’s Kelly. Heavy competition has also led to an
global basis, but particularly in the US, “New service providers are entering the increase of low cost options, such as
UK and in continental Europe. “Clients market because the Australian growth indexed funds and premium high alpha
in Australia have a full range of story is so compelling. We are in the alternatives, replacing more traditionally
investment products in their portfolios, incredibly fortunate position of having balanced funds. “We have noticed an
including alternatives, and are one of the most advanced national increase in the prevalence of low cost
increasingly seeking a consolidated and savings policies in the world, and as products, particularly as increasing
fully integrated service model from a such, are regarded by many as the ‘poster numbers of trustees pursue alpha-beta
single provider – such as Northern child’ for the global pension industry; separation or core-satellite investment
Trust. In addition to core custody and corporations recognise this, and want to strategies, where the emphasis is on
consolidated accounting and reporting, be part of the story.” paying as little as possible for beta,”
custodians need to offer products that But Kelly warns that custodians new Kelly says. “It’s not yet clear if this
support alternative investments as well to the market may have over-reached approach is a fad, a trend, or a genuine
as more traditional value added products themselves. “Because the Australian sea change in investment management
like risk and performance measurement, story is so compelling, the local market is practice. Time will tell.”
compliance monitoring and securities currently over serviced. The litmus test Both Australia and New Zealand will
lending.” will be the next sustained economic increase in size as custodial markets over
The hedge fund market in Australia is downturn, when many industry the next decade, with New
sizable and currently stands at around participants will be forced by their Zealand looking to adopt many of the
AUD35 billion, and has been boards to re-examine their presence in best practices from its larger neighbour.
experiencing growth rates of the market,” he explains. “The winners However, it would be dangerous for
approximately 60% per annum. The will be the global custodians who have market practitioners to assume the
weight of money Kelly spoke of is made a strong commitment to the nation will follow exactly in Australia’s
finding its way into alternative Australian market, and those that exit footsteps, an offshoot with a population a
investment vehicles, the same evolution will likely be mid-tier and local market fifth of Australia’s size: “The New
seen in the UK and Europe, where players who will find the competitive Zealand market should be considered on
pension funds have elected to make landscape extremely challenging." its own merits and, although smaller
money rather than just hold onto it. This Competition is set to get stronger still than Australasia, operates an
practice is sure to be appropriated in with the recent enactment of increasingly global model,” concludes
New Zealand if the country continues to SuperChoice legislation, intended to help the Northern Trust’s Hester.
operate an increasingly global model, empower employees to more effectively I never did find out what happened to
creating the capital to invest and direct their investments. Adding choice David Travers’ possum. ■

EUROPEAN CUSTODY
Breaking
down
barriers
Consolidation and
aggressive M&A
activity have dominated
the custody market
this year, explains
Jamie Darlow
he buy-out and subsequent break- untouchable and the only thing that can are coming under increasing pressure to
T up of ABN AMRO has

represented a milestone for
custody servicing in Europe. It is the first
protect you is your profitability.”
He points to other institutions that are
now the subject of speculation regarding
sharply increase their profitability or join
forces with a strong partner, if they do
not want to suffer a similar fate,” suggests
time a major European bank had been a buy-out – there are activist funds Moritz Ostwald, vice president, head of
divided up among its acquirers and it wondering about HSBC and questioning sales and relationship management at
highlights that it is just as important for whether it’s properly managed, Danloy BHF Bank.
giant financial institutions to outperform, says. “These hedge fund managers are The consensus among custodians
as for smaller ones. questioning whether it should be broken themselves is that consolidation is certain,
Despite the size of the bank, one of the down and split into different pieces as the only question remaining is around
largest in Europe, investors had long well. There were also recently the same timing and the nature of the
been concerned about its lacklustre comments made about Citi.” consolidation itself. “Some say there will
performance. ABN AMRO had set itself But before we get carried away, Danloy continue to be significant M&A activity,
tough goals in 2000 to push its way into keeps his feet firmly planted on the others have said we will see more
the top five of its peer group, measured ground, reasoning that a break-up of Citi partnerships formed,” says Rowena
on returns on investment, but this was a or HSBC will probably not happen. Romulo, Securities and Fund Services
long way off when negotiations began in “Would anyone have expected ABN branch management head for EMEA,
early 2007. Financial results had also AMRO to be broken down two years ago? Citi's Global Transaction Services. “At
proved less than impressive in 2006, with The answer is no. Is it reasonable to this junction there are four or five global
an increase in operating expenses. consider HSBC and Citi could be split? players that have a significant market
Acquisition was inevitable. You can never say never, but there would share.”
“The message it delivers to the be many more hurdles to overcome,” he Deutsche Bank was the first player to
marketplace is, if you are running a adds. ditch its global custody business, selling
financial institution you have to make What the biggest ever merger of banks to State Street at the end of January 2003.
sure it’s run efficiently, is profitable and worldwide does presage, however, is a Deutsche’s business was sizable, at
you are performing better than your regaining of momentum for the USD2.2 trillion in assets under custody as
peers,” explains Sebastien Danloy, global European banking landscape. “The of 31 August, 2002, but the German bank
head of sales for Société Générale remaining national banking champions - took the decision to exit the business to
Securities Services (SGSS). “No one is including those on the German market - concentrate on sub-custody. Since then,

EUROPEAN CUSTODY
UniCredito, HVB, RBSI, and Excel Bank needs of individual clients,” he says. This to enter that space. Bisys greatly
have all elected to follow suit and leave view is less than surprising, given BHF’s enhanced our fund of fund and mutual
the global custody space. position as a niche player, but a successful fund capabilities.”
These institutions are following the one at that. In its Custody and Citi Ireland is now ranked fifth (up
first of three strategies for global Derivatives Services, the bank achieved from seventeenth) by Fitzrovia for funds
custody in Europe, explains Danloy. double digit growth rates for the year under administration, with over USD100
Under the second, some institutions have ending 30 June 2007 and assets under billion in funds and over USD300 billion
chosen to focus on their local market and custody rose to more than EUR300 in total assets, including institutional
have no plans to expand, he continues. billion in the same period. assets, in the country.
“European players have an advantage
in the European market over the US
players as they understand the market
Would anyone have expected ABN AMRO to be broken better and have been there for much
down two years ago? The answer is no. Is it reasonable to longer,” contends SGSS’s Danloy. “They
have created ties with other financial
consider HSBC and Citi could be split? You can never say institutions for a much longer period of
time. European players have a better
never, but there would be many more hurdles to knowledge and a better fit. And in my
overcome view, we can better appreciate the cross
selling opportunities when we acquire
businesses in Europe.”
“The third is growing and acquiring, like Robert Mattsson, product development US banks certainly have the scale to
Société Générale,” he explains. “We manager at Nordea Bank Securities buy their way into Europe and offer a
acquired the UniCredito custody Services, expects consolidation to range of services thanks to economies of
business, European Fund services in continue, albeit with fewer potential scale, but the European market offers
Luxembourg, Pioneer Investment Fund cases. “But at the same time, mid-sized particular barriers to entry. While the US
Services in Germany, all within the last strong regional players still have a role to is a true single market, Europe remains
two years. BNP Paribas is doing the same play as long as they have active product segmented with various legal and
thing, as is HSBC but to a smaller extent. and service development,” he explains. “I infrastructural barriers to entry, as well
You have a few European players driving don’t think consolidation will kill all of as cultural and linguistic inhibitors. A
the consolidation. In the future, either the mid-size strong players on a short single regime in the custody business still
you sell off or grow your business and and medium term. I see this trend also in remains a long way off, with the
those focusing on one or two markets will the Nordic region and believe that in the Giovannini barriers and the lack of
struggle in the coming years.” future a few of the largest regional standards around corporate actions just
Citi’s Romulo cautions against players will survive.” two obstacles of many to the realisation
acquisitions for the sake of scale alone. At first glance it might appear of a single market. Europe is working
“As long as the acquisition is the outcome consolidation in Europe is originating hard to resolve many of these problems,
of an acquirer looking to get a from the US. Certainly, State Street’s lift- with MiFID opening increasing the
complementary set of capabilities or out of Deutsche’s global custody opportunities to trade and Target2
geographic presence, it will work out – business began the trend, but it is really introducing a single real time gross
it’s all about synergies,” she explains. “If the exception to the rule. European settlement system, but the region is not
it’s purely driven by an ability to get consolidation is in fact originating from quite there yet.
scale, I think that’s misaligned with the the European custodians themselves. The Alongside this infrastructural change
emerging need in the European Bank of New York’s merger with Mellon in Europe is a shift in the services funds
marketplace.” really focuses on the synergies between now require. Securities lending is today
Medium-sized custodians are the most the US and UK, rather than continental considered a core service that most fund
likely to face consolidation because they Europe, for example. managers require, where only a few years
are unable to offer the full range of Similarly, Citi’s acquisition of Bisys in ago this would have been termed a value
custodial services the market now May for USD1.45 billion was not focused added service. Danloy explains that risk
requires. BHF’s Ostwald envisions a on entering the UK or Ireland, but on and performance measurement is where
market where the mid-sized players are acquiring new client services for the value added products now lie: “With
snapped up or forced out, to be replaced alternative asset managers. “We wanted MiFID and best execution we’ve had
by larger units with economies of scale to grow our hedge fund offering and we demand from our traditional client base
and standardised retail businesses. lacked a private equity platform, making (asset managers) but now also from
“At the same time, there will remain a Bisys an ideal partner for us,” Romulo broker-dealers, who want an independent
place for niche providers offering a few says. “Our rankings have gone up and we valuation for OTC and structured
markets or products, that are more are now number four in assets under products that they are buying from or
flexible, reacting more quickly to changes management in hedge fund services selling off to customers. There’s a new
in the market, product innovations or the globally. We felt we had a gap and wanted range of market customers in that area.”

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EUROPEAN CUSTODY
Nordea’s Mattsson says value added competing for clients. Let’s face it,
services separate providers from each yesterday’s ‘state of the art’ is today’s Regulatory review
other, an area of growing importance. ‘plain vanilla’.” The EU’s Markets in Financial
“But the question is what is a ‘core’ or a The latest battleground to emerge for Instruments Directive (MiFID) came
‘value added’ service? Yesterday’s value custodians is Eastern Europe, with the into effect on 1 November with very
added service is today’s core service, so top banks jostling for position to enter little fanfare, as most had predicted.
with that evolution of the industry in the market and get their services in place. What are the long term consequences
mind, the core service will continue to be In truth, the top five custody banks have for the European custody market
the most profitable business,” he explains. been investing in the region for a number from MiFID and from other
“When a value added service becomes of years, but with MiFID and regulations, such as Basel II?
more profitable, it tends to change to a harmonisation initiatives, the market Nordea’s Mattsson says MiFID and
core service.” potential can only increase. other regulations will put pressure on
Custodians’ profit margins are being Already, SGSS considers Eastern moving the market to be more
put under increasing pressure when Europe the most important region for dependent on size. “In order to keep
offering core services to clients because growth, according to Danloy, and has up and be able to cope with
increasing regulations, you need the
there are many institutions offering such invested accordingly. Danloy points to
benefits of a big organisation.
facilities. Where margins become more the region as key for the bank, which has However, I believe that regulations
attractive is through the addition of been active in acquiring businesses and could bring business opportunities for
specific services to funds, something that banks in the area over the last few years. small focused business providers.”
is becoming increasingly attractive to “We have a strong presence in a lot of SGSS’s Danloy suggests that
custodians as the numbers of hedge countries and overall we are the second regulation will cause both market
funds swell. Danloy says hedge funds are largest foreign investor in the financial fragmentation and consolidation, but
more difficult to administer today and industry in Eastern Europe,” he says. in different spaces. “Whoever can
therefore present greater opportunity for SGSS has acquired banks with a small, achieve high liquidity levels will be
higher margins. medium or large custody operation the winner of tomorrow. Today,
“OTC products is an area with more across Europe and is currently packaging Target2-Securities is the means to
and more demand and funds need to be all the offers from the different countries consolidate post-trade information in
serviced,” adds Danloy. “All customers into one. “Until now we weren’t actively Europe, while MiFID might cause
will be happy to pay a premium for that if setting this, but we are now restructuring more fragmentation of post-trade and
you have the right quality of services. in that region. We see that as the most trading activity.”
The same applies for funds looking for a important region for growth in coming BHF’s Ostwald says Basel II is the
one stop shop for fund distribution years. Russia is very important to us too,” first step in introducing
support services for the whole of Europe, says Danloy. heterogeneous market practices. “It
rather than having to appoint 10 or 15 The largest foreign investor in the will inevitably lead to custody
local providers.” region is Citi, which has a direct custody providers moving closer together,
rather like the step away from
This rationale explains why global and clearing presence in the Czech
networks of local banks towards
custodians are consolidating in Europe – Republic, Hungary, Poland, Romania, regional and global custodians in the
there’s a certain level of fees under which Russia and Slovakia. Russia is a very past. The growing pressure on global
it becomes unprofitable to do business, important franchise, growing very custodians to consolidate is now the
meaning those larger custodians with rapidly and Citi is investing there also, next step in this process.”
scale can force out mid-sized institutions. Romulo says. “Overall, across Central
At the same time, the larger institutions and Eastern Europe (CEE) we have seen throughout CEE, although these markets
can service funds looking for one single significant growth in our transaction are maturing and not really emerging
custodian, and can service hedge funds volumes and assets under custody,” she anymore, as they are increasingly
and those with particular requirements; explains. Between 2004 and 2006 the aligning with the European standards.”
the niche market. They have all their bank experienced considerable growth in Perhaps the most surprising element of
bases covered. terms of assets under custody and the ABN AMRO buyout was that the
Of course this doesn’t mean the larger transaction volumes in the region, with consortium was able to raise capital at a
institutions don’t need to compete - far Russia in particular standing out with time when it was hardest to find.
from it. BHF’s Ostwald explains that the triple figure percentage growth. The What clinched the deal for RBS was that
more complex the product, the greater more established markets have increased it could offer a higher a price, while
the clients’ requirements become. “This is at a slower rate, but still feature double Barclays was simply unable to
very much the case in the fund segment, digit growth rates. borrow any more than it already had,
where the trend has been quite With the exception of Poland, where Barclays chief executive John Varley’s
impressive in recent years,” he says. Citi gained a presence through comments that RBS had paid too
“Accordingly, custodians are developing acquisition, the increases are primarily much notwithstanding. The European
innovative products to meet these new through organic growth and a result of custody market will see greater
requirements. This is the only way that new client activity, Romulo says. “We are consolidation in 2008, the ABN AMRO
we custodians can hold our own when expecting further growth in Russia and deal is an augur of things to come. ■

GREEK CUSTODY
in the local market, Papapetrou says.

“Most likely we will be the first foreign
institution to hold this status. SGSS
In bloom? Athens will provide clearing services to

them via a newly created section that is
fully equipped and manned to serve all
necessary needs, including regulatory
Will Greek funds tasks. This is actually a new service of
SGSS Athens that will also be promoted
blossom under to external (international) clients and
prospectives.”
regulatory changes Opening up Greece to external
and opportunities? investors may provide growth for the
subdued Greek fund market. Greek funds
Asks Jamie Darlow are not growing as expected, explains
Kartalis. Last year they were at a stable
USD300 million pipeline a ‘big bang’ for the region and especially
A connecting Greece and Turkey

opened in November, linking the
rich natural gas fields in the Caspian Sea
for the Cypriot market as within the first
four months of the common platform
operation, daily turnover and market
level of EUR25-30 billion, he says, but
there is potential for growth, especially
from new tools like fund of funds.
Greece should become an increasingly
region to Europe and drawing the capital had a multiple impact, while attractive place in which to invest over
Hellenic Republic closer to its foreign investors’ participation increased the coming year, Kartalis says. “The
neighbours. Greece’s physical from 3.6% to 6.5%.” major thing happening in Greece over
infrastructural improvements have While the common platform has been a the next six to 10 months is the
matched an overhaul to the financial success in linking Greece and Cyprus, liberalisation of OTC. It’s going to be
services industry and the regulations that foreign participation of 6.5% can hardly live as of 15 January. We are talking
govern it. be termed vast. “As for remote members, about a huge change in the market – we
The Greek financial market has grown the regulatory framework is there but have clients who say they will switch the
in size in recent years. Trading volumes unfortunately we have no participants majority of their activity from the
have risen from an average daily turnover yet,” explains Alexios Kartalis, general exchange to OTC activity,” he explains.
of EUR140 million in 2004, to EUR210 manager of the Athens Branch of BNP There will also be a further
million in 2005, EUR342 million in 2006 Paribas Securities Services. “This was liberalisation of the lending activity,
and EUR468 million so far this year. mainly due to the heavy requirements for which at present is extremely restrictive
International investors’ participation in participating in the guarantee fund.” for securities borrowing and lending and
the market is strong; non-domestic In Greece the guarantee fund exists to is currently conducted through the
investors currently own 52% of the total support a permanent default in the derivatives exchange, Kartalis adds.
Athens Exchange market capital and in the market. The rule was that each new Whether this liberalisation and
largest capital stocks (FTSE/ATHEX 20) member of the exchange had to regulatory shake-up will be enough to
their participation exceeded 57% during contribute EUR3 million upfront to the encourage fund growth remains to be
September 2007. Most of the total daily fund, a substantial cash amount for some seen. Following the stock market crash of
trading activity by value is made by to enter the Greek market, says Kartalis. 1999 and 2000, equity and balanced funds
foreign institutions (60%) and net inflows “Some Cypriot brokers have become suffered heavy losses, explains
into the market from abroad approached members of the Hellenic Exchange. Papapetrou. “The investment public
EUR16 billion last year. These brokers did not wish to pay the stopped recognising the ‘expertise’ of the
This growth must be, in part, EUR3 million, since they were already asset management companies. It also
attributed to legal and regulatory participating in a similar fund in Cyprus,” believed that as the market approaches
changes. Full deregulation has now he continues. The Capital Markets new highs, it is expected a large number
allowed the stock exchange, held by the Commission, which has overall of the ‘2000 trapped retail investors’ will
Hellenic Exchange Group (HELEX), to responsibility, took a relaxed approach liquidate their investments to ‘get their
become fully dispossessed from its and agreed to exempt them if they capital back’.”
administrative competency and is now participated in a similar fund in another On the other hand, the adoption of the
allowed to create its business objectives. country. UCITS III directive in the local
Panagiots Papapetrou, managing “From what we are hearing, it’s highly regulatory environment and the new
director of Société Générale Securities possible that if, for example, a London- products that have been introduced,
Services (SGSS) in Greece, says 2006 was based broker or a Paris-based one will such as fund of funds, have been
a key year for the HELEX group as the apply for participation, they could welcomed by investors, Papapetrou says.
common trading platform between the possibly be exempt,” Kartalis explains. This may spur domestic growth to match
Athens Exchange and the Cyprus Stock And now Société Générale in Paris is the ambitions of the Greek asset
Exchange was finally launched. “That was about to become that first remote member servicing industry. ■

PERFORMANCE MEASUREMENT
“The performance and attribution needs
Moving on to work that way as well, and support the

concept of modelling on a strategy. The
system has got to cope with the same
An evolution is security turning up as lots of little
holdings, so it involves a fundamental
happening in the design change in how that data is
represented in the database and how you
area of performance handle it.”
Vendors also see a growing need for a
measurement, flexible approach and the ability to adapt
to an asset manager’s process. Mark
argues Fabien Buliard Elliott, director of Performance and
Attribution Solutions at SS&C
Technologies, feels that as people become
he world of performance
T measurement – assessing the

performance of a given portfolio
– and attribution – figuring out how that
more familiar with what attribution does,
they are looking to customise it to meet
their own investment process and really
pinpoint decisions they are making and
performance was achieved – is evolving.
measure them. “We have traditionally
This evolution is being driven by the
been in the ‘long only’ asset manager
growing diversity and complexity of
space and we are now seeing that a large
financial instruments, mounting
proportion of our client base is
requirements for transparency, and
expanding into long-short strategies,”
higher expectations from asset managers
Elliott adds. “That requires additional
and clients. Becoming ever more
analysis on the attribution to separate the
sophisticated, performance and
long from the short positions to attribute
attribution tools are adapting to the
the success of that type of strategy.”
proliferation of new asset classes,
One major challenge for the
growing demand for outsourced services,
performance and attribution market has
and a soaring appetite for risk
been the need to keep up with the
measurement.
constant flow of new asset classes,
Over the years, performance
particularly derivatives, to reflect them
measurement requirements have
accurately in the portfolio assessment.
progressed toward more frequent
The pace of innovation can be especially
reporting, from quarterly or monthly
difficult for vendors to sustain because, as
measurement to daily measurement, and
Matt Nelson, senior analyst in the
an increased level of detail and depth of
Securities and Investments research
the information provided. “Another thing
service at TowerGroup, points out, they
we are seeing is greater demand for
tend to be constrained to their usual
accuracy,” says Fraser Priestley,
release cycles, which may deliver
managing director, Performance and Risk
quarterly or twice a year.
Analytics at BNY Mellon Asset
For Tugwell, the difficulty stems from
Servicing. “For example, if you wanted to
the pricing and analytics of derivatives,
calculate a true rate of return that is
but he believes that a vendor’s ability to
100% accurate, you would have to value
cope depends on where its attribution
the assets every single time a cash flow
offering originated. “Because we are
occurs, but that clearly isn’t practical.
predominantly a front office vendor with
However, we have seen for some time
modelling systems that can price all the
now the requirement to have market
derivatives and calculate the analytics of
values when major cash flows occur.”
them, it is easier for us than for software
For Jem Tugwell, managing director
companies that have a more classical
Asset Management Products at Odyssey
performance measurement background,
Financial Technologies, changes in
where the return is effectively the
performance requirements are being
difference between two prices,” he
driven by demands from the investment
explains. “With derivatives, you have to
process. “One of them is that a lot of
know much more about the asset and how
funds are now being run on a strategy
it works. When you look at attribution
basis, where the same security is being
for derivatives, each derivative will have
held for different reasons,” he explains.

different sensitivities and you have to all of a firm’s performance function. integrated system, so there is no one
have a model that can measure and Building on the existing tendency to having to manipulate data to make it fit
separate each of them.” outsource back office services, into the performance system.” He sees
Fixed income attribution has been a performance services transferred to third the outsourcing trend continuing to
major challenge for the industry, given party providers tend to focus more on grow but at a relatively modest pace, as
the wide range of instruments being regulatory or simple client reporting, asset managers continue to put their toe
used and the inadequacy of models while more advanced assessments in the water and test it out.
traditionally used for equity attribution, continue to be conducted internally. The complexity of a portfolio or
requiring a more tailored approach. “In SS&C’s Elliott separates the strategy can constitute a potential hurdle
the past, the tools and analytics necessary performance function into two to outsourcing. Carl Bacon, chairman of
to start creating fixed income attribution categories: the production side - with portfolio analytics provider Statpro,
were not readily available,” says Tim portfolio validation, getting the data into considers that more straightforward,
Miller, European director, SunGard the system, reconciling numbers and simpler assets are better suited for
Asset Arena. “Besides, it is not as defined monitoring exception - and the analysis outsourcing than more complex
a science as equity attribution where the itself. “You need to have intimate instruments, which require a deep
methodology is fairly standard. A couple
of vendors have tried tackling fixed
income attribution, but they haven’t Over the years, performance measurement requirements
really come out with suitable models.” have progressed toward more frequent reporting, from
Miller says SunGard has been working
with clients to understand their exact quarterly or monthly measurement to daily measurement
expectations from a fixed income
attribution model. However, one of the knowledge of the investment understanding of the investment process.
main issues is to get the bond manager to management process to be able to explain “The more complex your investment
buy into a third party source producing those performance results and add value, process, the more complex the tools you
their attribution in the same way equity so most firms want to keep that analysis are using for that analysis,” he explains.
managers have, he says. “For equity piece within their shop, but are “And for those who are outsourced, that
managers, there has been a fairly good completely prepared to outsource the analysis is probably going to have to take
acceptance of the performance team,” he production part,” he says. “Technology place in the front office in the portfolio
explains. “In the fixed income area, there and web-based delivery have evolved to a manager’s systems. I don’t think you can
is more reluctance to let go. It is not point where you can outsource the back outsource that very detailed analysis,
always as easy to define a model for the office performance function, yet still leave because you have to be close to the
investment process and it is therefore not the middle and front office function investment decision process to
as easy to quantify. It is really up to the within the firm.” understand what is happening.”
software provider to deliver the right According to TowerGroup’s Nelson, At the other end of the spectrum, some
tools so that the performance teams can the attribution function is potentially investment firms and large institutions
gain the confidence of portfolio more difficult to outsource than might still turn to in-house development
managers.” performance measurement itself. “It is for their performance and attribution
SunGard is seeing a lot of interest very custom and very specific to portfolio applications, which originally tended to
around fixed income derivatives, with managers themselves, and what he or she be developed internally. But as Tugwell
clients and prospects shifting from wants to look at and dissect within the explains, only those firms wanting to
futures and forwards to instruments such portfolio,” he says. “So I think that has protect their investment strategy would
as interest rate swaps and credit default typically been more of an in-house continue to resort to that kind of
swaps. “They want to know how to service. But the connectivity between challenging endeavour.
handle these types of instruments within performance and attribution is so tight “Writing software in-house is a
our system,” Miller says. “The main issue and you are seeing vendors progress to significant undertaking,” he says. “I think
around this is that it can be really difficult the point where outsourced services are you would need to have a very different
to get the data required out of the more and more compelling offerings.” and proprietary investment process to
accounting systems. A lot of times, in the While he admits that asset managers make it seem worthwhile. However, the
performance world, you are limited by have different feelings as to what can be ongoing commitment of development
the data supplied to you. With some of outsourced and what can’t, BNY Mellon’s resources in maintaining the model over
these more complex instruments, it is Priestley considers there are huge time is easy to underestimate when
really difficult for the performance advantages to having a wide ranging starting a build project. Along with the
system to fill in the data that is missing outsourcing deal. “If a client (already) model, you also need to build the checks
from the accounting system because they takes custody and investment accounting, and balances and data quality processes
are generally over the counter rather it makes perfect sense for them to take that vendors packages provide.”
than exchange traded.” their performance from the same Changes in the approach to
Another growing trend is the supplier, because the data is all in one performance measurement are also being
development of outsourcing for part or place,” he explains. “We have an driven by regulation, as well as the

development of voluntary industry then the following step is turning around the firm has a few hundred thousand
standards, such as the Global Investment and looking at what is going to happen in positions, you can imagine it is a pretty
Performance Standards (GIPS). “To a the next period.” large calculation.”
certain degree, those standards have He continues: “They are very closely Looking back at the recent market
increased the professionalism of aligned and we have done a number of turmoil triggered by the US sub-prime
performance measurers,” says Statpro’s things to address that situation. For crisis, Berman considers that the tools
Bacon. “To be GIPS compliant these days, example, we have integrated ex-ante risk were in place to anticipate the risk, but
you have to have written policies and reporting into the application, through a that they were not being used properly.
procedures, a consistent way of valuing partnership with a major risk provider.” “This is a case of people putting more
instruments and assets, which is Elliott sees the trend towards a money into a bunch of instruments than
incredibly important, keeping in mind combination of the two functions as a might have been prudent without
events of the last few months. You have good sign for performance measurement considering the circumstances,” he
to present your information in a certain in general. This is largely because it explains. “This wasn’t a matter of fancy
way, with a number of set disclosures. means it is moving out of the back and formulae. It was just a matter of stress
These have been big challenges for middle office, into the front office. testing. Assuming those defaults would
performance measurers.” Several specialists insist on the never happen was probably not a good
assumption to base your portfolio on.”
Berman considers that these types of
One major challenge for the market has been the need to market events will accentuate an existing
strong trend towards a more frequent use
keep up with the constant flow of new asset classes of pre-trade risk analysis. “However, that
is at odds with strategies that trade more
and more frequently,” he warns. “When
Regulation itself, whether it is local or importance of consistency between the making money is based on your ability to
EU-wide like UCITS III, increasingly performance and attribution models and get in and out faster than anybody else,
mandates the inclusion of forward the risk decomposition model. “If you you don’t necessarily have the time to
looking risk measurement in client attribute returns to certain factors, you know what you are buying.”
reporting. Philippe Carrel, executive vice should attribute the risk to those factors While it may not drastically fuel the
president and global head of business as well,” Bacon says. demand for risk analytics, the credit crisis
development, Reuters Trade and Risk The field of predictive (or ex-ante) risk and the market volatility that
Management, considers that a directive analysis is particularly promising, as it followed could see the demand for
like MiFID will oblige participants to complements performance measurement attribution tools rise, as investors seek to
rethink the professional/client tools, which analyse a portfolio from a understand the sources of return in their
relationship, and that risk weighted post-trade angle. “For many, risk analysis portfolio, but also their sources of loss.
performance management should is nothing more than looking at the past “The main impact of this credit crisis has
generalise in the aftermath of MiFID. and seeing how you performed,” says been an increased demand for
More generally, Carrel is witnessing an Gregg Berman, co-head of Risk Business performance and attribution tools,”
evolution of performance measurement at risk management specialist Elliott says. “When times are good,
tools toward risk adjusted performance RiskMetrics. “That is why risk and attribution is less important and
measurement. “It has become critical to performance attribution tend to go clients don’t ask as many questions. But
read return and benchmark reports in the together and sometimes actually get when the markets turn, people are more
context of compliance to predefined risk confused. Performance attribution is not keen to understand performance. There
profiles,” he says. predictive. It looks at what, within your is an inverse relationship between market
As a result of those trends, the strategy, drove your performance over a performance and demand for attribution
performance and attribution space is given period. It explains what you just systems.”
showing increasing convergence with the went through, but it doesn’t tell you what Bacon agrees: “While attribution
risk function within firms. While on the it’s going to be in the future.” analysis is not a particularly predictive
vendor side, the inclusion of risk Predictive risk addresses the way the tool, it will certainly give you a good
measurement capabilities into software market can affect the positions held in a understanding about where you’ve lost the
packages is becoming more common. “We portfolio, looking at the various risk value, why your return is negative and
have seen convergence with a number of factors driving the underlying which parts of your portfolio are exposed.
our clients who have gone through instruments, such as spreads, individual It is especially good for articulating that
organisational structure changes, equity prices, volatility surfaces, or basis explanation to clients. When you have the
combining the head of performance with curves. “We do a bottom up approach, attribution tool in line with the investment
the head of risk,” Elliott says. “For us, it analysing each position, the correlation of decision process, you can explain it and
makes logical sense because if you think positions between them, until we build a keep the confidence of your client.” In
about the whole investment management complete view by strategy, by sector, by light of this, it seems that performance
cycle, the last stage is measuring and currency, by region, by portfolio, and measurement is likely to be an area of
communicating your performance, but ultimately, by firm,” Berman continues. “If focus for some time to come. ■

TREASURY SERVICES
Pressure points
The current tumultuous financial

environment has meant a greater
focus on the bottom line and, combined
with greater demands from their
corporate customers, banks are feeling
the squeeze. Virginie O’Shea reports
he treasury services industry is required. On the investment side, to the extensions would be available and limits
T experiencing a period of great

flux as its customers’
requirements change and margins from
degree that capital needs are accurately
forecasted for longer periods of time,
higher investment rates can be achieved,
will be scrutinised more closely than they
would be under normal conditions. It is
important in these times for corporate
payments operations significantly tighten. she explains. clients to have flexibility around the
Corporates are under pressure to focus on As Tim Martin, senior product funding that they are able to obtain and
the bottom line and as a result are manager, Cash Management, at STP there would tend to be a heavier reliance
transforming their operational models technology vendor SmartStream, on their banks for this funding, as the
and rationalising the number of service highlights, risk, and particularly market for short term funding –
providers they use to realise cost savings. operational risk, has now become a key particularly the commercial paper market
The increased focus on risk against the project driver. “It is now becoming clear – becomes much tighter,” he explains.
background of wider market turmoil has that all business processes must have The treasurer is also no longer merely
meant that these corporates have control components incorporated with the keeper of a company’s coffers – it has
prioritised the requirement for control metrics included to determine exposure, become a much more strategic role. As a
over the management of cash and risks and potential losses. The adage that result, treasurers have been gradually
liquidity. After all, it is a logical choice to a process cannot be improved until it can taking on responsibility for a whole gamut
opt to see where the risk exposures lie and be measured, is being applied to treasury of functions that would traditionally lie
attempt to rectify them, rather than management,” he elaborates. outside the remit of the role, such as
continue on in blissful ignorance. These challenges can be more efficiently corporate financing, tax and investor
Whenever the market is in turmoil, tackled with the assistance of the relations. The impact of this evolution has
rates are more volatile and that situation corporates’ banks, contends Maurice been that companies now expect
creates challenges for treasurers, says Cleaves, regional product management treasurers to have a broader
Nancy Atkinson, senior analyst at Aite head for EMEA, Cash Management, understanding and knowledge of their
Group. Borrowing rates increase, making Deutsche Bank. “As with any credit financial position and strategic direction.
good management of working capital squeeze, there tends to be a flight to This also involves their documented and
even more important. The better the cash quality and a tightening of liquidity reported accountability for the liquidity of
flows are managed across corporate impacting all sectors of the market. This the enterprise and the audit trail of
enterprises, the less borrowing is would make it less likely that credit decision taking that is tied to accounting

TREASURY SERVICES
best practices and regulatory greater amounts of information are implementation of a new system.”
requirements such as Sarbanes Oxley. generated and are available in a timelier Another potential sticking point is the
“This change is moving at a different manner. For treasurers, information is the use of international bank account
pace in the treasury departments but it is key to their ability to make decisions, so numbers (IBANs) and bank identifier
fair to say that the treasurer is having to better and more timely data is a huge help, codes (BICs). There is currently no
cope with a more diverse range of she explains. universal process for converting from old
activities and therefore looks to gain These changes on the corporate side legacy bank account numbers to IBANs
efficiencies out of current traditional essentially mean that banks need to step and BICs. In some countries there are
activities to free up capacity for this up their game. Although some banks are system providers and banks that offer this
additional workload. As a result, the sufficiently meeting their clients’ needs service but this only applies to certain
treasurer is also getting a broader view today, this may not hold true for the next regions. For some corporates, a major
across the corporate business, which in year or so. A major issue is that corporate resource investment will need to be made
turn makes him far more able to make clients are more demanding in terms of to collect IBAN and BIC codes and update
decisions cross a broader span of control, services needed, while still wanting to their records with this information.
allowing a better integration of the full contain pricing, says Atkinson. In such an Furthermore, the delay in the direct debit
business with their partners, for example environment, it is difficult for banks to directive has also lead to uncertainty,
the cash management bank,” says Cleaves. invest in innovation with little assurance which means that corporates are
As a result of these changes, the need that their innovations will be adopted. “A less inclined to start any SEPA related
for actionable data from many other few global banks have developed solutions projects until they have a clearer view of
financial functions is even more critical. that most likely exceed the current how this will be resolved. All of this
“Access to timely and accurate internal demands of corporate clients, especially means that SEPA has yet to have any
major impact on the treasury business as a
whole, says Jensen.
To effectively do their jobs, treasurers need The real debate here is whether SEPA
information from many different organisational units and and the Faster Payments initiative in the
UK are compliance requirements or
external sources and, currently, no single tool provides catalysts for change in the cash
management business, says Deutsche
all of that information Bank’s Cleaves. “Both will certainly alter
the way that the payments business is
and external data is more important than with regard to Single Euro Payments operated with advantages to be gained for
ever before,” says Atkinson. They have Area (SEPA) solutions in the European customers in retail banking and the
also introduced a level of caution around Union. Speculative development is treasury departments of corporate
trading in derivatives products and more difficult to support with markets that customers. If you take this along with
speculative investment instruments, adds expect quarter to quarter returns,” she changes in the card markets due to SEPA,
Richard Spong, solutions marketing explains. the reforms in the cheque rules in the UK
manager, Financial Services, EMEA at The introduction of SEPA is therefore and infrastructure projects such as those
payments systems vendor Sterling more than just a technical issue for the being introduced by industry
Commerce. industry – it is a cultural issue also. On a counterparties including Voca in the UK
However, according to Philippe Carrel, purely technical basis, a large number of and SIT/STET in France, it can be seen
executive vice president and global head vendors and banks appear to already be that the payments infrastructure
of business development, Reuters Trade fairly well prepared, but there continues landscape is going through more change
and Risk Management, investment in to be some scepticism about whether than has been seen for a number of years,”
systems specific to derivatives is unlikely corporates and public institutions will he explains. “There will certainly be
in the near future. “Corporate treasurers actually buy in to the concept. For winners and losers in this evolving
and boards have typically been averse to example, there appears to be no great environment and it will be important that
financial operations outside the core incentive for these parties to switch to those that operate in the treasury space
business of their firm. Hence any treasury the ISO 20022 SEPA format. Joergen align themselves with a cash management
system able to manage portfolios, Jensen, director of product management bank that has a strong franchise and
derivatives or investments would be seen at treasury management systems vendor appetite to be a leader in the future.”
as either unnecessary or even a dangerous Wall Street Systems, feels that this There are also a number of clear areas
toy to play with. In these conditions, few problem will be a major sticking point for where improvements need to be made in
treasurers endeavoured to campaign for SEPA: “We don’t see many corporates the corporate supply chain. Corporate to
treasury systems beyond bare cash rushing to start using this format at the corporate interfaces in payments, trade
management functions,” he explains. moment. There is generally no finance, and cash management remain
The focus on operational risk has led to immediate benefit to the corporate from paper intensive and this would be a logical
more investment in tracking, monitoring changing to this format. It will probably area in which banks could extend their
and reporting of operational processes, only be done as part of other projects value added services. Opportunities also
adds Atkinson. From those activities, such as an upgrade or the exist to further facilitate the conversion of

TREASURY SERVICES
paper to electronic formats, says the staff in the area. He also seconds the common understanding and widespread
Atkinson: “Once this data is converted to notion that increasing regulation and agreement throughout the whole
an electronic format, it may be collected, oversight is forcing the culture to community about the new market
manipulated, and analysed, and actionable gradually change. “In addition, increased standards going forward to enable this
reports may be produced.” remits of treasury departments are investment in change to be done in the
To effectively do their jobs, treasurers forcing automation and improved most efficient manner,” explains Cleaves.
need information from many different productivity levels which necessitates SunGard’s Day feels that it is not just
organisational units and external sources better systems,” he adds. the corporates that need to focus on
and, currently, no single tool provides all Process harmonisation need not systems improvement: “Most banks have
of that information. This is generally necessarily involve investments in brand systems that were simply not designed to
where our old friend the Excel new systems. Many corporations with meet the needs of today’s changing
spreadsheet comes into play. Treasurers installed enterprise resource planning demands, such as within the changing
pull information from multiple systems (ERP) systems want to leverage those landscape of payments and the need for
into Excel and manipulate it from there –
with all the associated risks inherent in
using a rather static and error prone This increasingly competitive environment is likely
system.
The primary reason for a lack of
to result in a certain amount of consolidation among the
management buy in has been that a banks servicing the treasury sector
treasury department has typically been
seen as a cost centre and not a profit
centre, explains Cleaves. “Making the systems and implement the treasury SEPA solutions. Changing these systems
business case to invest in a highly portion, according to Atkinson. is often slow and expensive. Banks have a
complex treasury system would need to “Treasury was not an initial driver for myriad of different systems that a client
have significant savings to justify the ERP implementation, so few of those needs to access but are internally siloed.
investment and this has not always been modules are installed. With full These barriers are coming down and are
possible, particularly at a mid-corporate implementation, internal data can be an area for potential improvement. The
level,” he says. automatically collected for treasurers and challenge will be to listen to the
However, there may be two areas of fed into treasury workstations for further customers and deliver the right services
development that could alter that analysis and action. Still missing is the with new technology in an efficient timely
perception: the increased level of external data. Banks and technology fashion.”
corporate regulation and the move to vendors are trying to assist with the The corporate voice is one that banks
globalisation. “For a multinational provision of this data through must heed, adds Jacob Jegher, senior
corporate to take advantage of the proprietary CPU to CPU feeds, online analyst at Celent. Corporations are the
services that a treasury management portals and report generation,” she says. ones driving demand for many bank
system could offer, they could now be The increased move towards services and they have particular needs in
driven by the need for more efficient globalisation and the trend for corporate mind. Banks must follow their lead and
information gathering; a need brought customers to expand into new markets is make sure that they can offer the
about by such regulation to improve good news for banks, adds Cleaves. “The appropriate services to their most valued
corporate governance. In the move to corporate will often look to their trusted clients. It is quite difficult to build
globalisation, we see the growth of the cash management provider to assist in customer loyalty in the banking industry,
corporate customer through mergers and opening up these new markets in their so banks really have to go the extra mile
acquisition or through expansion into quest to be able to succeed in their own and work on customer service and
new countries and markets. In order to sphere of business,” he says. Moreover, satisfaction, he explains.
make this change efficiently, a move standardisation is a key driver in the This increasingly competitive
towards a payment factory or centralised market and technology investment is an environment is likely to result in a certain
treasury function becomes more integral part of being able to take the amount of consolidation among the
widespread, bringing with it the costs out of processes, both at the banks servicing the treasury sector.
possibility to harmonise processes across corporate and the bank level of Currently, 90-100 banks provide 85% of
the enterprise, where the return on the operations, especially across markets. services for corporate transactions and
investment in a treasury management “Some of this manifests itself in the market is pretty fragmented, says
system may look more attractive,” Cleaves industry initiatives, some through Cleaves. “It is likely that there will be a
continues. regulatory change and some through move towards consolidation in the hunt
Colin Day, vice president, Market innovation in discrete market segments. for efficiency driven by bank mergers,
Insights, SunGard AvantGard, Bancware The consistent theme in all of this is that corporate mergers, more outsourced
and SteP, feels that despite the current there needs to be investment to enable the services and consolidation of the clearing
low priority status of treasury efficiency gains to be made over time and systems and increased use of technology,
management systems, the treasury if there is anywhere that there could be standards and automation to gain these
function is often boosted by the quality of improvement, it would be that there is a efficiencies,” he concludes. ■

ISJ26 pp50-60 ML 29/11/07 6:50 pm Page 50
FIMA 2007 REPORT
restricts growth. There are new
Close-up focus challenges and requirements that entail

front to back consistency, for example
identifying legal entities. Moreover,
Did FIMA 2007 bring data management to standards create a myriad of issues, as
does the data itself.
the attention of the board? Jamie Darlow reports John Carroll, vice president of product
data services at Merrill Lynch,
considered what it really means to have a
centralised database. Carroll explained
that although data is all of a centralised
purpose, it doesn’t all fall into one route –
for example, corporate actions and
reference data use difference
requirements. “The ideal is to have a
centralised database, but there are a
couple of concerns: market expertise,
and offshoring or outsourcing.” Dublin
and Singapore provide a great amount of
expertise in their respective markets that
people in New York could not support as
they don’t have the local market
knowledge, he went on to explain.
Ian Webster, global head of market
data at Barclays Global Investors (BGI),
began the second day’s agenda by
ormer UK Defence Secretary and struggled for a long time to make it into
F Lady Thatcher’s lackey Michael

Portillo warned of the dangers of
losing touch with your own organisation
the boardroom and now that it has, users
can be more specific about what they
want from their data.
describing four different business models
for data management. While Webster
pointed to a unified structure as the best
approach, he pragmatically asserted: “I
at this year’s Financial Information “You don’t need to clean all your teeth, know very few companies that are there
Management conference (FIMA), where just focus on the points of pain,” Greenall or even aspire to be there. Most are in the
he was guest speaker. In a witty and well explained. In other words, you don’t need coordination box. We [the industry]
received speech, Portillo recounted to clean all your debt, just the bits you’re need to recognise where we are. We have
Thatcher’s last days in power, when she interested in cleaning. very complex problems to solve, because
had lost the support of her party and Greenall named three important points of all the different views and people
become isolated from it – something to focus on in a data operation: to analyse involved, and because it’s about money
FIMA delegates need to be wary of as and prioritise; to appoint data ownership [for our clients].”
their data projects increase in importance and stewardship; and to get all the Webster followed the trend of the
and scope. sections in place to cleanse. When asked conference by suggesting firms need to
More than 350 delegates attended his priority for data projects, he replied: ask themselves what they are trying to
FIMA last year and higher numbers in “Getting the buy in from downstream govern. Asset allocation falls into three
2007 prompted the organisers to shift the systems to create the golden copy.” categories, he said: asset type, investment
event to larger premises, at London An industry-wide perspective on data style and geography. “Follow the
Olympia. Over 460 delegates came this management buying practices and investment style of your firm and stay
time, of which 230 were from leading initiatives was also provided by Carole out of prioritisation discussions – that’s
investment banks and other financial Mahoney, a consultant with SunGard. for the internal team,” he said.
institutions. Just as the conference has She summed up the state of the market “Unnecessary standardisation is the
turned its back on its previous venue, one today and explained that enterprise data hobgoblin of small minds,” he continued.
of the ugliest of hotels in London, so management (EDM) hasn’t been “You’ve got to look at what’s appropriate
data has shrugged off its dark and dingy implemented as expected, because of the and where to standardise. I never talk
façade and emerged into the mainstream input of time and the investment spend about centralisation, but standardisation
consciousness of financial institutions. required. “What we have found is that – you need to work to standards but these
HSBC’s Alan Greenall, global head of companies are only willing to look at the need to be devolved and not centralised.”
reference data IT at the bank, components [of EDM], such as ASP Webster concluded that firms should
summarised the mood of the data services or hosted services.” not forget about data governance, but
environment today, saying he doesn’t just Mahoney summarised the main advised them not to concentrate on that
want consistent data, he wants consistent challenge facing the industry: most firms until there is actually something to
quality data. Data management has are strapped into old technology, which deliver. They should then split the data

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FIMA 2007 REPORT
levels and align them properly to where data might be harder to solve than “Requirements change, so you need to be
the decision makers are. external sources.” flexible, you would love to have
Bank of Scotland’s (BOS) David Lisa Sully, head of Global Data standardised data.”
Miller, director of Credit Systems, began Management at UBS Global Asset The last panel debate of the day was
his presentation to delegates by asking Management, summed up the position of entitled identifying counterparty
three rhetorical questions: how do I get UBS’s governance model, explaining how automation efficiencies: improving client
world class reference data, is it the holy the bank established a global programme data quality across your business, chaired
grail, and is there such a thing? World in 2004-2005 based on the model by Predrag Dizdarevic, executive vice
class reference data is where BOS wants operating in London. This model has president of Capco. Ken Price, chief
to be, Miller said, and we have to meet now been expanded from pricing data to executive officer and co-founder of Avox,
our customers’ expectations. “First we instrument data. part of the Deutsche Bourse Group, said
have to regard data as a business valuable BGI’s Webster, chair of the discussion, the biggest problem to automation is not
asset in its own class and second we have said: “We talk about sharing data across getting started.
to identify our clients’ [data].” He went the industry but we have to get used to Greenall from HSBC, added: “The idea
on to explain how to build a business case that across the business. I sometimes of taking data externally is something all
for good data – it saves money, up to 20% have more in common with Lisa [Sully] should strive for. The problem is, there’s
of revenue can be lost because of poor as an asset manager than people across constant mapping required. The range of
data, some estimates have shown, Miller my group.” Webster went on to suggest attributes is limited at the moment –
said. “Tell that to senior management.” to panellists they could become more externally available data is the only bit
Ross Gourlay, senior consultant at efficient in their practices if they became we can automate. The value add for local
BOS, reminded delegates that silos are more like vendors, internally. How data is not there yet.”
not conducive to good data. “So why do comfortable are you taking the next step Price explained some of the difficulties
we build them? Ignorance and arrogance and outsourcing, he asked. “Not that in practical terms, in identifying
– it’s the easiest path,” he explained. BOS comfortable at the moment – we like to counterparty data: “In the US there’s no
has spent five or six years working on its have control there [of price validation],” requirement for hedge funds to publish
own data management system, not an replied Sully. counterparty data, so the only way to get
easy or short process, Gourlay said. Goldman Sachs’ Perry echoed her it is to ring up and get them to fire it
Todd Goldman, vice president of sentiments: “We are comfortable with through.” One solution he suggested was
marketing at data vendor Exeros, price variance, but we don’t outsource for increasing cooperation between
followed with a presentation on completely and still keep control of that vendors. He also explained that Barclays
accelerating reference data projects. “I’m internally. Numeric quantifiable data is Bank probably has the best data content,
going to dig a little deeper and look at harder to outsource, reference data is far partly because they haven’t bought a new
why it’s hard,” he began. “The bad news more difficult and complex.” bank every year. That lets them take
is: sourcing data analysis is not trivial, Following the debate was a advantages of new opportunities, he said.
and this is before you’ve even deployed presentation to delegates on the Delegates were asked how they know
the project. To map and populate the competitive advantage of mastering and their data is better off after data projects
downstream master takes even longer; managing international customer data, or standardisation models. “The only way
and the result is, deployment time and delivered by Holger Wandt, principal we know is from feedback from
return on investment is more than one advisor at Human Inference. The data downstream users,” Greenall said. “We
year.” vendor uses natural language processing don’t have metrics in place to judge the
The problems of constructing a data to answer a simple question: ‘what is quality of data to start with. Anecdotally,
project also include people and personal what’, Wandt contended. In an we believe it’s better and we experience
communication. In many firms there is interesting presentation, he explained fewer errors.”
one person who knows the system and why databases used by banks become FIMA 2007 brought forward the issue
has the knowledge of how it works in his unwieldy: “Processing, to a human, is of data management and moved the focus
head, Goldman explained. “This is why easy, but it’s harder for a machine. You on from the acknowledgement of a
the projects last forever, because we don’t need to teach it the dictionary, maths and problem to the scale and detail of it.
know our data, our relationship metadata. linguistics.” Practitioners are now discussing what
But yes, there is hope through Christoph Lammersdorf, chief they need to standardise, rather than
technological advancements.” executive officer of CounterpartyLink, whether they need to do it at all. This is
FIMA’s panel discussion on the began his presentation on managing the something that came through strongly
establishment of an effective data costs of collecting, verifying and from debates and presentations
governance model and its implications for maintaining compliant legal entity data throughout the two days. Next year’s
data quality and the reduction of in the face of new legislation, by telling FIMA might encourage some to go
operational risk began with comments delegates what should they want. “The further still and reveal their specific
from Jim Perry, global head of Reference drivers for good data are accountability, problems, how hard their bottom lines
Data, Goldman Sachs. “The challenge content, ‘auditability’ and flexibility – are being hit by poor data and how much
comes from legacy platforms and how to what I find is, you [banks] don’t know improved this might be with a data
decommission them. Internal sources of the level of your data,” he said. project. But don’t hold your breath. ■

ISJ26 pp50-60 ML 29/11/07 6:50 pm Page 52
FUTURE OF SECURITIES LENDING
interbank loan, which is consuming a

credit line, so when credit limits are
proscribed you will tangentially affect
securities lending and borrowing; in
some cases, lenders wanted to lend to
Weathering borrowers who wanted to borrow, but

they couldn’t take cash collateral because
they had no credit lines for that borrower.
the storm You can’t net borrowing against cash, so

it looks like an interbank loan when you
report it. This has raised issues with our
customers about central counterparties.”
Brian Bollen looks When markets work well, he continues,
lessons about weaknesses are only learnt
for the silver in times of strength. Securities lending
and borrowing has been slow to change,
lining in the because there hasn’t been a compelling
reason to change, until now, it would
liquidity crunch seem.
He identifies two ways to get round the
cloud collateral issue. “Pools would help by
eliminating collateral risk, sitting in the
middle of trades; a central counterparty
would eliminate bilateral credit risk and
limit collateral risk, so facilitating an
increase in trading activity.”
very cloud has a silver lining, says have realised they can make significantly To illustrate his point, he evokes
E the old proverb. And that can be as

true in the financial services world
as it can anywhere else. The market
more by lending their securities, taking
cash on collateral and reinvesting that
cash at much higher rates than have
memories of early days in the derivatives
markets when growth, though healthy,
was unnecessarily constrained by
bilateral exposure and inadequate back
turmoil and subsequent credit crunch and previously been available,” explains Guy
liquidity shortage caused by the US sub- d’Albrand, global head of Liquidity office machinery, people and processes.
prime crisis has introduced new Management at Société Générale “When they started trading through a
opportunities to securities lending, Securities Services (SGSS). “The sudden central counterparty, it helped
opportunities that could never previously steepening of the yield curve means that exponentially.”
have been dreamt of. three month rates are significantly higher Turning away from the prospects of
Some market participants have argued than overnight rates, for instance. The future growth in securities lending to
that, for the first time ever, the cash markets have entered a new era, with the driving forces for past growth, Fenichel
reinvestment tail began to wag the creation of a spread between lending pinpoints the impact of the trend
securities lending dog in the latter against cash, and lending against other towards hedge funds and absolute value
months of 2007. The benign market securities. Beneficial owners long on investing and away from relative value
conditions that have prevailed in recent securities began to look for counterparts investing. “Absolute value investors need
years were suddenly replaced by to give them cash collateral to cash in on to go short and hedge their positions; as
conditions that bordered on the malign. the yield curve spread.” this approach has become more
The sudden steepening of what had Peter Fenichel, the recently appointed mainstream, there is a lot more need to
long been a flat yield curve changed the chief executive of SecFinex, the hedge, and securities lending needs to
rules of the game, creating a phenomenon specialist marketplace in which Euronext keep up with the growth opportunities.
that was not immediately recognised, or bought a 51% holding in 2007, does not Growth won’t happen without changes in
universally accepted, but which we believe quite see eye to eye with d’Albrand on this the way it is managed, which is why
is real nevertheless. The end result as it point. He concedes that it is theoretically Euronext bought 51% of SecFinex, to
relates to securities lending is that possible, but does not envisage much bring standardisation and anonymity to
existing lenders began to seek more incremental business taking place. “The the market, a market that some
opportunities to lend stocks or bonds, and credit crunch affects everyone and has participants and observers describe as
other institutions that had not previously had an interesting impact upon our part ‘medieval’. Part of that change involves
been lenders began to see how they might of the industry,” he says. “A couple of creating a central counterparty, but that
be missing out, and changed their issues have arisen. One part of the three is not as easy as flicking a light switch.”
behaviour. legged stool of stock borrowing and Watch this space, he urges readers.
“Those institutions that are long on lending is collateral. When you’re giving A number of the thoughts being
securities, and especially fixed income, cash collateral, it can look like an expressed by such a relative newcomer

ISJ26 pp50-60 ML 29/11/07 6:50 pm Page 53
FUTURE OF SECURITIES LENDING
will surely ruffle some of the older industry growth.” internally built or through the use of
feathers around in the market. He argues, He expects to see continued industry accepted platforms like
for example, that the price differential consolidation to occur throughout the EquiLend,” Daswani continues. “Not only
between general collateral and special market. “Not everyone - particularly now is there a focus to automate the pre-
collateral is ‘not right’. “It doesn’t reflect those institutions with multiple lines of trade transactions but more so
supply and demand, it reflects business with which to contend - has the operationally to automate post-trade
relationships,” he says. “Transparency capabilities to maintain the level of functions such as collateral marking and
brings a better balance to supply and commitment necessary to be a superior billing activities.”
demand, delivering more accurate lending provider. Lenders do not want to He elaborates: “Additionally with
pricing.” He currently remains agnostic hire an agent that might exit the business recent developments in emerging
on whether the price of special collateral in a few years, or that can not effectively markets, slowly progressing to standard
should go down, or whether the price of service them with a full suite of products, international best practices, we will
general collateral should go up. We won’t globally.” continue to see greater flow in Asia.
know, it seems, until the market is doing On the question of risk adjusted Emerging markets lay out interesting
what it ought to do, rather than what it is returns, he expects to see – and actively opportunities when they eventually open
accustomed to do. “We’re looking at how encourages – every lender paying more their doors. In Asia we have seen the
we can add value to the marketplace to
make it more robust. We’re working with
all parties to find the competitive Lenders need to understand the risks they are taking and
advantage they think can benefit
everyone as markets evolve. It would be
monitor events that alter those risks
better for the market in the long term if
we could find a way to manage collateral attention to lending performance in the opening of Taiwan and the Philippines
differently; a lot of people don’t want context of risk adjusted returns, recently. Malaysia will hopefully follow
cash collateral, because while they have especially in light of the current market soon (around the first quarter of 2008).
the systems and procedures in place to where severe conditions have rewarded Outside of Asia, recent new markets
manage treasuries, or gilts, or bonds, they those programmes that offer a more where there has been pent-up demand
cannot manage cash collateral.” conservative approach. “Lenders need to and regulations have permitted for
On a broader note, Craig Starble, understand the risks they are taking and securities borrowing and lending are
executive vice president State Street monitor events that alter those risks.” Mexico, the Czech Republic and Hungary
Securities Finance, believes not only that Against this background, lenders will and to some limited extent Russia,
the securities lending industry will continue to look for dedicated global Turkey and Israel.”
continue to evolve but also that there are partners that have the technology Daswani concludes: “There always
limitless opportunities for the business. capabilities, proven track record of seems to be a race to be the first to start
“Lenders are looking for better risk success and expertise to provide guidance lending in emerging markets, however,
adjusted returns and they are interested and a full array of investment operations this is not necessarily the best position to
in knowing their provider offers many services at scale as they grow their be in when such markets have reduced
routes to market, including custody, third business, globally, he comments. liquidity, which could increase the risk of
party and auction lending,” he observes. Elsewhere, Asia continues to be a failed trades. Generally, in emerging
The growth and increased demand for major growth area, with volumes markets the risk of fails can be greater
securities lending that we have continued increasing dramatically based on many than just a reputational issue as many of
to see in the past 12 months is primarily markets that have seen index arbitrage the regulators look stringently to apply a
due to additional markets, an increase in and statistical arbitrage opportunities ‘no fail’ policy. To enforce this, regulators
the overall number of lenders and materialise and of which hedge funds and apply penalties or even temporary or
borrowers and the quantity of quality quant players are taking advantage of, permanent removal of licences from
lendable assets that are available, he says. says Sunil Daswani, Northern Trust’s investors in those markets. This is why
Further, the growing allocation to director for Securities Lending (Asia) and there is a huge emphasis to ensure that
alternative investments that employ the current chairman of the Pan-Asian due diligence is carried out completely
long/short 130/30 strategies have Securities Lending Association. “We see and tight controls are built around
increased short interest lending this primarily in Australia and Hong processes when lending in these markets,
opportunities and new markets. “As Kong where flows in these markets are which each seem to have their own
hedge funds become more global, we are almost matching that of Japan, which nuances. Northern Trust has seen
seeing more and more non-US traditionally dominated Asia,” he says. increased volume in these markets;
opportunities for lending activity, using “With the growth in the index and although flows are not as high as for
Asia Pacific and Europe as examples. The statistical arbitrage strategies, the need developed markets, due to caution when
evolution of third party lending, entry for automation becomes critical as most entering such markets, revenue is greater
into emerging markets and the expanded trading involves high volume low value due to the larger spreads which can be
use of alternative investment strategies, transactions. Northern Trust continues commanded.” And who, if anyone, can
all will be major factors that contribute to to focus on automated platforms, be it resist the siren call of larger spreads? ■

ISJ26 pp50-60 ML 29/11/07 6:50 pm Page 54
RMA 2007 REPORT
From the floor of the RMA 24th annual

Conference on Securities Lending, held in
Burning October in Boca Raton, Florida
issues This year’s conference co-chairs, who

coordinated the business programme,
were Tim Smollen, global head, Dresdner
thought growth opportunities and
challenges existed. Hot markets in
Europe include Turkey and Romania; in
Kleinwort, and Rosemarie O’Connor, Latin America, Mexico is the ‘market to
principal, Banc of America Securities. “I watch’, from all accounts (RMA and
believe this year’s RMA Conference on SIFMA will sponsor a conference on
Securities Lending was a great success, as Latin American securities lending on 23-
it addressed key topics that are currently 25 January 2008, in Coral Gables,
of significant interest, such as 130/30 Florida).
strategy and proxy voting, as well as Speakers at the collateral management
giving the participants an opportunity to panel that followed shared their views on
gather and discuss general industry managing collateral in a securities
related issues,” says O’Connor. lending programme. The issue of
“As everyone knows, the RMA transparency – good, bad, or indifferent –
conference was held during what turned continues to be a topic of discussion in
out to be a particularly difficult period in the industry and at the panel, which
the credit markets, but, regardless, closed out Wednesday’s sessions.
attendance and commitment was Thursday opened with a panel on
excellent,” said Smollen. ”The senior understanding the 130/30 strategy and
people I met with not only wanted to talk its impact on securities lending. Speakers
through the issues currently affecting our talked about how this strategy is used as
RMA Conference on Securities Lending was a

great success, as it addressed key topics such as
130/30 strategy and proxy voting
industry, but there was still a clear focus an investment option, how it affects
on how we move our industry to the next securities lending, and why it is growing
level of growth.” so fast. The proxy voting and governance
Wednesday, 10 October, the first full panel, which closed the conference,
day of the conference, opened with continued the discussion of why these
welcoming remarks from RMA topics continue to garner so much
Committee on Securities Lending chair attention from both the media and clients.
Tred McIntire, president, Boston Global A highlight of Thursday was the
Advisors, as well as remarks from both keynote address from John Bogle, founder
conference co-chairs. The first panel of of the Vanguard Group and president of
the day was the industry leaders panel, the Bogle Financial Market Research
he Risk Management with a lively give and take discussion Centre. In a presentation entitled “Black
T Association’s
Conference on
24th annual
Securities
Lending, held 9-12 October in Boca
between the moderator and panel
members, who answered a series of
questions starting with the effect of the
sub-prime mortgage market, then
Monday and Black Swans,” Bogle talked
about how changes in the nature and
structure of our financial markets are
making shocking and unexpected market
Raton, Florida, once again drew more
than 500 securities lending and discussed hedge funds and the 130/30 aberrations even more probable. He said
borrowing professionals from across the strategy. the application of the laws of probability
industry and from both the US and The panel was followed by a discussion to our financial markets is badly
Europe. The conference represented an on the emerging markets of Eastern misguided. The fact that an event has
opportunity for industry participants to Europe, Asia, and Latin America, where never happened in the markets is no
attend an excellent business programme each panelist addressed his specific reason to be confident that it can’t happen
and to network with their peers. market of expertise and where he in the future, he said. ■

ISJ26 pp50-60 ML 29/11/07 6:50 pm Page 55
MIFID
Cold light of day

The deadline for MiFID has been and gone,
but once the dust has settled,
has anything actually changed?
Virginie O’Shea investigates
nyone would have been forgiven call limited, but that’s up to the
A for thinking that 1 November was

a business day like any other in
Europe. Regardless of the clamour by the
bureaucrats to decide…
Moreover, only three member states –
the UK, Romania and Ireland – out of 27
press, consultants and technology met the 31 January 2007 deadline to
vendors over the last couple of years in transpose MiFID into national
the run up to the Markets in Financial legislation. Many others have only just
Instruments Directive (MiFID), the cobbled together the legislative
deadline for compliance slipped by requirements to scrape through the
without so much as a pop, let alone a big November deadline. Uneven
bang. implementation by member states means
Just in case you have been hiding under that only now are differences in member
a rock over the last few months, the states' interpretations of MiFID
directive is designed to level the financial requirements starting to emerge, raising
playing field across the European Union the spectre of the very problem that
by ensuring investors have access to all MiFID was intended to eliminate:
markets at the same transparent price, continued legal and regulatory
regardless of location. According to the uncertainty in respect of the provision of
official line of the European Commission investment services in other member
and the Committee of European states on a cross border basis.
Securities Regulators (CESR): “MiFID Until all the major European countries
will simplify and streamline the are fully MiFID compliant, the impact on
passporting regime for firms doing cross the European market as a whole will be
border business, increasing competition limited, says Alain Lesjongard, head of
and enabling greater EU financial International Compliance at the Bank of
integration.” New York Mellon. “National regulators
Despite the Commission propaganda in compliant countries will probably start
and the fact that the industry has had to ensure that their regulated firms are
three years in which to get ready, a complying with the new rules in the new
number of countries still have not year. It is less certain how much pressure
transcribed the directive into national and how quickly the EU will put on non-
legislation. Notable stragglers include complaint countries to implement and Regulatory practice at KPMG in the
Italy, Hungary, Poland, Portugal, Spain MiFID,” he adds. UK, believes that even when the
and the Czech Republic (see box overleaf Banks doing business in countries that stragglers do transpose the directive,
for full list). CESR was forced to take are late will need to study the legal MiFID may not achieve its goal of a
measures to “ease the transition” of these ramifications quite carefully, including the unified European regulatory
countries (read, give them some slack possibility of forbearance, and make environment. Although one of the main
with regards to transposition) at the provision for dual operational processes, objectives of MiFID was to level the field
eleventh hour. As a result, on 22 October, adds Dr Anthony Kirby, co-chair of the between different regulatory
CESR published a statement that was MiFID Joint Working Group (JWG). jurisdictions, it is unlikely to accomplish
intended: “To give reassurance regarding Late countries could face referral to the this with any success because of the
the continuity of the current passports European Court of Justice and being different cultures of the regulators, he
granted to investment firms based in the named and shamed as less suitable says.
limited number of countries that will be locations to conduct financial business, In transposing MiFID into their
late in transposing MiFID.” I’m not thus incurring reputational risk. national laws, member states have sought
entirely sure that 12 is what one would Tristan Clarke, senior manager, Risk to gold plate the EU legislation, which

ISJ26 pp50-60 ML 29/11/07 6:50 pm Page 56
MIFID
complicates the task for CESR in operating branches from a central The relative importance of the factors,
ensuring supervisory convergence location. Swift put forward proposals for example, depends very much on
between national regulators, adds Paul during 2007 to deal with the formatting trading objectives and styles, the
Richards, head of regulatory policy, issues for MiFID reporting, by defining products being traded and the market
International Capital Market Association an ISO 20022 compliant set of MiFID structures. There is no way we can
(ICMA). In addition, a degree of national transaction report formats. With rising ‘define’ execution once and for all, nor can
discretion in some areas, such as awareness, this standardised format we compare ex-ante expectations with
transaction reporting, has added to the should gain some traction during 2008. It ex-post states of affairs,” explains Kirby.
scale of the implementation problem and seems, nevertheless, that differences in Overly prescriptive rules on best
pressure on the timetable. In other cases, regulatory practices seem set to be with execution would be counter productive,
CESR has not been able to reach a us for a while longer yet.” adds Tony Freeman, executive director,
consensus among national regulators – As well as late compliance and Industry Relations and Market Growth,
Omgeo. This is an area where principles-
based regulation is most appropriate. The
In many national jurisdictions the securities and principle of best execution is now firmly
embedded across the EU but it is at its
investments industry is a very insignificant element of most advanced in the UK. It is in
nobody’s interest to challenge best
national GDP. Why should they be overly concerned about execution, as it is a key principle that
this legislation? everyone should apply, he contends.
Eric De Nexon, head of Strategy for
for example, on market facing and client regulatory harmonisation, press coverage Market Infrastructure at Société
facing transaction reports – so pan- of MiFID’s impact has tended to centre Générale Securities Services (SGSS),
European firms are faced with different on the confusion surrounding the best believes that clients will ask more of
implementation requirements in different execution requirements, but this is only their service providers, regardless of
member states. half the story. Best execution, whether the requirements for best
In order to tackle this problem CESR particularly in the equities space, has had execution are prescriptive or not. “Even if
issued a common protocol at the end of the most media focus but, ironically, it is the text of the directive does not impose
October in an attempt to foster greater the area that probably needed the least. a minimum of venues, the firms will
cooperation between its members in the Most asset managers have been very respect the fact that they have to offer the
exercise of their core supervisory aware of transaction costs and the best for their clients. The industry wants
functions over entities with cross border importance of good execution for some
activities. The protocol sets out a time and the equities market is already
framework for cooperation between quite transparent (in comparison to other Systematic internalisers so far:
competent authorities under two asset classes that is). As Daniel Wiener, According to the Committee of
different models: joint supervision managing director at State Street Global European Securities Regulators
conducted through common oversight Advisors (SSgA), notes: “The best (CESR) as of 23 November 2007,
programmes; and requests for assistance execution policies that we have seen so the list of registered systematic
based on efficient allocation of far have been quite general in their internalisers comprises:
supervisory tasks. approach.” It seems therefore that it has
■ ABN AMRO (London Branch)
However, Clarke is sceptical that the been the area with the biggest fanfare but
protocol will solve the issues: “The not the biggest impact. ■ Danske Bank
common protocol will help formalise This general approach to best ■ Deutsche Bank (London Branch)
communication but it is difficult to see execution is reflected by the discussions ■ Lehman Brothers International
the protocol revolutionising the way in within the MiFID JWG’s Best Execution Europe
which the regulators deal with each Subject Group (BESG). The group has ■ Nordea Bank Danmark
other.” focused its discussions mainly on macro ■ Citigroup Global Markets Limited
Richard Young, manager industry processes, such as models, transaction
■ Citigroup Global Markets UK
programmes at Swift agrees: “While cost analysis (TCA), policies and the
MiFID does provide a core common recording of evidence of conformance Equity Limited
regulatory approach for all the impacted with processes. “The BESG deliberately ■ Credit Suisse Securities Europe
states, individual regulators are able to did not go beyond processes to set out the
impose additional rules and requirements aspirational context: the values,
for their market. An example of this is principles and especially the outcomes to satisfy the clients and offer them the
MiFID transaction reporting, where a that firms try to achieve, not least as best possible execution,” he says.
lack of agreement for a common MiFID is outcome focused. The white It is likely that best execution practices
approach on the format, scope and data paper did not answer these questions nor will be challenged if there is no valid
content of reports has made this process should it, because this is what firms have rationale for use of certain venues, adds
much more difficult, especially for firms to do in their value proposition to clients. John Siena, assistant general counsel,

ISJ26 pp50-60 ML 29/11/07 6:50 pm Page 57
MIFID
director of European Legal Operations, There was much debate about the rules
Brown Brothers Harriman. “Because best surrounding outsourcing during the The Commission’s hit list
execution is contextual and multifaceted, framing of the MiFID Level 2 text, and Those countries yet to transcribe
it is likely that firms providing their during the Level 3 implementation
MiFID (Directive 2006/73/EC) into
policies will be able to articulate good process. In essence it seems that
national legislation (as of 23
reasons for the approaches they take. regulators do not want to unduly
However, buy side firms have always been constrain investment firms from taking November 2007) according to the
at liberty to challenge price or adequacy advantage of such opportunities, but at Internal Market’s Commission
of execution in the past and there is no the same time, a fairly clear set of website:
reason to expect this to change.” oversight guidelines was established to ■ Czech Republic
SSgA’s Wiener feels that there are keep this issue manageable. This is ■ Estonia
other areas that may challenge market almost certainly one of the areas that the ■ Hungary
participants to a greater extent than best Commission and local regulators will ■ Italy
execution, such as consent to deal off keep under review to judge the ■ Latvia (only in part)
exchange, limit orders, outsourcing, and effectiveness of the agreed measures over ■ Lithuania (only in part)
suitability. In some of these cases these the next couple of years, adds Swift’s ■ Poland
are things that were very much designed Young. ■ Portugal
for the retail investor but they are applied But will MiFID have an impact on all ■ Slovenia
to the institutional investor and that areas or is there sufficient room to ■ Spain
creates some issues. wriggle out of the requirements? The ■ Iceland
Most of the impact this month has history of EU Directives shows they ■ Lichtenstein
manifested itself in a blizzard of paper have many loopholes and MiFID will be
flying around the continent, adds BBH’s no different, contends McDowall. “In
Siena. This paper is in the form of client many national jurisdictions the securities likely next year if there are firms who
classification letters that MiFID and investments industry is a very have not taken steps towards becoming
investment firms were required to send insignificant element of national GDP. compliant or if there are any outliers in
to clients by 1 November. In addition to Why should they be overly concerned terms of the approach taken. One
classifying clients as retail clients, about this legislation?” example of this could be best execution –
professional clients or eligible KPMG’s Clarke disagrees: “It would it would not be surprising if the FSA
counterparties, investment firms also take some extremely aggressive tried to ensure that some of the more
included in these letters information interpretations of the underlying aggressive interpretations of best
surrounding conflicts of interest, best directives to avoid the impact of MiFID execution were toned down, although
execution and order handling policies, as – it is bound to have some effect. The key this would not necessarily be through
well as requests for express consent to
trade outside regulated markets and not
publish prices on limit orders. It would take some extremely aggressive interpretations
“Recipients of these letters are only of the underlying directives to avoid the impact of MiFID
now digesting them – at the moment
discussions are underway while everyone – it is bound to have some effect
sorts out just how they want to be
classified under MiFID. The level of will be the extent to which the local enforcement action initially.
client classification has implications for regulators pursue failures by the firms The Danish FSA has also indicated
the kinds of protections clients are they supervise. A number of discretions that all inspections from 1 November and
afforded under MiFID,” he explains. and exemptions were drafted in to give onwards will include MiFID, and we have
The issue of operational risk has also an element of flexibility to regulators but no doubt the same will apply to the rest
been underlined by MiFID, especially in the core requirements would be difficult of Europe, adds Michael Villi Møller,
the area of outsourcing arrangements. to avoid completely.” senior executive director and global head
“MiFID in practical terms requires firms It seems unlikely that the regulators of Legal and Compliance at Saxo Bank.
to re-examine their outsourcing will crack down on non-compliance this MiFID is essentially concerned with
arrangements. Sticking points may come year and will instead take a pragmatic investor protection, but it will take time
in some jurisdictions, which politically view of firms’ difficulties with before you will see customer complaints
would like to confine outsourcing to implementation, especially given the based on non-compliance. “At the end of
within the EU to ensure jobs are laggard countries across Europe. As long the day, we are all being judged by our
preserved. This may result in detailed as firms have a plan in place setting out respective customers so either you
scrutiny of outsourcing arrangements how and when they will become perform or you don't. It is as simple as
where these services are provided outside compliant and are demonstrating the that. Customers will quickly recognise
the European Union,” says Bob intent to become compliant, the UK FSA and expect the full MiFID protection and
McDowall, senior analyst at is likely to be understanding, continues those who choose minimum solutions
TowerGroup. Clarke. Regulatory action will be more will soon lose out,” he concludes. ■

ISJ26 pp50-60 ML 29/11/07 6:50 pm Page 58
ANALYSE THIS - GLOBAL CUSTODY
Future of custody
and securities lending products. As clients diversify their
investments and look to derivatives and unlisted investments,
such as private equity funds, global custodians will also be
required to link in the pricing of derivative instruments and
What is the current state of cover these investments as part of a consolidated reporting
package.
the global custody market? Regarding the state of the industry on the whole, I would
say that the impact of MiFID will be a concern for some time
to come as it has created the environment for growth in
multilateral trading facilities (MTF) and the potential
movement of trading activity and subsequent liquidity away
from the traditional stock exchanges. I’d say it would be
SIMON WALKER, DEPUTY HEAD, GLOBAL CUSTODY PRODUCT wrong to underestimate the knock on effects of MiFID on
MANAGEMENT, BNP PARIBAS the global custodian market over the coming years, especially
The state of the global custody market today is pretty with the need to recognise and settle a single ISIN code
interesting, especially from the consolidation standpoint. I across multiple MTFs, CCPs and CSDs.
think it’s fair to say there are currently three major custodians In short, the global custodian market will be heavily
with assets under custody (AUC) in the trillion dollar level – influenced by its clients’ mounting appetites for cross border
BNY Mellon, JPMorgan Chase and State Street – primarily assets, for new ‘exciting’ markets and for a wider range of
because of their huge domestic USD portfolios. You then have financial instruments, topped off by a relationship with
the mid-tier providers, who may not have the size in terms of someone who can cover the globe for them. IT development
AUC, but have the capacity and expertise to offer comparable will remain a critical benchmark of how much investment a
products. firm is willing to make in its custody business.
From another perspective, there is increased talk of prime To keep up, diversification is also one of the playing cards
brokers looking to enter the market (not surprising, given the that global custodians are shuffling today; the tendency
substantial assets they are holding on behalf of their, being to shift the client base away from domestic markets and
primarily, hedge fund clients). This could potentially see get out into new territories and indeed new client segments.
global custodians competing head-on with investment banks BNP Paribas Securities Services has been doing a lot of this
in servicing the full range of hedge fund requirements. lately, our strategy of growth culminating in numerous
What is most interesting is that consolidations have taken acquisitions this year already and full scale development of
different forms in the most recent past – not just the our plans for Asia and the Americas.
‘traditional’ kind, such as State Street and IBT, but agreed
mergers at the parent level, such as BNY and Mellon and
joint ventures at the custody processing level, such as RBC
Dexia and Caceis.
If this summer’s credit crunch leads to lower market How are custodians
valuations (and therefore lower fees for global custody adapting their services to
providers), this consolidation could well accelerate. meet clients’ demands?
Another key development in the market has been the move
into fund manager outsourcing, effectively broadening the
traditional product offering to include fund administration
and middle office outsourcing. Here, IT development will
remain a critical benchmark of how much investment a firm
is willing to make in its custody business. GUNJAN KEDIA, HEAD OF PRODUCT DEVELOPMENT, BNY MELLON
BNP Paribas Securities Services was on the crest of the ASSET SERVICING
outsourcing wave with the Cogent acquisition in 2002 and
this has also been a driver for many recent consolidations in The product development lifecycle in our business has
the securities industry. Within this spectrum though, our certainly accelerated. Our clients’ needs, the strategies and
collective challenge is to ensure that revenues are increasing instruments they utilise, the regulatory environment, the
at a higher rate than the underlying costs. solutions we need to develop and deploy to meet those
To help ease the dilemma, the market has accordingly been challenges - all are becoming exponentially more complex.
innovating with value added products such as transition Risk mitigation and enhanced transparency are very much at
management, while furthering the capabilities of existing FX the top of their agenda.

ISJ26 pp50-60 ML 29/11/07 6:50 pm Page 59
ANALYSE THIS - GLOBAL CUSTODY
The challenge in 2008 for custodians is to continue to innovate introducing a new independent valuation service of OTC
rapidly. Clients want a true end to end service, one that derivatives earlier this year and also have a pilot programme
encompasses front, middle and back office components. Just as with 10 of our larger clients in expanding the servicing of
importantly, they want their asset servicing provider to be able private equity investments. The themes of valuation,
to bring servicing solutions to the table quickly and cost transparency, controls and compliance monitoring highlight
effectively. the direction in expanding our services in the alternative
Asset servicing providers, like ourselves, are constantly investment space.
assessing changes in the market and investing a significant The asset servicing business has a large appetite to be
tranche of their technology budgets on more robust servicing competitive and meet the ongoing service requirements of our
solutions, particularly around alternatives and derivatives. global client base. We invest a third of our technology budget,
There has obviously been an explosion in the use of roughly USD300 million, on new products and expanded
alternative investments with the advent of UCITS III and the capabilities. Beyond alternatives, there are key strategic
proliferation of hedge funds; 130/30 funds are also now a big investments in our risk and performance measurement
consideration, along with expanded investment in private products and in our industry leading information delivery
equity and real estate, making alternatives a major priority for platform, Workbench.
asset servicing providers in 2008. As clients look to expand and leverage their asset servicing
Given the complexity of these instruments, we have created providers, the ultimate challenge in 2008 and beyond is to have
an entire product management group that purely focuses on the ability to deliver new and innovative solutions. It is a big
the alternatives space. The skill set of this team is quite challenge and you need to execute and deliver each and
different from traditional product managers and one of their everyday across the globe. People make important investment
biggest challenges is listening to clients and various industry decisions based on what we do and to me, that’s only going to
contacts to develop a service model that can meet the needs of continue to increase. I think it is going to be very exciting and
many constituents. We are off to a good start with interesting to see how that affects our industry.
What will the technology At present, we are looking at all the client service areas that
exist within a normal custody business and attempting to
sector of custody business build better systems for each area. Fast forward five years
look like in five years’ time? and my guess is, instead of focusing on improving service in
an area like corporate actions, we will be much more driven
to integrate business intelligence tools across all areas to
allow clients to access information at whatever time, and in
which ever way, they need it.
CHRISTIAN HUDSON, CHIEF INFORMATION OFFICER, INFORMATION In the next five years, there will be even more
TECHNOLOGY GROUP, SWISS AMERICAN SECURITIES INC (SASI) standardisation and globalisation and as a result custodians
will have to provide an even greater level of client service
Competition, consolidation and globalisation in the custody and support. This support will probably require a closer
marketplace are driving custodians to spend more on relationship between the business and technology groups in
technology in an effort to differentiate themselves from their both provider and recipient organisations. Technology will
competitors. Custodians are focusing on providing solutions be much more focused on providing access to information
to their clients in the areas of enhanced client servicing, risk and solutions to the global process.
management and regulatory compliance. In terms of consolidation, there is a natural cycle at work
Consolidation has, in many instances, led to opportunities for here where innovation often takes place in small, more
those who remain cognizant of the requirements of their nimble companies, much like SASI, and is then either copied
existing and prospective clients. Consolidations have or acquired by larger organisations.
resulted in custodians having to change their focus from The large providers will tend to get larger because of the
customers to trying to manage various disparate technology cost efficiencies they are able to offer. The second tier
platforms and processes. Additionally, clients in many of providers will probably have to assess their offerings and
these consolidations have had to migrate from one offering make some strategic decisions based on their value
to another, at times offering a diminished level of proposition and how they want to differentiate themselves.
functionality. Another area of client concern has been the In the secondary spaces some firms will most likely decide to
fact that these newly combined organisations have even specialise in a certain market segment or product. There is
larger and more complicated infrastructures, which do not also the strong possibility that certain strategic alliances will
lend themselves to client level customisation. be forged in the near term.

ISJ26 pp50-60 ML 29/11/07 6:50 pm Page 60
PEOPLE MOVES
MOVING & SHA KING

Toronto - Royal Bank of Canada's Siegel as junior research analyst and across its various
Michael Lagopoulos, CEO and global Ellen Cooper as junior operational due business lines
head of International Wealth diligence analyst. In his new role with the world's
Management, has relocated from Puccio will be responsible for research leading hedge
Toronto to London. Lagopoulos and due diligence on underlying funds, the bank
comments: “My relocation from hedge fund managers, looking at says.
Toronto to London signals RBC's potential new investment
commitment to growing our wealth opportunities as well as continuous London - Fund of
management businesses outside North monitoring of existing managers. hedge funds
America. London manager
will provide us London - Baring Asset Management CONRAD JOHNSON
International
with a better line (BAM) has appointed Andrew Lamb Asset
of sight to assess and Paul Morgan as senior US equity Management Limited (IAM) has
international analyst and investment analyst appointed Alexander von Mühlen to a
wealth respectively. Lamb will join BAM in new role as head of client relations
management January as senior US equity analyst and products. von Mühlen joins IAM
opportunities.” In and his focus will be industrial from ABN AMRO Asset Management
a separate move, companies. Morgan joins from Brown where he was responsible for project
RBC has Shipley & Co and will take up his role managing the structuring and
appointed Nigel early in the new year as part of the introduction of alternative products,
MICHAEL LAGOPOULOS Rendell as senior European large cap team. including the IAM range of funds of
European hedge funds (FoHF).
emerging markets strategist, based in Copenhagen - Saxo Bank has
RBC's London office. He will report to successfully concluded its search for a Sydney - JPMorgan Worldwide
Nick Chamie, head of Emerging new member of the bank's senior Securities Services (WSS) has hired
Markets Research and Russell Jones, executive management with the Jane Perry as head of WSS, Australia
global head of Fixed Income and appointment of Albert Maasland, who and New Zealand, joining from AXA
Currency Research. will join the Copenhagen-based online Australia and New Zealand where she
investment bank as the new European was chief operations officer. Perry will
London - Northern Trust has expanded COO on 1 December 2007. Maasland be responsible for all aspects of the
its asset servicing sales and joins Saxo Bank's WSS business in Australia and New
relationship management teams, senior executive Zealand, including sales, operations,
which focus on institutional investors management from technology, product, client service,
across Europe, Middle East and Africa Standard people agenda and the strategic
(EMEA). Damian Powell has been Chartered Bank, expansion charter.
appointed as head of EMEA where he was
institutional sales responsible for a global head of New York - Paul Simpson is joining
team of sales managers targeting business Citi Markets and Banking's Global
institutional investors across this development, Transaction Services division in
region. Rhonda Zoef joins as UK Global Markets E- December to head global efforts
pension fund sales manager, reporting Commerce, for the ALBERT MAASLAND around the public sector and
to Powell. past two years. healthcare market segments.
Saxo Bank is already operating with Reporting directly to Paul Galant,
Dublin - Pioneer Alternative an Asia Pacific COO, Kevin Ashby, CEO of Global Transaction Services,
Investments (PAI) has made three who is based in Singapore. As Simpson will assume this new global
hires to its fund of hedge funds European COO, Albert Maasland will role to sharpen the focus on solutions
(FoHF) research be the overall head and coordinator of and services for clients in the public
team with the all European, Middle East and US sector and healthcare markets.
appointments of offices and regions.
Bob Puccio as London - Turquoise's clearing and
global head of New York - BNP Paribas has expanded settlement provider, European Central
Macro, its Hedge Fund Relationship team Counterparty Limited (EuroCCP), has
Quantitative, Fixed with the appointments of Conrad finally named its permanent CEO and
Income (including Johnson as a director in New York and chief operating officer. Diana Chan
Convertible Stephanie Wong as an associate has been named as the new
Arbitrage) and director in Hong Kong. In his new permanent CEO of EuroCCP, and
Multi-Strategy role, Johnson will assist his team in Trevor Spanner has been named chief
Research, David
BOB PUCCIO
optimising the firm's relationships operating officer.

ISJ Directory of Services Asset Servicing

GOAL is the widely-acknowledged industry leader in providing creative products,
services and solutions to automate and optimise the global reclamation of withhold-
T: +44 (0) 844 499 6388
ing tax and class action compensation. Our research has shown that in excess of
C: Saghar Bigwood or Stephen
US$6 billion of withholding tax remains unclaimed each year by the rightful owners
Everard
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A: 10, Earl Street
To establish your potential ability to reclaim over-withheld taxes and/or class action
London, EC2A 2AL.
compensation GOAL provides a free proof of concept analysis. We simply require details
E: sbigwood@goalgroup.com or
of the income entitlement(s) and/or trade details together with the type and domicile of
severard@goalgroup.com or
the underlying beneficiaries. We do not need the name(s) of the beneficiaries.
info@goalgroup.com
Our Products include GTRS, Class Actions, GQI, e-Reclaim, GOAL TaxBack, DMS
and Bespoke Software Development.
Custody & Clearing

BHF-BANK is one of Germany's most prestigious private banks. Its roots date back to the
C: Cornelia Keth year 1854. As an advisory, service and sales & trading bank, we offer our discerning clientele
T: +49 69 718 3738 a comprehensive array of customised solutions. BHF-BANK combines the strengths of a pri-
F: +49 69 718 6050 vate bank with a long track record of capital market competence.
E: cornelia.keth@bhf-bank.com Trust, an individual approach and impartiality - these qualities are at the very heart of the
C: Moritz Ostwald long-term guidance and advice we provide for our clients. Our bank's activities are grouped
within the divisions Asset Management & Financial Services, Financial Markets & Corporates
T: +49 69 718 6838
and Private Banking.
E: moritz.ostwald@bhf-bank.com The bank's longstanding experience in the German securities services market goes hand in
A: Strahlenbergerstraße 45, hand with a corporate culture that values prompt acknowledgements and short decision-mak-
63067 Offenbach a.Main ing channels.
Germany BHF-Bank offers tailor-made custody services to meet its clients' particular requirements.
W: www.bhf-bank.com It's reporting services include a comprehensive SWIFT reporting matrix as well as its
Internet-based reporting tool cds@web. Assets under Custody: EUR269 bn No of funds: 328
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.
www.dbs.com DBS offers a full range of custodial services including securities safekeeping, settlement
+65 6878-1830 of trades, corporate actions and market information updates. These services are
+65 6878-4766 available in Singapore, Hong Kong, Indonesia, India, China (A-shares) and other select-
Ms Low Swee Fun ed markets. DBS also offers short-term, highly liquid overnight facilities for its clients'
investorsvs@dbs.com accounts to earn daily interest on any excess funds.
DBS Bank Ltd,
With over 20 years of experience in the custody business, DBS' strengths lie in its ability
Global Transaction Services, to provide quality services, in depth knowledge and expertise of the Asian markets, as
Securities Services, well as customized business solutions to support clients’ businesses. Its clientele
6 Shenton Way, #36-02, comprises the global custodians, international central securities depositories, broker-
DBS Building Tower 1 dealers, financial institutions, insurance companies, investment managers, private banks
068809 Singapore and corporate.
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.

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
RBC Dexia Investor Services offers a complete range of investor services to

T: +44 (0) 20 7653 4096
institutions worldwide. Established in January 2006, we are equally owned by Royal F: +44 (0) 20 7248 3946
Bank of Canada (RBC) and Dexia. We rank among the world's top 10 global Contact: Tony Johnson
custodians, with approximately USD 2.0 trillion in client assets under custody, Head, Sales & Relationship
including in-house assets of RBC and Dexia. Our innovative products and services Management
help clients maximise operational efficiency, minimise risk and enhance portfolio E: antony.johnson@rbcdexia-is.com
Address: 71 Queen Victoria Street,
returns. And our 3,800 professionals in 15 markets offer proven expertise to
London, EC4V 4DE, UK
enhance clients’ business performance.
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
W: santanderglobal.com
Santander’s cutting edge technology enables it to offer a comprehensive array of inno- 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 EUR 460 bn and provide services in more that 70 markets, 9
of them under the SEB name (Sweden, Norway, Finland, Denmark, Luxembourg, T: +46 8 763 5770
Germany, Estonia, Latvia and Lithuania). F: +46 8 763 6930
We offer a full range of securities services including corporate action and
Contact: Goran Fors
information services, securities lending and services to remote members of the
Nordic and Baltic stock exchanges. We continuously develop new products in E: goran.fors@seb.se
connection with clients and partners to ensure we deliver the high-quality W: www.seb.se
products our clients demand. We always strive to make the processes more
efficient. With a history of 150 years in the securities industry; we know the market
and our clients well.
Société Générale Securities Services offers institutional investors, asset man- Sébastien Danloy
agers and financial intermediaries a comprehensive range of financial securities Global Head of Sales,Investor
services: custody, clearing & trustee services, fund administration, asset servic- Services
Société Générale Securities
ing and transfer agency. SGSS currently ranks 3rd European custodian and 9th
Services
worldwide custodian (Source: Globalcustody.net) with EUR 2,580* billion in T: +33 (0)1 41 42 98 65
assets held and valuates 4,354* funds representing assets of EUR 405* billion E: sebastien.danloy@socgen.com
(as of June 2007). W: www.sg-securities-services.com
Financial Asset Services is the custody and investments-servicing division of

Standard Bank, providing a unique suite of services to sophisticated investors in A:Standard Bank
South Africa and eight sub-Saharan markets. Financial Asset Services
3rd Floor
Standard Bank has assets under custody to the value of ZAR1.56 trillion and an 25 Sauer Street
overall market share of approximately 40%. Johannesburg 2107
T: +2711 636 6615
Standard Bank's unique selling point lies in its consultative approach to E: adam.bateman@standard-
relationships combined with the bank's commitment to custody and investment bank.co.za
administration services. W: www.standardbank.co.za

Standard Chartered leading the way in Asia, Africa and the Middle East.
Standard Chartered has a history of over 150 years in banking and is in many of the
world's fastest-growing markets with an extensive global network of over 1,200
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.
Swedbank provides client-focused custody services to domestic and international secu-

rities lending (including auto-borrow facilities), derivative clearing services, proxy vot-
ing, full corporate actions and income service. Flexibility is an important aspect of
T: +46 8 5859 1800 Swedbanks products and services. Our dedicated Client Relations Managers and
F: +46 8 7237 147 Account Managers are focused on personalized processing and reporting solutions.
C: Neal Meacham, Head of Other Features:
Custody - ISO9001:2000 quality certification.
E: neal.meacham@swedbank.com - Swedbank Markets Online (SMO) internet information and reporting toolfor
A: Stockholm SE 105 34 Custody and Securities Lending.
Sweden - Nordic Custody alliance with DnB NOR (Norway), OKO Bank (Finland) and
Amagerbanken (Denmark) to offer regional custody product.
Institutional Assets under Custody: USD 70 billion
No. of Institutional Clients: 110
Unicredit Markets & Investment Banking (MIB) serves as UniCredit Group's global
product and competence center for global financial markets and investment banking
services, including Custody throughout Central and Eastern Europe, including Austria.
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,
Wrexham, LL13 9XT tailored to their specific information needs. Accuracy and reliability are ensured by
United Kingdom collecting the data from the Group’s own trading platforms, such as Xetra® and
Eurex® and cooperation partners like STOXX Ltd. and the Irish Stock Exchange.
Avox®, a majority-owned subsidiary, validates, corrects, enriches and maintains
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
SmartCo’s software, Smart Financial Data Hub, covers all the data area, including
37 rue de Liège financial instruments, market data, third parties, funds, transactions, and provides
75008 Paris full connectivity, a powerful and user friendly front-end, traceability, quality control,
France data enrichment and customisable workflow.
Our solutions are based on SmartPlanet, an innovative technology focused on data
T: + 33 1 58 22 29 60 management, and able to meet evolving business requirements.
E: info@smartco.fr SmartCo offers to its customers the ability to respond in the fastest way to regulatory
W: www.smartco.fr and business changes.
For further information: www.smartco.fr or info@smartco.fr
Telekurs Financial, a company in the Telekurs Group, specializes in the procurement,

Telekurs (UK) Ltd
processing and distribution of international financial information for investment adviso-
15 Appold Street ry services, portfolio management, financial analysis and securities administration. A
London global network of local financial market specialists procures real-time stock exchange
EC2A 2NE information at source from the leading financial centres. Containing over 3 million
C: Kimberly Neumann financial instruments, the database of structured, encoded securities information main-
T: +44 (0) 20 7550 5000 tained by Telekurs Financial and its ten representative offices abroad is unparalleled
F: +44 (0) 20 7550 5001 throughout the world in terms of both depth and data coverage.
E: info@telekurs.co.uk Telekurs Financial is a founding member of the Association of National Numbering
Agencies (ANNA) allocating Swiss security (Valor) numbers and leads the way in intro-
W: www.telekurs.co.uk
ducing standards aimed at simplifying trading and securities administration.

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
Butterfield Fund Services (BFS) provides valuation, accounting, corporate secretarial, Andrew Collins Managing Director
compliance, directorial and shareholder services to hedge funds, fund-of-funds, and T: 441-299-3954
mutual funds. BFS also services international pension & insurance trusts. Clients E: andrewcollins@bntb.bm
such as financial institutions, insurance companies, and institutional investors use Tania Kowalski Marketing
Butterfield Fund Services to set up and launch investment funds. BFS operates in Manager T: 441-278-6300
Bermuda, Bahamas, the Cayman Islands and Guernsey. E: taniakowalski@bntb.bm
Whether a fund is just starting out or is well established, Butterfield Fund Services A: Rosebank Centre 11
can provide complete solutions to help clients better service their investors. With Bermudiana Road, Pembroke,
over $50 billion in assets under administration, many alternative funds have turned Bermuda HM 08 / P.O. Box HM
to Butterfield Fund Services for timely and accurate administration services. 195 Hamilton, Bermuda HM AX
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.
Daniel Cann, Director

Folio Administrators Limited, part of the Folio Group of Companies supplying Daniel@folioadmin.com
fund administration, company management, director services and insurance
William Harris, Director
management, is the leading fund administration company in the British Virgin
William@folioadmin.com
Islands.
We specialize in servicing the needs of start-up to medium sized hedge funds, Folio Administrators Limited
covering all aspects of fund formation, structuring and on-going operations. Folio House, Road Town
We work closely with an extensive number of banks, brokers, custodians, British Virgin Islands
auditors and lawyers to ensure that our clients receive the best independent ‘www.folioadmin.com
advice and structures. T: 284 494 7065
F: 284 494 8356
www.imfcfundservices.com
Established in 2002, IMFC Fund Services B.V. is a boutique hedge fund
administrator and a trustee with its offices in Amsterdam and Sydney. IMFC t +31.20.644.4558
offers third parties administration and related services to all type of onshore and f +31.20.644.2735
offshore funds combining high quality, independency, technology, timely calcula- Mrs. Consuelo Nardon
tion with flexibility, experience, custom-made solutions and competitive rates. c.nardon@imfc.nl
Rivierstaete Building,
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.
PFPC is a premier provider of processing, technology and business solutions to the C: Fred W. Jacobs, III
global investment industry. Our core offering includes accounting, administration, A: PFPC, 301 Bellevue Pkwy
investor services, middle-office services and regulatory administration services. Whether Wilmington, DE 19809 USA
your products are U.S. or non-U.S. domiciled funds, trust vehicles, limited partnerships T: 302-791-2000
or commingled investment products, PFPC’s multi-jurisdictional, multi-fund capability F: 302-791-1570
allows us to process your complex fund structures - from hedge funds, fund of funds E: Information@pfpc.com
and private equity funds to master/feeder and multi-managed funds. C: Fergus McKeon
A: PFPC Riverside Two
PFPC offers personalized alternative investment solutions tailored to your unique Sir John Rogerson’s Quay
needs. With more than 30 years in the fund servicing industry, our seasoned and Dublin 2, Ireland
responsive professionals bring you the know-how, focus and dedication to deliver the T: +353-1-790-3500
services you need, when and where you need them, any way you want them. E: Information@pfpc.com

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).
Swiss Financial Services

(Ireland) Ltd.
Block 4B,Cleaboy Business Park, Drawing upon an extensive track record of proficiency, dependability and
Old Kilmeaden Road, responsiveness, Swiss Financial Services acts as administrator as well as registrar
and transfer agent of funds investing in a broad range of financial instruments.
Waterford, Ireland
These include futures, foreign exchange, equities, options, bonds and other funds.
T: +353 51 351180
F: +353 51 871595 We perform accounting and administration services for diverse fund types
domiciled in, but not limited to, the United States, Bahamas, Cayman Islands, B.V.I.
Adrian Maher and Ireland.
E: amaher@swiss-financial.ie
Fund Services offers comprehensive fund administration services including fund

set-up, registration and support around the world (currently 28 countries), fund
accounting, NAV calculation, compliance management, risk control and reporting.
W: www.ubs.com/fundservices We provide a flexible offering from the full range of services, including Private
C: Mr Gerhard Fusenig Labelling, to selected functions. Services are based on leading fund administration
T: +41 44 235 4992 architecture, multi-source pricing and powerful compliance tools.
E: gerhard.fusenig@ubs.com Capabilities also extend to services for hedge funds through our teams in Cayman,
A: UBS Global Asset Ireland and Canada.
Management, Fund Services, In times when management attention is increasingly focused on value creation, it
Stauffacherstrasse 41, PO Box, may be rewarding to re-evaluate whether asset administration remains a strategic
CH-8098, Zurich, Switzerland core business to you.
Luxembourg: Jean-Paul Gennari, tel. +352-44-1010 1
Switzerland: Markus Steiner, tel. +41-61-288 4910
UK: Mark Porter, tel. +44-20-7901 5000
Hedge Fund Administration

Custom House Administration & Custom House is one of the world’s largest independent alternative investment
Corporate Services Limited and hedge fund administrators and the first and only one to be awarded a Moody’s
A: 25 Eden Quay, Dublin 1, Management Quality Rating.
Ireland
Custom House offers a round-the-world, round-the-clock service from its office
T: +(353) 1 878 0807
in Dublin and representative offices in Chicago and Singapore, enabling it to
F: +(353) 1 878 0827
provide, not only complete global administration services, but also the ability to
C: dermot.butler@ produce daily dealing NAVs.
customhousegroup.com
C: david.blair@ Custom House is authorised by the Irish Financial Regulator under Section 10
customhousegroup.com of the Investment Intermediaries Act, 1995, which authorisation does not extend
ww.customhousegroup.com to the Chicago and Singapore representative offices.
DPM Mellon provides onshore and offshore alternative asset fund administration,
back and middle office outsourcing, portfolio valuation, daily NAVs, risk
W: www.dpmmellon.com administration and portfolio transparency solutions for fund managers, asset
T: +1 732 667 1155 allocators, institutional investors and proprietary traders.
F: +1 732 662 2650 DPM Mellon’s services are designed to solve complex administrative needs and
C: Skander Aissa improve operational efficiency. From the most basic reports to complex portfolio
E: Aissa.s@dpmmellon.com valuations, risk analysis and daily transparency, DPM has the systems, infrastructure
A: 400 Atrium Drive Somerset and experience to handle your toughest administrative challenges.
New Jersey NJ 08873 USA DPM Mellon has a world-wide staff of approximately 200 employees. DPM Mellon
is headquartered in Somerset, New Jersey with offices in London, the Bahamas, and
the Cayman Islands.

For further information,

Quintillion is a full service hedge fund administration specialist which supports all
please contact:
portfolio investment strategies and fund structures from its head office in Dublin's
Joan Kehoe
International Financial Services Center (IFSC). The company has made a considerable
Chief Executive Officer
investment in technology and operations expertise, to give clients the opportunity to
E: joan.kehoe@quintillion.ie
manage a range of funds with the support of a single administration partner. Key
T: + 353 1 523 8001
technologies are Advent Geneva, Koger NTAS and Paladyne.
Ken Somerville
Typical strategies supported include Convertible Arbitrage, Multi Strategy, Distressed
Head of Business Development
Securities, Global Macro, Fund of Hedge Funds, Market Neutral and Managed Futures
E: ken.somerville@quintillion.ie
funds. A comprehensive range of fund structures, currency classes and performance fee
T: + 353 1 523 8003
mechanisms are also accommodated.
W: www.quintillion.ie
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
International Finance Centres

The British Virgin Islands has created a progressive and transparent environment for
the establishment and regulation of mutual/hedge funds and their functionaries. By
the end of Q3 2006 the BVI had recognised or registered more than 4,000 funds, British Virgin Islands
and licensed some 700 managers and administrators, making the BVI a leading International Finance Centre
domicile of choice for investment business. Haycraft Building
Benefits of conducting investment business in the BVI include: 1 Pasea Estate
-Fast-track registration and licensing system - funds can be registered in a few days. Road Town
-Presence of qualified, experienced legal, accounting & administration practitioners. Tortola
-A well-developed corporate professional infrastructure. British Virgin Islands
-Modern, robust and cost-effective regulatory and corporate regimes. T: +1 284 494 1509
-BVI private and professional funds fall outside the scope of the EU Savings F: +1 284 494 1260
taxation Directive. W: www.bviifc.gov.vg
-Segregated Portfolio Companies - also known as Protected Cell Companies - can now
be formed as mutual funds under the BVI Business Companies Act 2004.
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
Europe (London):
Fimat Alternative Investment Solutions group is a global, multi-disciplinary, solution Philippe Teilhard (44) 207 676
providing organisation dedicated to delivering innovative & superior prime brokerage 85 36 - Duncan Crawford (44)
services to the alternative investment industry such as investors and fund managers. 207 676 85 04
Fimat AIS offers these services on all major asset classes and their related listed &
Americas (New York):
OTC derivative products, as well as providing dedicated account management, cross-
Steve Solomon and Marc Cohen
margining tools, hedge fund start-up services, quantitative information for investors
and Capital Introductions. (1) 646 557 9002
Fimat AIS is part of Fimat, which employs over 2,000 people in 29 market places, Asia (Hong Kong):
and is a member of 48 derivatives exchanges, and 20 stock exchanges worldwide. Kirby Daley (852) 2848 3368 -
www.fimat.com Gregoire Dechy (852) 2848
3369
Payments & Settlement

Eiger Systems solutions are designed to be best in class and are the leading products
within their market sectors. Developed to meet the needs of organisations with complex or
mission critical payment processes, our solutions interface easily with existing business A: Eiger Point
applications and are available for all main operating systems. Swift Park
EigerPAY Gateway is a global payments platform which handles complex payment require- Old Leicester Road
ments and multiple payment channels. Already the UK’s leading BACSTEL-IP solution,
Rugby
EigerPAY Gateway is ideally suited to organisations with one or more of the following:
CV21 1DZ
• a mission critical reliance on payments
• complex functional or technical requirements United Kingdom
• a requirement for numerous communication channels such as T: + 44 (0) 1788 554800
BACSTEL-IP, CHAPS, SWIFT, or PE-ACH connectivity (Sales): +44 (0) 1788 554810
EigerPAY Gateway’s flexible architecture enables organisations to integrate with the
many new and developing payment systems, with minimal change to legacy systems.

A: Europe/Asia/Africa
42 New Broad Street Fundtech's payments solutions automate all aspects of the funds transfer and cus-
London EC2M 1SB tomer notification process, enabling straight-through-processing (STP) of payments.
United Kingdom Fundtech also offers payments solutions for continuous linked settlement (CLS), nos-
tro account management and enterprise-wide payments management.
T: +44-207-588-1100
Global PAYplus - The enterprise-wide payments management solution for global
F: +44-207-588-1155
financial institutions.
A: Americas PAYplus RTGS - A fully integrated, multi-currency payment system for banks resid-
30 Montgomery Street Suite 501 ing in countries outside the U.S. that have established Real Time Gross Settlement
Jersey City, NJ 07302 (RTGS) standards.
T: +1-201-946-1100 PAYplus USA - The leading payments solution for financial institutions in the US.
F: +1-201-946-1313
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.
eSecLending is a global securities lending manager and a leading provider and

T: US- +1 617 204 4500 administrator of customized securities lending programs. Its programs attract
T: UK- +44 (0)20 7469 6000 some of the world’s largest and most sophisticated asset gatherers, including
C: Christopher Jaynes pension funds, mutual funds, investment managers and insurance companies.
E: info@eseclending.com The company has auctioned over $1. 3 trillion in assets and has achieved
W: www.eseclending.com significant growth in its client base, lendable assets and assets on loan. The firm
awards principal securities lending business through a competitive auction
A: 175 Federal Street, 11th FL,
process that has provided clients with higher returns compared to traditional
Boston, MA 02110, US
program structures and improved transparency and objective criteria upon which
A: 1st Floor, 10 King William to make decisions. eSecLending maintains offices in Boston, London and
Street, London EC4N 7TW, UK Burlington, Vermont. Securities Finance Trust Company, an eSecLending
company, performs all regulated business activities.
Eurex is the world’s leading futures and options market for euro-denominated deriva-
tive instruments with market participants connected from 700 locations worldwide.
Eurex also offers short term funding products, such as Eurex Repo. Eurex Repo is
W: www.eurexseclend.com among the forerunners in providing integrated trading and clearing for repo transac-
T: +41 58 854 2424 tions. Eurex’s latest innovative marketplace is called Eurex SecLend.
F: +41 58 854 2455 Eurex SecLend. Europe’s leading investment banks participate as borrowers in the
E: info@eurexseclend.com Eurex SecLend marketplace, acting as principal brokers, dealers and intermediaries.
Agent lenders and direct lenders, represented by numerous investment banks, private
Eurex Zurich Ltd., Selnaustrasse banks and the investment managers of insurance companies and pension funds,
30, 8021 Zurich, Switzerland provide substantial availability in global fixed-income and equity names. 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
New York: William Smith

JPMorgan's Securities Lending program is unparalleled due in no small part to the T: 212-623-5664
Firm's breadth of capability, financial strength, professional expertise and seamless E: william.z.smith@jpmorgan.com
operations.
London: Michael Fox
Our program enables investors to access a broad spectrum of lending markets, with a T: 44 207 742 0256
diverse borrower base, offering a broad indemnification against borrower default, E: michael.uk.fox@jpmorgan.com
while achieving very competitive bids for their securities - all of this in an environ-
ment designed not to compromise the activities of their fund managers. .As one of Sydney: David Brown
the founding members of EquiLend, a global automated platform for borrowers and T: (61-2)92504606
lenders, JPMorgan is at the forefront of technology and is ideally placed given its E: david.ldn.brown@jpmorgan.com
integrated lending, custody and accounting platforms.
W: www.jpmorgan.com/wss
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.
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 Components ranks among the leading IT solution providers to the international
asset management and fund industry. Its core competency comprises investment
compliance and risk monitoring; trade and order management; data management; Annette Lindinger
press@aquin.com
customized reporting; custodian reconciliation and management of software
T: +49 69 21 93 66 600
integration projects. F: +49 69 21 93 66 650
Aquin’s clients include the best-known asset management companies and custodians Mainzer Landstr.
in Europe and the USA. They benefit from substantial cost savings derived from 199 60326
Frankfurt am Main
automation of investment management processes supported by the choice of
Germany
stand-alone products or integrated solutions. The company has its headquarters in W: www.aquin.com
Frankfurt am Main and subsidiaries in Zurich, Paris, Luxembourg, London, Dublin
and New York.

C: Belinda Hamer (US)

Asset Control is the world's leading provider of Centralized Data Management (CDM)
E: bhamer@asset-control.com
T: +1 212 445 1076 to financial industry firms. With a complete range of in-house and outsourced
F: +1 212 445 1079 options, Asset Control delivers a hybrid approach to data management. The
selection of developer tools, turnkey software solutions and outsourced services
C: Pascal Guignabaudet (EU) enable users to optimize their investment data for efficiency, cost control, reduced
E: pascalg@asset-control.com
operational risk and increased value from their data.
Address: 54 Lombard Street,
London, EC3P 3AH, UK Asset Control solutions manage prices, reference data, risk factors, credit risk data,
T: +44 (0)20 7743 0320 corporate actions and research data. The solutions support market risk, Basel II,
F: +44 (0)20 7743 0321
portfolio management, trading and enterprise-wide operational coherency.
W: www.asset-control.com
Broadridge Financial Solutions, formerly ADP Brokerage Services Group, with nearly
$2.0 billion in revenues and more than 40 years of experience, is a leading global
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.
Burns Statistics provides software and consulting services. We are focusing on ran-
W: www.burns-stat.com dom portfolios, a technique that provides significantly improved performance meas-
T: +44 (0)20 8525 0696 urement. A particularly powerful feature is that the initial holdings of the portfolio
C: Patrick Burns can be used in the performance analysis in order to gain even more precision.
E: patrick@burns-stat.com
4-b Jodrell Road Performance measurement is after the fact, but random portfolios also allow fund
London managers to test trading strategies before implementing them. There are many addi-
E3 2LA UK tional uses of random portfolios as well, one is to objectively evaluate the effect of
constraints on a portfolio.
DST International is the world’s premier vendor of technology solutions to the global
T: UK +44 (0)20 8390 5000
investment management community with over 700 clients in 55 countries, and
Boston +1 617 482 8800
1500 employees in 19 of the world’s leading financial centres. Our wide range of
Hong Kong +85 225 812 880
asset management solutions meet the needs of fund managers, dealers, settlement
F: +44 (0)20 8390 7000
staff, custodians and record keepers operating as international asset managers; from
E: info@dstintl.com
front office simulation, opinion management and modelling functions, through data
A: DST House, St Mark’s Hill,
management, dealing and settlement to custody and corporate actions. The suite of
Surbiton, Surrey, KT6 4QD
products can be used either as stand-alone applications or brought together in flexi-
W: www.dstinternational.com
ble combinations according to specific needs.
Eagle Investment Systems LLC is a global provider of financial services technology,

serving the world's leading financial institutions. Eagle's Web-based systems support
W: www.eagleinvsys.com the complex requirements of firms of any size including institutional investment
T: +44 (0) 20 7163 5700 managers, mutual funds, hedge funds, brokers, public funds, plan sponsors, and
F: +44 (0) 20 7163 5701 insurance companies. Eagle is committed to providing enterprise-wide, leading-edge
A: Mellon Financial Centre technology and professional services for investment accounting, data management,
160 Queen Victoria Street and performance measurement. Eagle’s product suite is offered as an installed
London, EC4V 4LA application or can be hosted via Eagle ACCESS, Eagle’s application service provider.
Eagle Investment Systems LLC is a division of The Bank of New York Mellon
Corporation. To learn more about Eagle's solutions, contact sales@eagleinvsys.com
or visit www.eagleinvsys.com.
Financial Tradeware provides integrated solutions for medium to small sized

Investment Management firms, Fund Managers and Hedge Funds, covering the full
W: www.f-tradeware.com trade life cycle. It is part of the Dharma Group of companies and benefits from the
T: +44 (0)20 7493 2773 joint contributions and experiences within the group of leading market traders, busi-
F: +44 (0)20 7495 4858 ness analysts, financial services professionals and skilled Microsoft Certified pro-
C: GrahamBright grammers. The company has developed a suite of applications that integrate and
E: info@f-tradeware.com Straight Through Process (STP) real-time trading, back office administration,
A: 31 Dover Street accounting and compliance. Ultra.net®, S-Messenger® and H-Fund® are the com-
London W1S 4ND UK pany's flagship products all based on Microsoft.NET infrastructure. In addition the
company offers a Member Administered Closed User Group (MA-CUG) service for
SWIFT connectivity. For more information see: www.f-tradeware.com

Elemes NM is your partner in global agent bank custodian network management pro-
viding a global view of your relationship network in a powerful and easy to use pack- Fingertip Developments Ltd
age. It includes diary, invoice verification, document management, multi-entity Curtain Court
views, reporting, account information incorporating fee and rate structures, contacts, 7 Curtain Road
notes and supports eFee – electronic fee invoicing technology. London EC2A 3LT
UK
Unrivalled extensibility allows you to develop your own functionality with your in- T: +44 (0)20 7100 9280
house development team. enquiries@fingertip-
developments.com
Flexibility does not stop with the software, our commercial terms offer adaptable
pricing to suit present and future requirements for all sizes of organisation.
IGEFI is the foremost provider of software solutions for international fund

promoters, third-party service providers and fund managers. Its prestigious A:IGEFI Group Sàrl - 7, Rue des
client-base is testimony to our commitment, service and quality with over 170 Primeurs, L-2361 Strassen
expert staff supporting clients from six offices worldwide including Bangalore, T: +352 26 44 211
Boston, Frankfurt, Geneva, Luxembourg and Paris. MultiFonds is operational in F: +352 26 44 21 44
more than 20 countries worldwide and support investment funds assets in excess E: marketing@igefi.com
of US$ 2 trillion. W: www.igefi.com
MultiFonds Fund Accounting and MultiFonds Transfer Agency are developed on C: Mr. Jesper Steiness - Director,
a “one system-one database” philosophy and provide significant advantages Business Development
including reduced overhead and IT support costs and single look and feel reporting E: jesper.steiness@igefi.com
for global clients.
For more than a decade, administrators, managers, and advisors have relied
on KOGER for dependable software tools backed by extensive industry T: 001-201-291-7747
experience and expertise. Now, for those who want to reduce costs and F: 001-201-291-7808
streamline business processes, Koger offers Fully Integrated Fund C: Mr Ras Sipko
Administrator, a vertically integrated suite serving the back-office E: ras@kogerusa.com
software needs of the fund industry. KOGER USA
Fully Integrated Fund Administrator consists of three core programs: 12 Route 17 North
~ NTAS, the New Transfer-agency System Suite 111
~ E*TAS, Electronic Transfer Agency System Paramus
~ GRID, Global Reach Interface Daemon New Jersey, NJ 07652, USA
Other programs, such as PTAS, KIT, and KORS available separately, complement W: www.kogerusa.com
the core competency of Fully Integrated Fund Administrator.
Lombard Risk is an innovative and established provider of financial trading systems,

risk management software, regulatory software and independent valuation services. Lombard Risk
Our software solutions include Colline, a market leader in collateral management, 21st Floor
and STB-Reporter, a market leader for regulatory reporting. We also provide enter- Empress State Building
prise-wide trading and risk management solutions that allow you to value and man- Lillie Road
age risk proactively across a broad range of financial instruments. Other solutions London SW6 1TR
include sophisticated anti-money laundering and financial crime detection software. UK
Lombard Risk is a global company with offices in London, New York, Shanghai, T: +44 (0)20 7384 5000
Hong Kong, Singapore and Johannesburg. F: +44 (0)20 7384 5140
For more information, please visit www.lombardrisk.com www.lombardrisk.com
Building on over twenty years of experience in capital markets and cross-asset

software solutions, Murex introduces Mx Asset Manager - a unique cross currency,
cross asset fund management solution capable of handling the full range of
products, from plain vanilla to the most complex derivative products.
C: Hélène Desbiez
Coupled with a high degree of flexibility and customization, Mx Asset Manager
Business Development Manager
features a multifaceted design catering to the needs of both service providers
T: +33 1 44 05 32 00
(prime brokers, administrators, asset servicing providers) and direct clients (portfolio
E: helene.desbiez@murex.com
managers for mutual, pension or hedge funds, insurance companies).
W: www.murex.com
With so many new challenges presented to buy-side managers when integrating
increasingly-complex derivatives into their portfolios and funds, Mx Asset Manager
represents a strong and reliable ally for dynamic position keeping and multi-dimen-
sional risk management in a thriving market.
Odyssey is an industry leader in the global provision of private wealth and asset London Office:
management solutions and services. Martin House
Odyssey provides a comprehensive range of components for portfolio management,
5 Martin Lane
client relationship management, advisory, compliance, risk, and analytics - deployed
London EC4R 0DP U.K.
on a single scalable platform, facilitating the enterprise-wide implementation of
solutions and data management.
Founded in Luxembourg in 1995, Odyssey today has offices in the key financial T: +44 (0)20 7621 5800
centres, including London, New-York, Toronto, Singapore, Zurich, Frankfurt, F: +44 (0)20 7621 5899
Brussels, Geneva, Madrid and Tokyo. Odyssey’s operational head office and main
development centre is located in Lausanne, Switzerland. Throughout this E: info@odyssey-group.com
knowledgeable network Odyssey employs over 420 professionals. W: www.odyssey-group.com

peterevans is a leading provider of front to back office solutions for the financial services
sector. With 23 years experience peterevans takes a sophisticated and dynamic
approach to assist customers in reducing costs and witnessing an increase in margins by
peterevans seamlessly replacing costly and restricting legacy platforms. peterevans works in a col-
New Broad Street House laborative manner and sees clients as partners to help meet all the demands in today’s
35 New Broad Street marketplace. The xanite product suite offers a highly configurable, flexible and fully
London EC2M 1NH integrated, browser based, comprehensive front to back solution that complies with mes-
T: +44 (0) 29 20 402200 sage standardization and settlement harmonization. Deployed as a single application or
E: info@peterevans.com integrated as components into your existing platform. Each of the xanite modules can de
W: www.peterevans.com delivered via an ASP or self-hosted. Covering: wealth management, custody corporate
actions clearing and settlement private client and on-line stock broking Clients contin-
ue to retain all control with their portfolio, fund and relationship managers, brokers,
middle and back office operation – on line anywhere in the world.
Princeton Financial® Systems, a wholly owned subsidiary of State Street

Corporation, is a leading provider of investment management and accounting
T: +1 609-987-2400 systems and ASP services for global institutional investors.
F: +1 609-514-4794 Its flagship PAM® investment management systems provide comprehensive STP-
C: Lorne Whitmore, Vice ready functionality that can be licensed for in-house use or accessed via the
President, Global Sales & Internet. PAM® systems are currently used worldwide by over 275 leading invest-
Product Management
E: lwhitmore@pfs.com ment managers, insurance companies, mutual funds and unit trusts, pension funds,
A: 600 College Road East, hedge funds, endowments, banks and corporation, which manage combined total
Princeton, NJ 08540, USA assets over US $3 trillion.
W: www.pfs.com Princeton Financial has offices located throughout the United States, United
Kingdom, Belgium, Australia, Singapore, Amsterdam and Canada. Form more
information, visit Princeton Financial’s website.
Sectech Limited, established in 1998, provides comprehensive solutions

for Custody, Settlement and Securities Back office automation to meet the
T: +44 (0) 20 8289 8174
F: +44 (0) 870762 6157 needs of custodians, fund managers, asset managers, and pension funds
C: Mr. Khalid Mukhtar managers.
E: khalid@sectech.com The Custody 2000 suite of applications is a powerful and feature rich system
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A DIFFERENT KIND OF FORESIGHT
Our disaster recovery expert

‘Tis the season... Keith Ford on festive follies
ell a big seasonal hello to determined by the location and venue. alternate your drinks with adult soft
W everyone from Continuity

Towers!
We are all here at the office, wondering
Time your arrival. Don't be the first to
turn up or be the last to leave, both a
recipe for over indulgence or confirming
drinks or water. Slammers or Absinthe
cocktails look better in road movies
and holiday videos than on the back
if you had missed us over the summer. seat of a taxi.
To be honest, what with the major Speaking of alcohol, it can affect your
downsizing that has been going on inhibitions, now is not the time to tell
here in the service departments, we Paul and Ken that their dress sense
have not had a great deal to write stinks, or how much Mr Davies fancies
about. You know how all of your IT Emmanuelle his PA. Remember this is
support departments simply exist to the season of goodwill to all mankind
add to the cost of doing business and and glass ceilings.
to have a good time and attend It may well be that there will not be
well funded parties? Well frankly, an ever flowing river of alcohol to
these have been a little thin on the enjoy and the bar may revert to cash at
ground of late. some point during the evening (sub-
As a huge effort to get all our read- prime lending exposure bankers take
ers back onside, we have been doing a note). So remember to bring a few quid,
little research for you on how much at least for a taxi home.
you can spend on the Christmas party Say hello to everyone, and try not to
and finding out how to do it properly get stuck in with your little clique of
and, of course, how not to do it! friends and don't monopolise the con-
We have heard many bad reports versation with senior bosses.
during our research, including a blind- This is a party and not an extension
ing corporate FX evening that coincid- of the office; so don't spend all night
ed with the annual Christmas lottery talking shop. The Christmas party is an
draw. One of the traders' wives opportunity to get to know your
thought it might be humorous to workmates on a more personal level, to
encourage the DJ to pretend he was try to network with them and demon-
listening to the draw and call out the strate other positive aspects of your
numbers 'live'. She of course handed personality, if you should have any.
him a list of the numbers that she Avoid romantic liaisons. Research has
knew her husband did each week shown that at least one third of all cou-
(birthdays, anniversaries and house ples meet at work and considering how
numbers). In a moment of high excite- much time you spend there, this should
ment, no doubt caused by a liberal sup- not surprise you. However, thinking
ply of alcohol at the free bar and the that the Christmas party is the place to
fact he thought he had just won 10 mil- make a move on Angela because she has
lion pounds, he decided it was time to A glass more than half full had those two glasses of fizz, may not
come clean to his wife about the affair improve your career plan and, of
he had been having with her sister for course, you may have to work with her
the last five years and suggested she for the rest of the year.
could have the house, cars and kids! your status as office bore. Make your own Don't leave the party with those manic
On a more serious note, what can you itinerary for the evening with a collective traders, or the HR tax planners. Make
do to try and ensure that your party does rendezvous meeting before the party sure that you organise transport home
not become a feature in the Sunday and perhaps somewhere to go afterwards (remembered to bring that taxi cash?), it
tabloids? We managed to garner a few with your friends. Have an idea what can make all the difference to the end of
tips from some of the folks in our HR timings have been agreed for the whole the night.
departments. evening. Finally, have a great party, knock your-
Dress in an appropriate style for the You knew they would say this, but selves out and tell us about your best or
theme of the party. There will probably avoid mixing your drinks, try to pace worst parties over the season for that
be a dress code, which will usually be yourself throughout the evening and bonus bottle of champagne. ■

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ISJ26 Cover 30/11/07 5:10 pm Page 1

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