VOLUME 5 No. 30 - 2008 ISJNEWS.

COM
GBP 25 - UK, ROW
USD 45 - America
INVESTOR EUR 35 - EMEA

S ERVICES
JOURNAL

PAY IT
AGAIN, SAM
A new payments era
in the USA

CUSTODY FOCUS -AFRICA

ANALYSE THIS - DERIVATIVES SYSTEMS
PANEL DISCUSSION - LUXEMBOURG
LEGAL - CLASS ACTIONS
PLUS
US - CUSTODY
PENSION FUNDS - TRANSITION
TURKEY - GROWING MARKET
ASIA - NEW SLB COUNTRIES

SERVING THE GLOBAL SECURITIES SERVICES INDUSTRY

 HEADS UP

INVESTOR
S ERVICES
JOURNAL
VOL 5 No. 30 - 2008 No pain, no grain
It may yet be an Indian summer of key
news coverage. While New York, Beijing
and London have been preoccupied by -
respectively - a junior state senator,
Hillary Clinton, an earthquake and a
backbench MP Boris Johnson, the
subcontinent has continued with its
financial and infrastructural alterations.
After a futures trading clamp down on
seven other soft commodities after its
rice export ban, the country has been
the epitome of caution in protecting its
consumers as food prices become the
prime international debate. The powers
that be in India seem determined to
learn from the cross-market chaos that
at the last estimate has brought about
USD300 billion in write downs. For
more on India and other Asian markets'
return to securities lending eleven years
after the Asian financial crisis, turn to
page 30.
The US, the biggest securities market,
is explored in this issue in the areas of
payments (p16) and custody (p19). Both
areas face the challenges of greater
trading volumes, new technology and
increasingly sophisticated investors,
including an interesting assertion from
JP Morgan's Rajen Shah that the narrow
term 'custody' is now redundant - it
should be called 'investor services'.
On the theme of new technology, we
received some interesting and varied
contributions from industry figures
regarding the processing of derivatives,
and the challenges of structuring the
unstructured and software templates in
Analyse This - turn to page 44.
Business, as many financial
philosophers point out, is often about
being a good middle man. To this end
we explore the continuing rise of
transition managers - the middle men of
portfolio reallocation who are now
coming in from the edges of the
investment world to make their mark on
pension funds. Turn to page 66 for the
issues and debates surrounding their
profession.
Elsewhere we entertain the views of a
panel of experts on the Luxembourg
fund industry (p34), explore other EU
domiciles (p53), the growing numbers
(not to mention the size of payouts) of
corporate class actions (p61), and the
rising star of Turkey - right now the
ultimate 'developing emerging' market.
Finally, Catherine Kemp casts an eye
over the new market developments in
the Middle East and North Africa (p57).
That should be enough geography until
next time.
Ben Roberts

INVESTOR SERVICES JOURNAL

Deputy editor: Ben Roberts (Ben@2ipartners.com)
Reporters: Joe Corcos (Joseph@2ipartners.com), Catherine Kemp (Catherine@2ipartners.com)
MEMBER - PERIODICAL PUBLISHERS ASSOCIATION Contributors: Brian Bollen, Anthony Harrington
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Associate publisher: Justin Lawson (Justin@2ipartners.com)

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Oliver Blennerhassett (Oliver@2ipartners.com)
TOTAL NET CIRCULATION 12,133 Operations manager: Sue Whittle (Sue@2ipartners.com)
Analysis for the Audit Issue Vol 4, No 22 distributed June 2007.
Source: AUDIT BUREAU OF CIRCULATIONS, www.abc.org.uk CEO: Mark Latham (Mark@2ipartners.com)
Investor Intelligence partnership 16-17 Little Portland Street, London W1W 8BP
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ISSN 1744-151X. Printed in the UK by Pensord Press.
CONTENTS

VOL 5 No. 30 - 2008

25 Roadmap to success
16 66
The Slovene market.

■ Market infrastructure
26 Facing the future
Turkey enters a new phase

■ Securities lending
30 An Asian lending spree
New markets opening up to SLB

57 Securitisation
Who, how and why?
US custody &
payments ■ Technology
■ Legal
14 Managing director profile
1 Heads up Tim Lind of Omgeo 61 Class Actions
The Editor’s letter Exploring the growing volumes and
44 Analyse This size of payouts
4 Letters Derivatives processing
Readers’ points of view
58 Middle East & North Africa ■ Funds
■ News Upcoming markets
35 Luxembourg funds
Latest outlook on the domicile
6 Global snapshots & mandates
Round up of securities services 53 EU domiciles
headlines from isjnews.com A new era

10 News analysis 66 Pension funds: Life in transition

Reading between the lines The rising profile of transition
managers reallocating portfolios
■ Custody
80 Foresight
16 US Payments Vincent Caberlynk of BNP
A new system and new Paribas
challenges
■ ISJ Directory
19 US Custody
Thinking outside the box 69 The directory of
securities services providers
22 Africa 58
New countries making their mark

2 INVESTOR SERVICES JOURNAL

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LETTERS TO THE EDITOR
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 ben@2ipartners.com for a chance to win an exclusive Cross pen.
Prize winner
Regulation-SIG puts
companies in the frame
Dear ISJ
I
n the past twelve months we have
witnessed dramatic and unpleasant
changes in the financial markets. In
Europe, market abuse and money
laundering have added to the credit and
liquidity crises.
Regulatory structures have been put
under severe pressure by volatility in the
markets and legislative demands for
increased transparency and risk
awareness will be the result.
A product of any regulatory change is
technological challenge, as seen with
the infrastructural upheavals that many
front, middle and back offices had to
grapple with post-MiFID. While
technological changes have to be
implemented these are usually within
extremely challenging time frames, with
a high degree of uncertainty as to the
effects that costly and time consuming
IT projects will have on the long-term
gain of the business.
Where technology is concerned
financial firms usually struggle to try
and update and enforce their internal
policies and controls in line with
regulatory change and the recent
formation of a new ISITC special
interest group on regulation that will
address how financial institutions can
fulfil the aims of regulation in a cost-
effective manner will be no bad thing for
SaaS could deliver
Dear ISJ
A
s the credit crunch continues to
create uncertainties, banks are
working hard to retain the trust of
both investors and clients. As such, now
is not the time for embarking on
complex IT projects that require high
initial investments. Instead, banks are
looking to lower the risks and costs of
4 INVESTOR SERVICES JOURNAL
the European market.
The Regulation Special Interest Group
(Regulation-SIG) will be a component
part of ISITC Europe's IT Group with the
aim of assessing the IT impact of recent
major regulations on the institutional
aspects of broker/dealers', asset
managers' and custodians' business.
The group will look at the IT
implications of coming EU regulations,
where implementing IT is needed and
will promote best practice. Through
building awareness around the full
functionality of banking systems and
promoting a proper understanding of the
technological implications of European
regulation, the group will explore how
current systems can be re-used and
utilised more efficiently to fulfil
regulatory demands rather than rolling
out new technologies or software with
every new piece of legislation that
comes about.
The formation and work of Regulation-
SIG will challenge the knee-jerk reaction
to regulatory change that many IT
departments currently implore and
promote a more gathered and measured
approach to the technology challenge of
regulation. Through a better
understanding of their internal
technologies and how they can be
manipulated financial institutions will
be better equipped to ride the wave of
regulatory change rather than languish
in the swell.
Yours
Chad Giussani, International
Product Manager, EMEA, Omgeo
IT projects, and Software as a Service
(SaaS) could well provide the key.
The SaaS delivery model allows banks
to access a complete hosted banking
application remotely. In addition to the
software functionality, banks can benefit
from a secure technical infrastructure, a
business continuity program and
helpdesk support, all in a single package.
With continental Europe leading the way,
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what is next for SaaS in the UK?
According to Ovum, the advisory
consultants, the SaaS model is expected
to experience substantial uptake in the
months ahead. However, it seems UK
financial services firms are yet to realise
the potential of SaaS. This may partly be
due to a lack of evidence of the benefits
and cost savings. Despite this, Ovum
predicts a 59% increase in the UK's
SaaS market, indicating that firms are
primed to overcome these obstacles.
The model has already taken off in
countries such as Luxembourg, where
banks are already seeing real results.
They can not only avoid the peak in
expenditure associated with the set-up
of traditional large IT projects but also
benefit from a 'hands-free' approach to
IT, allowing them to focus on product
innovation and customer service.
Furthermore, the model helps banks
overcome the hurdle of lengthy, high-
risk implementations by delivering a pre-
packaged solution to replace legacy
systems or facilitate the start-up of
Greenfield operations.
Banks that realise operational
excellence in their IT will be in the best
position to achieve a competitive
advantage. SaaS might just be the
panacea banks need at this crucial time.
Yours
Marc De Groote, CEO,
Callataÿ & Wouters
NEWS
CUSTODY, CLEARING AND
SETTLEMENT
Sao Paulo - Euroclear SA/NV and
Companhia Brasileira de
Liquidação e Custódia (CBLC),
the Brazilian Clearing and
Depository Corporation,
have signed a
Memorandum of
Understanding
(MoU) to build
and develop a co-
operative
relationship in
securities
clearing and
settlement
matters. The
agreement aims to
boost prosperity in
Brazil's financial markets
as well as EU markets covered
by the Euroclear group and the
international markets served by
Euroclear Bank).
New Jersey - Fundtech, the
corporate banking solutions firm,
has announced the introduction
of ACHplus, a software product
line that includes a high-
performance back-office
processing solution and a web-
based origination application. The
system offers a new choice to
ACH originating banks - providing
an extensive feature set at low
cost of ownership.
London - Cadis Software,
formerly Citadel Associates, the
provider of enterprise data
management (EDM) systems for
the buy-side, has unveiled new
features and functionality within
its Cadis EDM Suite. One of the
major enhancements to the
solution is the re-engineering of
the XML bulk upload feature.
This ensures that large files can
be imported into Cadis EDM
Suite in a fraction of the time,
delivering faster batch and
intraday processing of data.
FUNDS AND ADMINISTRATION
Liverpool - BNY Mellon Asset
6 INVESTOR SERVICES JOURNAL
Servicing has announced that
Royal Liver Group has increased
its mandate with the company to
provide performance and risk
analytics. BNY Mellon provides a
range of fund services to Royal
Liver for assets valued at GBP3.7
billion, including accounting,
transfer agency and custody.
George McGregor, chief executive
of Royal Liver Asset Managers,
said: “The outsourcing of our
performance and risk analytics
will allow us to focus on our core
business of adding value. BNY
Mellon Asset Servicing has
proven to be a strong and
trustworthy partner as our
custodian and we are confident
that they are the most prudent
choice for our performance and
risk analytics and to help us
achieve our long-term business
goals.”
LEGAL AND COMPLIANCE
Washington D.C. - As part of a
coalition of 11 European and
North American trade
associations, the Securities
Industry and Financial Markets
Association (SIFMA) have
released a report on improving
cross-border financial services
regulation. "The transatlantic
financial services market is a
major driver of the global
economy, and reducing
unnecessary and duplicative
regulations produces significant
efficiencies and cost savings for
market participants and investors.
With transatlantic cross-border
stock and bond trading nearing
$40 trillion per year, investors will
benefit significantly from a more
coherent regulatory framework,"
said Bertrand Huet, managing
director, European Legal &
Regulatory Counsel, for SIFMA in
London.
MARKET INFRASTRUCTURE
London - Barings warns of tough
times ahead in global markets
and recommends a top down
FREE NEWS DAILY AT WWW.ISJNEWS.COM
asset allocation strategy as the
best option for pension schemes
in this volatile environment.
At the recent Barings Institutional
Conference, Baring Asset
Management’s (Barings) Andrew
Cole, member of the strategic
policy group, spoke of his belief
that pension schemes should
review their investment strategies
to ensure that they are fully
prepared for a prolonged period
of volatility in global equity
markets.
SECURITIES LENDING
London - Absolute return funds,
130/30 funds and funds investing
in alternative asset classes are at
the top of the agenda for fund
managers, according to research
by Standard & Poor’s Fund
Services. Fifty companies
participated in the survey,
including companies from the
UK, Germany, the Middle East,
Switzerland, Luxembourg and
Spain and were surveyed about
their intentions for the remainder
of this year for fund launches and
marketing activity. Results
showed that 38% of respondents
were likely to launch absolute
return funds this year, 35%
planned launching alternatives
funds and 32% planned 130/30
fund launches. Property and
energy funds were the lowest
rated possibilities for new funds,
with just 14% and 8% of fund
managers considering them,
respectively.
Tokyo - There is growing interest
for more complex products
among Japanese investors
according to a new report, The
Japanese Retail Investment
Market from Celent, a Boston-
based financial research and
consulting firm. The number of
retail investors has been
increasing since 2004, and
reached 2.54 million retail
investor accounts in 2007.
Stockholdings of these individual
investors made up 18.1% of

 NEWS/MANDATES

market value. There is a growing number

(20%) of female active traders engaging in
foreign exchange margin trading, dubbed
'housewife' traders by the media. Margin
trading in foreign exchange currency bets is
rapidly gaining popularity and there is
increasing interest in derivative products.
Online trading accounts for 90% of retail
trading and 74% of trading value. This has
caused the number of online brokerages to
increase sharply in the last few years.
TECHNOLOGY
UAE - Wafa Financial Services has selected BT
to provide the latest voice trading technology
across their dealing rooms in the United Arab
Emirates(UAE). The solution, which includes
BT’s ITS.Netrix and a fully managed trading
switch, will be delivered in partnership with
Keross, which act as architecture consultants
and systems integrators for this project.
London - GL TRADE announced that RBC
Capital Markets has migrated its London
exchange traded derivatives business from
EMOS to GL CLEARVISION eXtended, the
group's enhanced middle office system.
Following the acquisition of EMOS system in
June 2006, GL TRADE strongly enhanced GL
CLEARVISION system with EMOS features to
develop GL CLEARVISION eXtended.
Luxembourg -
Pascal Bérichel
has been
appointed head
of fund
distribution
services for
Société Générale
Securities
Services (SGSS)
PASCAL BERICHEL
and is also CEO
and managing director of European
Fund Services (EFS), a subsidiary of
Société Générale Group that provides
these services.
London - State Street Global Advisors
(SSgA) has announced four new
appointments across its relationship,
sales and investment teams.
David Evans from West Midlands
Pension Fund joins the index equity
investment team as a portfolio manager
and will be responsible for managing a
range of equity index portfolios.
Moira Gorman from Morley Fund
Management joins the client
relationship management team as an
account director responsible for
managing SSgA’s relationships with its Group.
asset-owner clients, with a focus on
local authorities.
Carina Wihlstorp also joins the client
relationship management team from
Credit Agricole as an account director
with responsibility for managing
SSgA’s relationship with its asset-
gatherer client base.
Ermello Calorio from BNP Paribas
London, joins as an account manager
supporting the sales team with a focus
on strenthening relationships
investment banks
London - SEI
has appointed
Abbie Tanner as
regional sales
director at UK
Wealth Service
Firms, in the
UK. Abbie will
be responsible
ABBIE TANNER
for developing
and managing
relationships and will be reporting to
Ryan Hicke who is senior director of
the channel at SEI. She began her
career in Australia working for the AMP

Mandates round up of awards

So far this period RBC Dexia has been the big winner
having been awarded the mandate for the SwissCanto
Group's Luxembourg-domiciled portfolio of funds.
RBC Dexia will provide global custody, fund administration,
transfer agency services and investment compliance for the
funds, collectively worth about EUR 16 billion.
HSBC has also done well by securing a ground-breaking
deal with ICICI Prudential to provide fund accounting for
over 100 of the asset management company's schemes.
HSBC is calling the deal “the largest and most complex
third-party outsourcing project ever undertaken in the Indian
funds industry”. This was followed in May by HSBC securing
a mandate from Canara Robeco to provide administration
services for assets of approximately USD930mn.

Mandates awarded in April and May 2008

Month Winner Client Location Assignment Mandate size
April State Street Maryland New York Custody Services USD40 billion
April BNY Mellon TD Waterhouse Amsterdam Custody Services EUR5.2 billion
April HSBC ICICI Prudential India Fund Accounting USD13.6 bn
May BNP Paribas Impax London Custody Services n/a
May Fortis Nedgroup Isle of Man Administration Services USD930 million
May RBC Dexia Swisscanto Group Luxembourg Custody Services EUR16 billion
May HSBC Canara Robeco India Administration Services USD930 million

INVESTOR SERVICES JOURNAL 7

NEWS ANALYSIS
Fowl play
What's the point of the
TEC?
n mid-May the Transaltantic
I
Economic Council (TEC) met for the
second time in Brussels to discuss a
number of pressing issues. Regulatory
co-operation in the pharmaceutical,
cosmetics and animal testing areas were
addressed and the US Occupational
Safety and Health Administration
reported on steps towards allowing the
use of supplier's declaration of
conformity for electrical, electronic and
information and communication
technology (ICT) products.
If that wasn't interesting enough, prior
to the meeting, a press release came
round listing topics to be discussed. One
bullet point stated the following:
‘The EU will present the progress report on
the use of pathogen reduction treatment for
poultry in the EU. Other items include EU
progress report on acceptance of U.S.
accounting standards, discussion of U.S. and
EU regulatory issues in the insurance sector,
enhancing market access for broker-dealers,
exchanges and other trading systems.’
Not that Investor Services
Journal is a magazine that is aiming to
anger the farming lobbies either side of
the Atlantic, but with over 30,000
banking job cuts since the credit crunch,
15,000 alone in Citigroup, perhaps the
TEC may of thought 'market access for
broker-dealers, exchanges and other
8 INVESTOR SERVICES JOURNAL
trading systems' slightly more pressing
that pathogen reduction for poultry.
The Securities Industry and Financial
Markets Association (SIFMA) welcomed
the attempt by the TEC to broach the
subject, but a rather Nietzschean title to
their press release on the subject stated
that: “SIFMA welcomes steps towards
EU/US financial markets integration but
political will must be turned into action.”
The issue of regulatory and physical
power the TEC really has is well made.
SIFMA has been blunt in its denunciation
of the SEC's dithering regarding the
proposed changes to the 19 year-old
Securities Exchange Act Rule 15a-6 (the
principal exemption of potential use to a
foreign broker-dealer to facilitate limited
contacts with persons physically located
in the United States).
David Stongin, managing director of
SIFMA, said: “Reforming this rule would
implement one of the TEC's stated
commitments and would eliminate
existing inefficiencies, increase
investment opportunities, improve
competition, without damaging investor
protection.”
But what can the TEC actually do?
Will it end up being a caseof who will
regulate the regulators? How the TEC
will force the European Commission and
the SEC to take action remains unknown,
and if no action is taken soon, the worry
that the TEC will turn into another
wayward regulatory acronym may
become a reality. Most importantly
something should be done to raise the
profile of EU/US financial markets
integration above that of wheezy
chickens, otherwise things will remain a
Insecure
-itisation
Can the culprit for the
crunch grow again?
he decline of collateralised debt
T obligations (CDO) is a case in point
for the fear surrounding securitised
products. JP Morgan estimates that there
have been 10% fewer issuances of CDOs
since the beginning of last summer. CDOs
began with a great idea: to pool groups of
loan securities that had different levels, or
'tranches', of default risk. CDOs are legally
owned by 'special purpose vehicles',
allowing investors to gain exposure to the
income generated from whichever debts
they wished without actually owning them.
The reality was less clear cut. The
different levels of default risk were more
closely related than imagined, causing a
domino effect of losses. Last year was
CDO’s 20th anniversary, and it was not a
happy birthday. The increased amount of
sub-prime mortgages in CDOs was a time
bomb of credit rating plunges and losses.
JP Morgan's Jan Loeys, in his paper 'How
Will The Crisis Change Markets?', points
out that CDOs based on consumer loans
will now understandably be avoided by
investors. The estimated GBP90 billion of
securitised mortgages handed to the UK
government by beleaguered banks in April
in exchange for Treasury bills to help raise
cash is a clear example of this.
Loeys points out that leverage backed by
short-dated funding caused major set backs.
At the time it was the answer to a
tightening of spreads as a result of early
falls in credit ratings. Now only market
players with a longer term funding strategy,
such as pension funds and insurance funds,
will be looking to move into CDOs.
Loeys expects a rise in government-
sponsored securitisation, called GSEs, to
provide a stabilising series of projects. He
says they may yet salvage the investment in
consumer loans, including mortgages.
However, on 21st May HBOS
successfully sold GBP500 million of
mortgage- backed bonds, its first such deal
for eleven-months. Whether this is first of
further issuances, or a one-off due to the
perceived stability of HBOS is uncertain. ■
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NEWS ANALYSIS
A
passage
out of
India
India's back office is
outsourcing
he growing trend for India’s
T mutual funds asset management
companies to outsource their
back-office processing to specialised
providers has been highlighted by the
recent Canara Robeco Asset Management
Company's (AMC) mandate to HSBC
security services.
HSBC is to provide fund administration
services to Canara Robeco which has
assets under management of Rs.3721.63
crore (USD 930 million) as of 30th April
2008, Canara Robeco AMC.
The instruction follows closely after
the landmark mandate of HSBC earlier
this year by ICICI Prudential Asset
Management Company (AMC). A joint
Pole
position
‘What's happening on the
Warsaw Stock Exchange?’
ISJ hears you cry
nybody who lives within their
A means suffers from a lack of
imagination, wrote Oscar Wilde,
and if the Irish wit were an economics
analyst today he may well have applauded
the boldness of the Warsaw Stock
Exchange.
The WSE has produced a sluggish
performance so far this year, mainly caused
10 INVESTOR SERVICES JOURNAL
venture between ICICI Bank, an
established name in financial services in
India, and Prudential Plc, one of the UK's
largest players in the financial services
sector, ICICI's outsourcing was
considered the largest and most complex
third-party outsourcing project ever
undertaken in the Indian funds industry.
An estimated 40% of fund accounting
for Indian mutual fund assets under
management are outsourced to large
international banks such as HSBC. It
enables the firms to focus on building
other parts of their businesses such as
funds management and client servicing.
Manoj Agarwal, chief operating officer of
ICICI Prudential Asset Management
by the poor performance of small and mid-
cap companies. It also saw a sharp drop in
the value of initial public offerings
compared to the end of 2007 on its main
stock exchange.
But the WSE has made waves in Eastern
Europe with new technology and a handful
of ambitious bids for other stock
exchanges.
Last year it made a bid for Bulgaria's
main stock market in Sofia followed in
February by a head-to-head battle with
Greece's Hellenic Exchanges for around
65% of the Ljubljana Stock Exchange in
February. Both WSE offers failed - for
Ljubljana the WSE was outbid, for
Bulgaria the shareholders had a change of
heart to selling - but that has not lowered
the WSE's sights. This month it will open
an office in Kiev to allow easier access for
Ukranian firms to float on the WSE.
Last month the government revealed
plans to retreat from the exchange by
Company, said when the HSBC mandate
was announced that the outsourcing of
fund accounting had been a key strategic
initiative for ICICI.
Citi acquired ABN AMRO's Indian
custody and fund administration business
in 2004. Deutsche Bank established a fund
administration business in India in 1999
and last year launched a registrar and
transfer agency service for local mutual
funds. Société Générale is also rumoured
to be developing a custody and fund
services joint venture with the State Bank
of India.
It will be interesting to see if India
continues to outsource as an efficient
means for its industry to develop. ■
privatising a number of companies in
which it owns a stake. And just last month
it signed a co-operation agreement with
Swedish group Neonet to use its Neonet
XS Gateway, a suite of software solutions,
to better communicate with its members,
which number 46.
Simon Nathanson, chief executive of
Neonet, said: “The WSE has particularly
high demands for technology and service,
and plays an integral role in the
development of the region.”
Goldman Sachs and Copernicus
Securities are two of the latest companies
to have applied for listed status on the
exchange. And on 21st May the WSE
launched the trading of three-year bonds.
With the macroeconomic outlook strong
- including falling unemployment and a
strengthening Zloty - and the success of
its new exchange for hi-tech companies,
called New Connect, the WSE may yet
match its ambitions. ■
“ A masterpiece! The story hinges around BNP Paribas Securities Services, who are always coming up with
new and ingenious ways of providing their clients with a winning solution. In this book, we uncover the
secrets of their success: their on-the-ground presence in Europe, Asia-Pacific and the US means they are
perfectly placed to address the full range of their clients’ business needs, on a global scale.
BNP Paribas Securities Services - close to clients, close to markets. ”
BNP Paribas Securities Services is incorporated in France with Limited Liability and authorised by the French Regulators (CECEI and AMF). BNP Paribas Securities
Services London Branch is regulated by the Financial Services Authority for the conduct of its investment business in the United Kingdom and is a member of
the London Stock Exchange. BNP Paribas Fund Services UK Limited, BNP Paribas Trust Corporation UK Limited and Investment Fund Services Limited are wholly
owned subsidiaries of BNP Paribas Securities Services, are incorporated in the UK and are authorised and regulated by the Financial Services Authority.

www.securities.bnpparibas.com
DOMICILES UPDATE
Guernsey
By Sean Cheong,
Partner,
Collas Day Advocates
rt prices last year rose on average by 18%, according to
A Artprice.com. Post-war art has outperformed the Standard &
Poor's 500 index over the past 25 years, according to the Mei
Moses art index.
The auction houses' estimates for the big May sales indicate that they
believe buyers will continue to support top prices, in spite of warnings
by many dealers and collectors. The increasing diversity of buyers in
Russia, China and the Middle East has bolstered confidence that art
sales are no longer dependent on a small group of wealthy families.
Guernsey's first fine art hedge fund, Art Investment PCC Limited,
and its first cell, the Art Trading Fund, were launched in 2007 by
London-based Artistic Investment Advisers ("AIA"). This fund
provides a vehicle for investment in fine art by professional and
sophisticated investors.
The use of a protected cell company structure (or PCC) was the
obvious choice. This type of vehicle has existed in Guernsey since 1997
and is now familiar to investors and counterparties across many
jurisdictions. It allows future cells to be launched under its umbrella with
access to shared resources and expertise. Although the PCC is a single
legal entity, assets and liabilities of cells are segregated by law, ensuring
investor and creditor protection.
The fund was set up using the Qualified Investor Fund route, one of
the fast track procedures available in Guernsey. Guernsey also offers a
registered fund route to establishment in the case of closed-ended funds
which are not marketed to Guernsey residents. Both routes offer a three-
day approval service by the Guernsey Financial Services Commission.
The fund is listed on the Channel Islands Stock Exchange - an added
attraction for Sipps, ISAs, PEPs and SSAs.
The fund is advised by AIA. Chris Carlson, AIA director, said: "We
were looking for a jurisdiction that would provide us with both the
security and yet flexibility to successfully establish and operate such an
exotic fund, and Guernsey was the prefect match."
The art held within the fund will be selected if it is likely to generate
steady, predictable returns. To this end a number of established artists
have been signed up, granting the fund an option to purchase their
works. With specialist art experts acting as consultants, AIA sources
impressionist and post-impressionist works coming to the market.
Hedging is introduced into the management of the fund's portfolio,
using a basket of economic indices. This unique feature of the fund
makes it the first art hedge fund.
Where next?
There are plans to launch a second cell of the Art Investment Fund
imminently. In keeping with its reputation for innovation and
commercial sense, Guernsey also looks set to play host to other
investment vehicles with a range of unique asset classes. The recent
introduction of the Incorporated Cell Company structure offers
promoters greater choice, and coupled with the proactive approach of
Guernsey's regulators to streamlining its procedures, should keep
Guernsey firmly at the forefront of the funds' industry. ■
12 INVESTOR SERVICES JOURNAL
Isle of Man
By Brian Donegan, director,
Foreign Direct Investment,
Isle of Man Finance.
ast year's strategic review of the Isle of Man's fund
L regime saw the Isle of Man Fund Management
Association (FMA) outline its ambitions for the Island's
funds sector including a major new focus on alternative funds
in order to secure institutional business for the incorporation,
domiciliation and establishment of fund operations in the Isle
of Man.
The key features of the strategic review included
streamlining the licensing process for fund managers and
creating new fund structures. The establishment on the Island
of fund managers Pelham Capital and Bridge Asset
Management followed the review, and the FMA are confident
that the funds industry will continue on a path of dynamic
growth in line with current market expectations.
The Isle of Man has a reputation for adaptability and
resourcefulness. As such we are pursuing a wide range of new
business opportunities in the sector.
We are currently speaking to a number of major fund
managers about a move to the Isle of Man, as the Island
maintains a highly competitive fiscal and regulatory
environment for conducting fund business.
The Isle of Man's location, for example, with quick and easy
access to London, can minimise the carbon footprint, as well as
the cost, for UK companies choosing to relocate their
operations to the jurisdiction.
In line with this close relationship with the City of London,
the Isle of Man is also one of the leading jurisdictions for the
incorporation of non-UK AIM-listed companies, including
fund vehicles.
Indian and Chinese firms in particular are taking advantage
of the Isle of Man's pragmatic regulation and low tax regime
by registering here in order to raise funds on London's junior
market. The Isle of Man is now widely regarded as the
preferred access point to London.
In today's turbulent market, where the reputations of other
fund domiciles are being questioned and issues such as
disclosure and transparency are brought into the spotlight,
certainty is the chief concern for investors.
Against this background, the Isle of Man offers an
investment grade and viable alternative jurisdiction. The
Island is the only UK crown dependency to boast a “AAA”
Standard &Poor's rating; this provides stability and underpins
the Isle of Man's reputation for strength in due diligence and
corporate governance.
As the market continues to be characterised by turbulence
and dislocation, emerging fund managers will find in the Isle of
Man, a jurisdiction where all aspects of fund management can
be conducted quickly, easily, and cost-effectively - and by a
government keen to encourage, facilitate and support proven
hedge fund management talent. ■
 No matter how big we get,
we’ll still remember how
you take your tea.

You get the best of both worlds at Butterfield Fund Services—unparalleled hedge fund administration services across the
globe and personalized attention around the corner. Whatever the size of your fund, we will tailor our services to meet your
unique requirements…like knowing if you take one lump or two. Call any of our offices listed below for more information on
Butterfield Fund Services. www.butterfieldbank.com.

Bermuda Doug Lang - douglang@bntb.bm

(441) 299-3933

The Bahamas Heather Bellot - heather.bellot@butterfieldbank.bs

(242) 677-8200

Cayman John C. Lewis - john.lewis@butterfieldbank.ky

(345) 815-7592

Guernsey Patrick A. S. Firth - patrick.firth@bfmgl.gg

(44) 1481-737756

Services provided by subsidiaries of

The Bank of N.T. Butterfield & Son Limited.
EXECUTIVE PROFILE - TIM LIND
Managing director profile:
Tim Lind of Omgeo
Omgeo's Tim Lind discusses with
Ben Roberts the importance of
liberal markets and the new
challenges faced by the firm in
post-trade reporting
14 INVESTOR SERVICES JOURNAL
im Lind is a firm believer in
T liberal markets that allow
companies to regulate themselves
and achieve goals their way. As managing
director of strategy at Omgeo, a leading
provider of automated post-trade
information, he heads up a team that is
certainly forging its own path for an
ever-diversifying portfolio of clients.
Where regulators must play a role, he
says, is in ensuring the full transparency
and risk responsibility of firms in the
methods that they use to trade - two
areas that just so happen to be Omgeo's
strengths. He says it is actually
convenient that one of Omgeo's parents,
DTC, is a regulated company “obsessed
with stability” as it has only enhanced the
reputation of its offspring as a steady and
reliable source of information between
brokers and asset managers when
settling trades.
“The events over the last year between
credit issues and market turmoil I think
serves as a reminder that firms have
underinvested traditionally in risk
management capabilities,” he says. “This
has been our key message since Omgeo's
inception. Omgeo has always been
focused on operational risk and
transparency and process, but sometimes
it takes a few bumps in the road to
“Omgeo is fortunate to have
a really remarkable com-
munity and it takes a lot of
years and a lot of hard work
and good products and
good fortune to build”
remind the market of the importance of
this kind of capability. You don't think
about insurance until you crash your car.”
Lind has big plans to capitalise on
Omgeo's reputation by looking to move
into new markets. Already this year he
and his team have agreed with a Brazilian
depository to use Omgeo's systems along
with breaking new ground in Asia.
“We're having to globalise like the rest
of industry that we serve,” he says. “Our
investors are looking for more and more
opportunities for investment and that
really requires a global footprint, so
Omgeo's growth strategy is to show that
we can be in those markets.”

Lind explains that when entering a
new market he is dedicated to forging a
relationship with the country's regulator,
as well as the trading community. He says
the best relationship is one where the
regulator sets goals for the industry but
trusts the players in that industry to find
their own ways to achieve it. He gives the
example of Canadian legislators who set
the target for implementing same-day
trading confirmation. Canada, he says,
“just set the goal and the community
embraced it”, and it became a fertile
environment for Omgeo in providing fast
and trusted settlement information. This
is his philosophy of liberal markets.
Lind grew up on the west coast of
America and studied Economics and
Political Science in Oregan, where he
developed his desire to work within
financial services. He moved to Boston in
1988 to join Brown Brothers
Harrowman, then one of the leaders in
fund custody. It was here that he
developed an appreciation for the
interactions between custodians, brokers,
customers and the global networks of
banks that custodians needed to manage.
It also, he remembers, “gave me a keen
interest in the automation of those
processes and how these parties can make
the processes more efficient”.
He joined Omgeo in June 2007 and the
Boston-based firm were an ideal fit for his
life and business outlook. “I knew a lot of
the people at Omgeo over the years and
always had a deep respect for the
organisation and the innovation and the
drive that they have. Being in Boston and
working a lot in New York, we're on the
US air shuttles back and forth and you
tend to see the same people over and over
again, so I'd always see the Thompson
folk [Thompson Reuters is the other
part-owner of Omgeo] travelling or at
conferences. So I developed a relationship
with a few of them.”
He was also attracted to the firm
through the impressive list of clients
and advisers - “the Goldmans, Citis,
Morgan Stanleys and JP Morgans of
this world” - who attend meetings.
“Omgeo is fortunate to have a really
a remarkable community and it takes
a lot of years and a lot of hard work
and good products and good fortune
to build.”
He is constantly struck by the speed at
which financial technology has developed
in just a few years, especially compared to
the “sluggish” early 1990s when
settlement firms would come through fax
machines. He is understandably proud of
Omgeo's position as one of the most
efficient automatons. However, he
emphasises that although most
transactions are now automated (90%, by
his reckoning), most of the customers are
not. “For most providers, their top
customers that generate most of the
volume are generally more sophisticated
and electronic. However, a lot of smaller
firms remain manual and still rely on the
fax machine. It is the holy grail for
Omgeo to bring all parties into the
electronic game and make it economically
viable for them to automate their
process.”
Making the business case for the
smaller firms when their volumes are
lower is a challenging process, he
says. “They want easy access to
networks and solutions, they don't want
to hire and maintain a large IT staff, so
any technology solution has to be easy to
adopt, easy to administer and be cost
effective.”
Lind is keen to tackle the challenge
of post-trade confirmation for
“The events over the last
year between credit issues
and market turmoil I think
serves as a reminder that
firms have underinvested
traditionally in risk
management capabilities”
exchange traded derivatives (ETD).
He says the first challenge is in
corroborating with four parties almost
simultaneously: executing brokers,
clearing brokers, asset managers and
custodians. The second challenge is
reporting the voluminous amount of
attributes of trades. “We all understand
'how many shares did you trade?' 'what
was the price?' but when you look at OTC
derivatives like total return swaps or
equity derivatives the number of
attributes can go into the hundreds and
all those attributes are not always well
understood.”
He adds that over-the-counter
derivatives, with privately negotiated
EXECUTIVE PROFILE - TIM LIND
terms and less defined structures, are an
even greater challenge - but one that can
and must be met.
He is also intent on providing Omgeo's
service to foreign exchange trading, an
area that he says has seen the same
volume increases as equity trading. This
increase in volumes he puts down to the
rise in electronic trading, algorithmic
trading and the fragmentation of
liquidity. He says one trader he spoke to
estimated that the volume of foreign
exchange was set to increase “ten to 20
times”.
Is Omgeo well placed to deal with
these increasing volumes? Lind thinks so,
and states that their risk management
process allows them to predict the rate of
increase of trade volume to be able to
adjust accordingly. So, when there are
trades totalling one million, Omgeo's
technology has capacity for three million.
Lind says his job is three-fold. “Firstly,
I work with my colleagues in sales and
products to set our business objectives
and our priorities. Then I look for new
business opportunities in adjacent
markets and new lifecycles that we can
automate. Thirdly, I oversee our brand
strategies and marketing team”
The team itself he estimates as being
20-strong. His cites his plans for the
group as firming up its new presence in
India and China and capitalising on the
increasing openness to foreign investors
and domestic investors looking outwards.
“In India, 99% of investment capital
stays within India. Over time we expect
that to become more liberalised to allow
Indian investors to find other markets for
investing their surpluses,” he says. “The
country's indices have fallen quite
dramatically in the first quarter, so if
99% of your investments are in one
market that exposes you to a lot of risk.
So as those markets liberalise and allow
domestic residents to invest in foreign
markets, that's where Omgeo is at its
strongest point and an international
provider. Most other providers don't
cross borders.”
This observation sums up what Lind
calls his 'key pillars”: diversity,
internationalism and efficiency. These
new markets are just two more BRICs to
help build towards his goal. ■
Next issue:
Teresa Parker of Northern Trust
INVESTOR SERVICES JOURNAL 15
US PAYMENTS

Pay it again, Sam

Anthony Harrington explores the new
systems in place in US payments
and its key themes of transparency,
a paperless future and the ongoing
comparison with its European
counterpart.
n 19 November last year Europe

O shifted from the old TARGET

settlement system, which used a
plethora of country specific real-time
gross settlement systems (RTGS) to the
new, single TARGET2 system. The result
was a substantial simplification of
Europe's settlement system, bringing
down cost and settlement risk to
participants.
The US, too, has for the last few years
been seeking improve its payment and
settlement systems. Every economy needs
to press towards the fastest and most risk
free settlement system possible, and in a
global economy there is also growing
pressure for countries to come up with
global settlement systems. CLS, the
organisation founded to handle the
settlement of foreign exchange
transactions globally, is one example of an
originates at point A will be settled at liquidation having issued an instruction to
institution with a global reach. BIS, or the
point B and result in the appropriate sum pay, but before party B's bank has received
Bank of International Settlements is
of cash going into the appropriate bank the funds, there is a potential default. If
another.
account. this occurs frequently, confidence in the
Why does the US or anyone else need a
When you introduce distance into a payments and settlements systems erodes
world class settlement system? As the
transaction suddenly the gap in time and trade is disrupted.
credit crunch has demonstrated in recent
between party A as the depositor and party You wind up with a situation where
months, anything that perturbs the world's
B as the receiver, together with the party B insists on being paid in cash, kind,
financial systems can destabilise economies
appropriate debiting and crediting of or gold ingots by party A before delivering
and have potentially catastrophic
personal accounts and institutional anything of value, adding greater
consequences. People and institutions need
accounts, becomes crucial. complexity massively to any significant,
to be confident that when they transact
For example, if party A goes into long distance trade transaction.
with each other a payment instruction that

16 INVESTOR SERVICES JOURNAL


In the US, the Federal Reserve has had a
key role to play in both fostering and
monitoring payment systems. This
includes improving efficiency and financial
stability as well as providing key
mechanisms such as Fedwire.
When the Federal Reserve was formed
100 years ago, the financial environment in
the US consisted of a plethora of
independent banks. A kind word for the
US banking institution at the time would
be fragmented - very fragmented - and
cheques were not cleared at par. The Fed
transformed this state of affairs by
providing a national cheque-clearing
service to banks that joined the Federal
Reserve System, so helping to create a
more unified payments system. Since then
the Fed has continued to take an active
interest in the efficiency and stability of
the US payments system.
Speaking at a conference in 2000, Jamie
Stewart, then the first vice president and
chief operating officer of the Federal
Reserve Bank of New York, said: “There
can be no doubt that a sound and effective
payment and settlement system is critical
to ongoing confidence in the US financial
markets and to the continued health and
competitiveness of the US financial sector.
In an environment of rapid technological
change and rising trading volumes such as
we face today, it is essential to make certain
that the integrity of the payment and
settlement system remains intact.”
To meet the twin challenges of
technological change and rising volumes of
trading, the US has initiated a number of
projects since 2000 designed to improve
elements of the clearing system. First,
there was the introduction of the CLS
(continuous linked settlement) Bank five
years ago. CLS Bank now provides
payment versus payment settlement for
payment instructions arising from foreign
exchange (FX) transactions in the
currencies of CLS participating Central
Banks.
CLS Bank is owned by 69 of the world's
largest financial groups throughout the
US, Europe and Asia Pacific. Its members
account for more than half the value
transferred daily in the world's FX
markets, according to the bank. CLS itself
is a real time system that enables
simultaneous settlement globally,
irrespective of time zones. With the
average daily turnover in global FX
transactions standing at around USD2
trillion, there has long been a clear and
pressing need for an effective cross
currency settlement process. CLS now
provides this.
Another improvement, already
implemented in 2000, was a new net
settlement service for Fedwire. The Fed
provides three services, the Fedwire Funds
Service, the Fedwire Securities Service and
the National Settlement Service. The
Funds Service provides a RTGS system
for some 9,500 participants, with funds
transfers taking place immediately, and
being final and irrevocable when
processed.
“There can be no doubt
that sound and effective
payment and settlement
system is critical to
ongoing confidence in the
US financial markets”
Jamie Stewart,
former Federal Reserve
Bank vice president
All participants who maintain a reserve
or clearing account with a Federal Reserve
Bank are able to use Fedwire to send and
receive payments from other account
holders directly. Its main use is for large-
value, time-critical payments, such as the
payments for the settlement of interbank
purchases and the purchase, sale and
financing of securities. It is also used for
the settlement of real estate transactions.
The Fedwire Securities Service consists
of a safekeeping function and a transfer
and settlement function. As the Fed
explains in its own account of the
Securities Service, the safekeeping function
involves the electronic storage of
securities records in custody accounts. The
transfer and settlement function involves
US PAYMENTS
the transfer of securities between parties.
The major securities transferred or held
are those of the US Treasury and
government agency. Some of the issued
securities are from some international
organisations such as the World Bank.
Crucially, the service allows securities
transfers to be delivery-versus-payment,
where the transfer of securities ownership
and related funds is final at the time of
transfer.
The Fedwire Securities Service was new
because it helped clearing houses and
related arrangements achieve their goals
with immediate effect. It also allows them
to process and clear transactions on their
own, with final settlement being achieved
on accounts at the Federal Reserve in
central bank funds. The Fed saw this
separation between clearing and
settlement as a bonus, since it created
room for the private sector to develop IT
based clearance solutions predicated on the
Fed's settlement mechanism.
The National Settlement Service (NSS)
allows participants in private sector
clearing arrangements to exchange and
settle transactions on a net basis through
reserve or clearing account balances.
There are approximately seventy NSS
participants including check clearinghouse
associations, automated clearinghouse
(ACH) networks, and credit card
processors.
Back in 2000, when Stewart gave his
speech, there was considerable excitement
in the US Securities industry that the
whole industry might be able to shorten
the three days it takes to settle securities
transactions. The aim was T+1, or
transaction day plus one further day, to
achieve settlement. In point of fact this has
proved to be a much tougher nut to crack
than anyone anticipated at the time.
John Panchery, a technology specialist
with the Securities Industry and Financial
Markets Association (SIFMA), an industry
body for more than 650 US securities
firms, banks and asset managers which
spearheaded the T+1 initiative, said when
the industry set out to simplify and
quicken securities settlement there was
just too much paper involved.
“When we started out back in 2000
INVESTOR SERVICES JOURNAL 17
US PAYMENTS
looking at accelerating our T+3 cycle to a
T+1 cycle, the driver for us was to achieve
a big increase in efficiency in the system.
We wanted to get 'straight through'
processing and to reduce systemic risk,” he
says.
This is important because trades carried
out on a Monday and settling on a
Thursday leaves too much room for things
to go wrong. But when SIFMA members
really analysed the system they discovered,
as Panchery puts it, there were just “too
many moving parts” in the system,
including the transfer of paper from one
person's hand to another.
“When we did the research we found
that there was too much paper processing
on trade day. You can't settle a trade in a
day if the seller actually has the certificate
in their hand. So we changed the T+1
initiative to an effort to achieve
electronically based straight through
processing. And you can only have straight
through processing across the system
when you get rid of all the paper,” he says.
But installing a paperless system is
easier said than done. Elderly investors in
the US are very fond of paper certificates
and like to physically riff through their
“holdings”. Then there is another quaint
custom. People like to frame single
certificates and give them as a gift for the
recipient to hang on their wall. Getting
that certificate back again so that it can be
taken out the system looks a tall order.
Faced with the near impossibility of
eliminating all the paper, SIFMA looked
instead at what it could do to improve
efficiencies in the areas over which it did
have some control. “We've been looking
particularly at matters such as paper
certificates, trade confirmations and
monthly statements and at ways of
making all of this electronic,” he says. The
difficulty is that there are regulations
which stipulate that the customer has to be
kept informed about trades and this has
traditionally involved a paper trail.
“You need checks and balances between
your trading and your operations to make
sure that in eliminating paper, there is no
circumvention of the rules you have put in
place to take risk out of your operation. So
we are in the process of a multi year effort
18 INVESTOR SERVICES JOURNAL
which will result ultimately in us
eliminating all the paper, including stock
certificates,” he says.
One solution is to make paper certificate
very expensive. If a customer now wants
to take a paper certificate, for example, it
could cost far more than, or at least a
significant percentage of, the value of the
certificate. At the same time, SIFMA is
making good headway, he says, in
“You need checks and
balances between your
trading and your operations
to make sure that in
eliminating paper, there is
no circumvention of the
rules you have put in place
to take risk out of your
operation”
John Panchery, SIFMA
removing the paper from institution to
institution processing. Since transactions
are all delivery against payment, if
everything goes right the transaction
totals all balance to zero against the
payment totals and no one is the least bit
interested in the detailed list. The
institutions exchange a huge wad of paper
that both sides then destroy.
Another big step forward is to abandon
any legacy systems that still settle trades
on a batch basis at the end of the trading
day. By replacing these with interactive
real time systems you get a huge increase
in trade day efficiency.
“At the moment, there are huge
blockages and inefficiencies in the system.
An institution, for example, might buy a
block of 50,000 shares to be allocated to 10
customers. Magnify this by many block
trades being carried out by traders and you
can see that if things have to wait to the
end of day when the traders have time to
allocate the right shares to the right
customers, you have a real bottleneck.
However, automating the allocation
process means you need to have electronic
details of all the customers as the block
order comes in. It can be done, but it is
going to take time.
“When we get to the point where we feel
comfortable that we are finished with the
trade process on trade day, then we can
think about finishing the settlement cycle
the next day. If, however, we are still busy
finishing the trade process on T+2, (the
Wednesday after the Monday trade), you
can't think about shortening the trade and
settlement cycle,” he says.
Why does this matter? “The issues
around prolonging settlement date, which
is what the US now has with T+3, is that
if there is a trade that is not compared, and
there is something wrong with it, and the
price of the settlement moves sharply
between trade and settlement, someone
has to swallow that difference. Multiply
that amount by the large numbers
associated with institutional block trades,
and the loss involved becomes significant,”
he says. The longer the time gap between
trade and settlement, the more problems
you get reversing errors and correcting
anomolies, and the more chance there is of
prices moving in the interim.
So, how do the US payment and
settlement systems compare against
TARGET2? The answer is that both sides
are “getting there”. The US has had the
advantage of having had Fedwire, with its
non revocable payment and settlement
system, for some time - adding Fedwire
Securities Service has helped. Europe has
now begun to build on TARGET2 by
developing a truly Europe wide real time
securities settlement system with the
TARGET2 Securities service (known as
T2S) that is not due to come into operation
until somewhere around 2013 at the
earliest.
As we have seen with the SIFMA T+1
initiative, the US system has its
own specific characteristics and problems
to solve. However, the Fed is keen to stress
that it talks constantly to its European
central bank peers. So if there are lessons
that Europe can learn from America, or
vice versa, the information flows are in
place to ensure that each side will
profit from anything they can learn from
the other. ■
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L E A D I N G C H A L L E N G E S
US CUSTODY

hen is a custodian not a

W custodian? When the industry

has evolved and grown more
complicated, forcing firms to diversify,
Thinking outside
the box
and outgrowing the strict definition of
its practices.
This is nowhere more true than in the
US, the largest custody market. But the
market is also more consolidated than
any other, and opportunities to grow
substantially are limited.
A US custody oligopoly of BNY
Mellon, Northern Trust, State Street and
JP Morgan has for years been looking for
- and finding - new areas to operate in.
Gone are the days, if they ever truly
existed, when a custodian simply looked
after the money. These firms are now
looking for new areas to provide their
services to.
Rajen Shah, JP Morgan's global head of
custody, says: “We now call ourselves
investor services; in fact, we recently
changed our name from securities
processing, and it's quite an important
statement, because what JP Morgan
offers is a whole spectrum of services
that investors and investment companies
Custodians are extending their services
like pension funds and hedge funds are in response to consolidation and
looking for. We should not be calling it
the custody business anymore, which is
new technology. Joe Corcos
why more and more we refer to it as our considers a new definition.
'investor services'.” strategy and product development at growth. One of the ways they have found
New opportunities are arising from Northern Trust, says: “We will partner to this is follow demand into the
markets that are constantly and swiftly with other organisations - for example, in derivatives space.”
changing. New, more complicated terms of valuation. Do we have a group As the services that custodians offer
financial products throw up fresh of 100 people valuing all the unlisted become more complex, the fees that they
challenges, which in turn require new bonds in the US? No. There's two or can charge also rise. Services like
technology and new skills. Clients are three vendors out there that will provide valuation, analytics, and fixed-income
requiring their custodian to provide more market quotations for that, and we'll attribution are now requisites.
services and in today’s volatile markets bring those in and then provide additional Driving the current prosperity of
they are more demanding than ever. scrubbing for that data.” custodians is a steady rise in their
Massive investment by the major To perform additional functions such as servicing fees. In 2006 State Street
players is needed for them to keep up. valuations, more resources are required. received USD943 million in servicing
This year alone JP Morgan intends to And JP Morgan's Shah admits: “The fees, which by 2007 rose by a full 21% to
invest USD650 million into its investor investors are getting increasingly USD1,141 million.
services, most of which will be going to sophisticated. They are becoming far Risk analytics is perhaps the most
developing new technology and services. more open-minded about what they pressing new service demanded by clients
This is a far cry from when banks and invest in. The asset classes are growing and are asking for more specification and
custodians developed their services the more esoteric and newer asset classes more accuracy in order to be able to plan
purely for regular equity and bonds. In such as derivatives, and private equity are strategy.
today's brave new world of derivatives, clearly more complex to support.” Crouch says: “We predicted that 2008
there are many more possibilities. Ed Crouch, global head of corporate would be the year of risk management,
Outsourcing these extra services has development for Superderivatives, a and - lo and behold - we were right. The
been a favoured option, as there are many company which discovers accurate prices financial services industry is going to
technology and research companies and provides analytics around options, continue to get exponentially more
which specialise in the different niches says: “The bread and butter custodian complicated as people’s ability to manage
required. business is a low growth business and risk becomes more sophisticated.”
Peter Cherecwich, head of institutional they are looking for ways to enhance their He gives an example of a corporate

20 INVESTOR SERVICES JOURNAL


customer with exposure to currency and
jet fuel having an option where they can
hedge the value of both jet fuel and
currency, creating a “perfect hedge”.
Of this example Crouch says: “Now
those types of instruments can be created
and managed and valued where in the
past they couldn't.”
BNY Mellon's co-CEO of Asset
Servicing, Jim Palermo, agrees: “I think
risk will be important. The asset
managers are looking at and examining
risk in different ways. Through the
market place, credit crunch risk will get
more and more sunlight and we will
continue to see heavier reliance on us as
custodians to provide deeper analytics.”
In the midst of today's general doom
and gloom, custody services are thriving.
Indeed, it is unsurprising that such
services do well, as they are, to a certain
point, inured against the market.
Whether the times are bullish or bearish,
investors will always need the services
that custodians provide.
All of the big players in the custody
market have reported a rise in
performance, even though other areas
may be suffering due to the credit crunch.
Cherecwich says: “There is still money
around to be invested and as long a there
is money around then the custodians have
to account for it and custody it.
“As long as there is some level of
volatility and change in the marketplace
the volumes and the assets will be there.
“I would say that when investors have
activity then investor services do well.
Now if the market is going up people
want to buy they want to go to emerging
markets, that's fine, the markets going
down people want to change out of it,
they want to transact move their money
from equities to bonds maybe again
there's transactions. So the only thing you
ever fear is a completely stand still market
place where nobody does anything and
the reality is will that ever happen? No.”
Compliance is another lucrative area for
the custodians. In the wake of the recent
turmoil that has hit the markets the US
government has been making noises
about implementing more regulation and
transparency on the hedge fund industry.
Working groups, for example, have been
established to table proposals for best
practice guidelines. Compliance is an area
where many custodians are already active,
and more regulations simple means more
compliance, which means more fees.
But keeping up with requirements
demands a huge amount of resources.
Although the US custody market is
almost completely consolidated, evidence
is mounting that some of Europe's
medium-sized players are also finding it
hard to cope and may soon be enveloped
by a larger neighbour. JP Morgan's recent
acquisition of Nordea's global custody
operation is a fitting example of yet more
“The asset managers are
looking at risk in different
ways. We will continue to
see heavier reliance on us
as custodians to provide
deeper analytics”
John Palermo, BNY Mellon
encroaching consolidation.
Shah adds: “Nordea asked themselves
'do we really want to be in this business?'
And they came up with the decision 'no,
we just don't have that kind of appetite',
and there are a number of players like
that now who are asking the same
questions.”
The top custodians, JP Morgan, State
Street and BNY Mellon now account for
at least 55% of all assets under custody.
Others such as HSBC are not far behind.
JP Morgan's recent acquisition of its
troubled rival Bear Stearns is also
perhaps indicative of yet more
consolidation in the investor services
sector. As custodian banks diversify their
offerings, so also are the needs of certain
areas to combine. Strategies coming from
asset managers are at times looking a lot
like those from hedge fund managers.
Of the acquisition of Bear Stearns,
Shah says: “The acquisition was very
valuable in terms of accessing another
piece of the jigsaw which is the equity
prime broker business. The combination
will be of what the prime brokers offer
and what we have offered from an
investment services point of view. We are
going to be working away with our new
colleagues at Bear to bring those two sets
of capabilities together.”
But with fewer acquisitions left in the
US it is no surprise that now many US-
based custodians are looking to Europe
US CUSTODY
and Asia for their next purchases.
Asia in particular has been targeted as
an area for potentially rewarding growth.
According to BNY Mellon's Palermo, the
Asian market is the fastest growing area
of service for the bank.
And Northern Trust's Cherecwich says
the building society has gone into Asia
“with a big bang” in the last couple of
years, but that Europe is still a “huge
growth area”.
JP Morgan has recently opened up six
branches in China and is also working to
create a sub-custodian presence in India -
not an easy task, but one that promises to
be highly lucrative.
French bank Societe Generale has
launched custody and fund services with
the State Bank of India, the country's
largest bank, and the second largest in the
world in number of branches.
In 2004 Citi made the decision to
acquire ABN AMRO's domestic custody
business in India, South Korea and
Taiwan.
So where does the future lie for the
custody business? It has been clear for
years that an entire range of services is
now required if one is to be a major
custodian. And in order to provide these
services substantial investment and an
eye to the future is needed. It is also clear
that the smaller fish will find it even
harder to survive in what is becoming a
truly global pond.
“The future is for organisations that
have scale, a very strong balance sheet
and the investment appetite to continue to
invest in the complexity and the breadth
that is growing in terms of the types of
investments people are demanding,” says
Shah.
“You need to be a broad bank which has
that combination of derivatives services
and investment services, like a prime
broker. These things are all part of the
armoury that you really need to service
the clients we're now seeing developing.”
So while the US pension fund market
may not be growing, there are still plenty
of assets to service in the US, so those big
players in the US custody market need
not worry. Cherecwich says: “Money is
being generated and invested, it just takes
different forms. So as long as a custodian
can continue to be able to handle the
different types of structures and assets
that the investments are being placed in,
they're OK.” ■
INVESTOR SERVICES JOURNAL 21
AFRICAN CUSTODY
t is sensible to assume that the custody
I and banking world in Africa is a
relatively small one. Within the MCSI
Barra EFM Africa index, only seven
counties are represented: Egypt, Kenya,
Mauritius, Morocco, Nigeria, South Africa
and Tunisia. These seven markets, in a
continent that holds 2.3 billion people
(compared to Europe's 0.5 billion), receive
the lion's share of investment into Africa.
Yet while many see South Africa and
Nigeria as the main financial power houses,
the sands are is shifting.
Nigeria, the most populous country in
Africa and along with South Africa one of
Africa's main financial hubs, has been
known in recent times as the place of
financial frauds and pyramid schemes. The
forced consolidation of the Nigerian
banking industry by President Olusegun
Obasanjo in 2004-2005 has been an
attempt to resuscitate global opinion and
First Bank of Nigeria, UBA and First City
Monument Bank are all set to offer
premium custody services in Nigeria. As a
22 INVESTOR SERVICES JOURNAL
Shifting sands
While many see African markets dominated
by South Africa and Nigeria, Giles Turner
looks at how custody in new markets is
threatening the old order
result some to see Nigeria as the darling of
the African custody world. One market
commentator goes as far as saying that: “It
is no surprise that the proliferation of
custodians in Lagos coincides with a new
confidence in the political and economic
stability of the country”.
Ramy Bourgi, head of emerging
markets for Société Générale Securities
Services (SGSS), offers a more honest view
on Nigerian development: “I was born in
Nigeria and I can say that the political
situation is deterring people from
investing. Having said that, we are finding
Nigerian companies and banks opening up
in other African nations. I know of a
Nigerian bank that is opening up in the
Ivory Coast, for example [Access Bank
Group of Nigeria recently became the
majority shareholder of Omnifinance]."
This 'political situation' has the potential
to upset any reforms or attempts at
progress. While the military oppression
and financial stagflation of the 1980s and
1990s are over, and the economy is
growing at 7% per annum, the banking
reforms have led to secondary problems.
Professor Saludo, the man behind the
Nigerian banking reforms, aimed to create
a system that was no longer corrupt and
unstable, but instead lay the foundations
for Nigeria to become Africa's financial
hub.
Consolidation was the first and most
obvious step. While this has been
successful, ending the monopoly Stanbic -
the Nigerian arm of Standard Bank of
South Africa - had in the Nigerian sub-
custody market, a strong and committed
regulator is now needed to police these
consolidated and more powerful banks.
The fact that many of the people singled
out as being a liability to the development
of Nigeria's banking system have
resurfaced within the new system as
directors or senior managers of some of
Nigeria's 'new' banks highlights the fact
that the Central Bank of Nigeria needs to
show great discipline before Nigeria can be
counted as a powerful African financial
 The best part about
our range of products and services,
is the people that provide them.
As the leading regional custody provider in subSaharan Africa, we
offer more than just the technology and resources needed
for business in Africa. We also have the best people across the continent;
with the specific talent and experience to not only grow your business
but more importantly, to partner with you along the way.
For more information please contact Adam Bateman on 011 636 6615 or visit
our website at www.standardbank.co.za.

Inspired. Motivated. Involved.

Authorised financial services provider

The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). SBSA 801711 08/07
AFRICAN CUSTODY
hub.
While most would point to South Africa
as the only other major financial hub, there
is a strong new contender in the more
geographically friendly Egypt. As the
more developed markets continue the hunt
for 'bad' CDO's and sub prime related
mishaps on their books, the relatively
decoupled Egyptian market has been
booming. Bourgi explains: "The markets
are insulated from the general conditions
of the developed markets. If you look at
Egypt, it is growing at around 8-9% per
annum. Not many European countries are
growing like that. Not only are many of
these African markets insulated from the
issues that you see affecting the developed
markets, but they have a good capital base
for people to invest in. There are more
stocks coming to the market, inflation is at
2-3%. To all intents and purposes it's an
ideal world, and that's why people are
heading towards these emerging markets."
It is not only the macro level that Egypt
is excelling. The execution and back office
services offered in Egypt are often
perceived as second to none.
Bourgi continues: "I looked at the
Egyptian market personally and I think it
is state of the art. They can handle
derivatives, securities lending, designated
accounts. I was very impressed by the
depository in the stock market, and the
capital market authority. Sometimes being
late to a market is a good thing, because
you have learnt from the people who have
done it before. We can learn from Egypt
MSCI EFM Africa Standard Core
24 INVESTOR SERVICES JOURNAL
from a regulatory perspective, from an
efficiency perspective and from a
“I looked at the Egyptian
transparency perspective." market personally and I
Despite the success of some African
markets, is it not tenuous to wonder think it is state of the art.
whether the volume of money flowing
into the African securities market are more
They can handle
to do with the lack of opportunities in the derivatives, securities
developed world, rather than the dearth of
opportunities in Africa? According to lending, designated
Bourgi, it has to be both. Investment into
African markets is not a hedge, rather an
accounts”
opportunity. Demand is certainly
exceeding supply regarding custody and
sub-custody services. The regional stock Rami Bourgi, Société
markets, usually a good measure of a
region's financial development, are Générale Securities
expanding. In Sub-Saharan Africa there Services
are 16 fully operational bourses with a
combined market capitalisation of
USD100 billion.
Although some markets more than
others are grasping the importance of
international standards, the majority are
not far behind. European custodians in
African are finding that their clients are
becoming increasingly interested in
markets such as Botswana, Ivory Coast
and Namibia. In the financial industry's
current climate, clients don't want a
top-heavy dependence on one market,
rather a multi-market approach. Therefore
the custodians and sub-custodians that
will succeed in African are those that
are willing to expand fast and offer
services for a variety of different markets
in one package. ■
Afrika, Afrika
Interest in Africa has grown over the
first half of 2008. JPMorgan Asset
Management has launched an African
fund becoming the latest in a long line
of fund houses turning to the
continent in search of higher
emerging-markets returns. The
iShares MSCI South Africa Index has
also totaled USD543.78 million on
March 31, a highly impressive 43%
increase fromUSD$379 million in
March, 2007. The interest from China
and India and the increasing need for
transparency should keep reginal and
global custodians busy for many years.

ith the re-establishment of the Ljubljana Stock
W Exchange in 1989, the Slovene capital market has led
the way in the development of a securities industry in
the Balkan region. Situated in the crossroads of east, west, central
and southern Europe, Slovenia has a unique position that connects
the developed western markets with the emerging markets in the
region.
Following its accession to EU, Slovenia adopted the Euro in
2007 and implemented the MiFID directive. Slovene financial
institutions are also taking an active role in the process of
development of the Target 2 Securities platform through the
National Users Group. In the first half of 2008 Slovenia has held
the presidency of the EU.
Today, the Ljubljana Stock Exchange is recognised as an
efficient, regulated market within the European Union, with full
membership of the World Federation of Exchanges and the
Federation of European Securities Exchanges. The incentive of
the Ljubljana Stock Exchange and its market participants for
further growth and development of the Slovene capital market is
also reflected through several international investor conferences,
held in major European cities. Here Slovene blue chips increased
their international visibility and prompted wide interest among
international institutional investors. As a result, a number of
investment certificates are being issued on Slovene shares within
the EU.
In the past year, the Ljubljana Stock Exchange was among the
leading members of the World Federation of Exchanges in terms
of share trading volume growth and market cap growth. Now it
aims to attract new issuers, develop trading in non-listed and non-
Slovene securities (MTF), attract more investors and investment
companies outside Slovenia, launching new modes of long-term
cooperation with exchanges and other market participants in the
EU, implementating new products and services.
As a single Slovene CSD, the Central Securities Clearing
Corporation played a major role in the development of the Slovene
capital market. The Slovene system of securities trade settlement
provided by the Central Securities Clearing Corporation meets all
CUSTODY
Roadmap to
success
Slovenia has been
leading the way in
its region since
joining the EU, write
NLB’s Tilka Kozelj and
Sanja Breznik
the standards of the European Central Bank for operation within
the scope of settlement of securities in the Euro system's trading
operations and with the signed European Code of Conduct in
terms of price transparency, access and system interoperability.
One of the major achievement last year was the establishment of
a link with the ICSD Clearstream, which allows Clearstream's
clients entry to the Slovene securities market. The link currently
enables settlement of government securities, issued on the
domestic market but marketed on a global scale, with other
financial instruments to follow. However, the steady integration
into the Western markets has not affected Slovenia's gaze to the
south east, making the country a connecting bridge between
capital markets located so close and yet so different.
The Ljubljana Stock Exchange and Slovene Central Securities
Clearing Corporation are also encouraging the co-operation
between regional capital markets, with the Belgrade, Zagreb,
Ljubljana and Macedonia stock exchanges signing a partnership
memorandum in December 2007, promoting of joint regional
markets and the further development of regional products and
services.
NLB Group is the largest Slovenian financial institution and
NLB as a parent company is taking an active role in process of
integration of the Slovene market into developed European
markets. NLB has had positive experience with the implementation
of the MTS Slovenia platform, so we are looking forward to
differentiation between domestic and foreign markets fading away.
NLB truly believes that this integration should be accompanied
with the expansion to the regional emerging markets, stimulating
development of local financial services. The expansion of the
universal banking financial offerings on home and international
markets remains our key objective, adding custody services to the
wide range of holistic financial services centrally located and
independently complete. The NLB Group is a stable partner,
backing up it's commitment to custody services with its
proprietary regional network of sub-custodians.
What used to be just a vision a few years ago, has now become
reality and promises even more for the future. ■
INVESTOR SERVICES JOURNAL 25
MARKETS
Facing the future
An IMF deal and a currency shake up are just
two of the changes taking place in Turkey. Brian
Bollen reports
urkey stands at a crossroads. The
T country has made clear progress
along a path of financial growth,
and now is uncertain of which direction to
turn. It is neither a fully developed market,
nor does it qualify as an emerging market.
'Developed emerging' is perhaps as a handy
new moniker. What is certain about the
country is that it is suddenly popular with
one very important investor. “Yes, we are
buying Turkish assets,” says Mark Mobius,
emerging markets investment specialist at
Templeton Investments. “The main
reason? Valuations. They are among the
cheapest in the world.” What better
endorsement, some might say, could a
country have than the backing of a man
recently identified in Financial Times as
one of the world's top four stellar
professional investors?
Turkey also hit the headlines last month
when it completed a precautionary standby
agreement of over USD10 billion with the
International Monetary Fund (IMF),
signalling the acknowledgement of
economic advancement, of a kind. On the
announcement of the deal, economy
minister Mehmet Simsek said a new and
full standby IMF agreement is not
necessary - Turkey's public sector no
longer needs IMF financing. “The IMF has
repeatedly praised Turkey's reforms to
modernise its economy over the past few
years,” observed the Turkish Daily
26 INVESTOR SERVICES JOURNAL
News on reporting the agreement. “As a
result of the IMF-backed programmes,
Turkey's inflation rate and public debt
ratios have greatly decreased in recent
years, accompanied by a boost in growth.”
Unfortunately, the ongoing global financial
turbulence has hit Turkey, curbing growth
and raising inflation again this year. Some
doubt the timing of Turkey's bold attempt
to bolster its economy without the benefit
of a full IMF safety net - especially as the
question of Turkey's bid for membership
of the European Union is still unanswered.
Dr Mobius and the IMF are not the only
ones who have been putting Turkey under
the microscope in recent weeks. The
European Bank for Reconstruction and
Development has formally agreed to
evaluate a Turkish bid for access to its
funds and expertise, in a move that would
make it the first country other than
Europe’s former communist countries to
benefit from the bank's largess. Elsewhere,
Tolga Ediz, an economist at Lehman
Brothers in London, has been scrutinising
recent economic performance in some
detail andcompares it with 2006, when the
Turkish lira went through a severe
correction (this correction followed the lira
redenomination in 2005, which saw six
zeroes chopped off the currency).
Ediz says that there are three good
reasons to believe that the current outlook
is better this year than two years ago.
Firstly, there is less leverage now. The
May-June 2006 currency debacle was in
part the result of leverage built up in the
financial system, especially in foreign
exchange option markets, he explains.
“Implied volatilities were at all-time lows
in April as investors had sold volatility on
the expectation that the currency would
remain in a range to increase their returns.
This added momentum to the TRY
weakening. Secondly, the economy this
year is showing less dramatic signs of
overheating. Two years ago the current
account deficit was widening at a more
rapid pace, consumer loans were growing
above 100% y-o-y and domestic demand
was booming.”
These imbalances are less acute this
time around, he continues. Domestic
demand is subdued, and although the
current account deficit is higher now, its
pace of expansion has slowed. “Turkey's
Damocles score - our indicator of external
vulnerability - indicates a much more
“We believe Turkey should
become an investment
grade country over the next
three years, with its debt
reduction strategy lowering
EU-defined outstanding
debt to 38% compared to
72% in 2002”
benign outlook than in May 2006.” And
real policy rates are at about the same level
as they were before then. Inflation
expectations are higher today than they
were then, although the rise in inflation
expectations was more rapid after
May/June 2006.
Thirdly, hard currency deposits are
higher now. Local hard-currency liquidity
is probably far higher than in early 2006,
he believes. “Indeed, the 2006 episode
spurred local corporations and households
to hoard hard-currency reserves, especially
leading up to the 2007 election. Today,
hard-currency deposits and central bank
reserves are much higher which is a key
factor in support of the currency at this
MARKETS
stage,” he says.
Optimism abounds at BNP Paribas
Securities Services, which recently
launched TEB Securities Services as a part
of its established joint venture with Turk
Ekonomi Bankasi. The move aimed to
strengthen its local presence after more
than a decade of operating in the country
through a series of co-operation
agreements.
In an extended interview, Nelson
Fernandes, head of location at TEB
Securities Services, Ertunc Gurson, head of
sales, and Turku Karan, head of
relationship management, painted a
broader and brighter picture than some
might think possible. “The last decade of
“It is now time for changes that will improve the efficiency
of systems such as the SWIFT integration project of
Takasbank. These changes will prepare the Turkish market
to handle the volumes of a developed market”
turmoil in the political environment and
the macroeconomics of the country,
Turkey has taken the opportunity to
improve the infrastructure of its capital
markets. Turkey's ambition to become a
EU member has been a major facilitator in
this improvement. As a result of EU
Twinning Project, we saw more and more
laws and regulations being published to
align capital markets infrastructure to
those of EU countries. At the same time,
we have experienced an increase in
transparency from the regulators and an
eagerness to receive the input from market
participants.
The improvements in terms of
economy and regulation has made the
Turkish capital markets more resilient to
economic and political turmoil, they say.
“Between 2004 and 2007 we saw a number
of major changes in the Turkish market
that would impact non-resident investors.
The redenomination of the lira, the
dematerialisation of equities at the end of
2005 and the change in the taxation of
capital market instruments at the end of
2006. With these major changes out of the
way, it is now time for changes that will
improve the efficiency of the systems such
as the SWIFT integration project of
28 INVESTOR SERVICES JOURNAL
Takasbank. These changes will prepare the
Turkish market to handle the volumes of a
developed market.
“The New Turkish Lira conversion
solved technical issues for our client base.
Before the redenomination, USD1 million
was the equivalent of TRY1,342,000,000.
Most of the major financial institutions'
systems were capable of handling only 12-
13 digits. Therefore, for a lot of non-
resident investors it was technically
impossible to cope with digit problems if
they wanted to deal in lira. With New
Turkish Lira, these issues have been solved
and as a new market emerged from out of
blue for financial institutions and investors,
the Turkish market started to see investors
arrive from all parts of the world. Before
that, it was usually only the large
investment houses which participated in
the Turkish markets.
“In 2004, foreign institutional investors
held USD8.6 billion cash equities and this
number reached a peak of USD66 billion
in November 2007, before falling back to
USD50 billion in April 2008. The trading
volume of Istanbul Stock Exchange [ISE]
over the year has sky-rocketed. While
foreign institutional clients traded USD17
billion at the ISE in 2003, the figure had
reached USD134 billion by the end of
2007.”
They go on to explain that on the back
of the increasing volume of ISE
transactions, “seven out of nine” of the big
global broker-dealers have opened for
business in Turkey. Whether their
intention is to capture liquidity or market
share or to boost their decreasing western
operation revenue base, this will create new
opportunities in the Turkish capital
markets. “The business model has changed
since [the brokers] first began attempting
to identify opportunities for western
clients only a decade ago; today they are
also aiming to serve local companies that
want to tap capital markets and take
advantage of advisory services to
expand.”
One of the problems that they identify
is the lack of depth of the ISE. The
average free float is 30.2%, of which 70%
is owned by foreign institutional clients. In
the absence of new listed companies or an
increase in the free float, growth
opportunities are limited.
In February 2005 the introduction of
the Turkish Derivatives Exchange
(TurkDEX) attempted to address this
problem. TurkDEX carries only six main
contracts, two of which have experienced
heavy trading volume: the foreign
exchange and ISE Index contracts. “What
makes this market very attractive is that it
helps investors not only for hedging
purposes but also allows them to short-sell
the market, where securities lending is
limited,” say the TEB trio. “More
interestingly, this year single stock futures
and next year options are to be introduced,
helping to increase local liquidity and
depth.” As there is no 'give-up' in the
market, TEB Securities Services has
launched a product bundling execution
and clearing for exchange traded
derivatives.
“Looking ahead, we expect that as yields
start to fall to more comfortable levels, the
market will see the introduction of local
corporate bonds and municipal bonds.
Currently, the local corporate world
borrows from western markets, taking on
foreign exchange risk, but we expect to see
the reverse happen as yields drop to single
digits. Furthermore, mortgages were
Key player IS bank
IS bank is a multi-branch bank and
retail banking products and
services lie among its core
activities along with full custody
and settlement services. Prior to
the establishment of a separate
Central Securities Depository in
Turkey, the Bank was the central
depositary and settlement agency.
Since the modernisation of Istanbul
Stock Exchange, IS bank has been
widely selected as custodian for
thousands of individual and
institutional investors.

Insider view
Murat Ulgan, chief economist, HSBC Turkey
EU membership is a very significant
and credible external anchor. It will
help Turkey's economic, political and
social transformation. Whether
Turkey will eventually become an
EU member is an academic point at
this stage. What matters is that the
country remains on the accession
path and continues with reforms. In
this case the journey matters more
than the destination. Turkey is an
emerging market undergoing
introduced into Turkey last year and we
expect mortgage-backed securities to be
introduced in Turkey, even if this is
currently not a very popular product
globally.
“On the macroeconomic front, we believe
Turkey should become an investment
grade country over the next three years,
with its debt reduction strategy lowering
EU-defined outstanding debt to 38% of
GDP from 74% in 2002, inflation falling to
single digits from the 70%s in 1990s, the
yield curve normalising and GDP
achieving a long-term term trend growth
rate of 6.0% versus the average growth
rate of 4% in the 1990s. We expect that
once Turkey's credit rating reaches
investment comfort level, we will face
another boom time for country, with higher
trading volumes in fixed income
instruments than we see today.”
In the meantime, Standard & Poors
(S&P) analyst Farouk Soussa noted in a
recent downbeat briefing note on the
country that Turkey's current account
registered a deficit of 5.7% of GDP. S&P's
headline ratings for the country, which it
continues to classify as an emerging
market, are BB-/Negative/B.
“While financing of the deficit has
improved significantly in recent years, with
foreign direct investment accounting for
more than 50% of the total in 2007,
portfolio and debt financing of the deficit
remain significant,” said Soussa. “Non-bank
private sector foreign borrowing increased
to more than USD 27 billion in 2007, she
said, from an average of just USD 7 billion
significant structural transformation.
The economy still suffers from acute
imbalances, such as high inflation
and high real interest rates as well
as the large current account deficit,
which leaves it vulnerable to shifting
global risk appetite. But investors of
all kinds - portfolio, private equity,
FDI - have been showing increasing
interest in the Turkish economy.
There are definitely opportunities in
all areas.
per year in the preceding five years. The
combination of political and economic
uncertainties threaten to negatively affect
policy formulation in Turkey in 2008, and
thus on its debt ratings, Soussa said.
By contrast, Citi's Securities Country
Manager for Turkey in Istanbul, Gunsel
Topbas, is bullish, even effervescent. “The
market always changes, and on the positive
side we have seen several key changes in
recent years,” he says.
Topbas identifies the redenomination of
the Turkish lira as part of the structural
changes and financial reforms taking place
in the country among the most significant
developments of the past three to four
years. “The new lira has contributed
markedly to the country from an
investment perspective,” he says. The
opening of a derivatives exchange is
another important development for Turkey,
to join the USD10 billion of fixed income
volumes and USD 1.1 billion of daily
equity volumes on its capital markets. This,
he says, has sparked interest in the market
to match the interest in the spot markets.
“Derivatives volume by the end of 2007
reached some 70% of ISE volumes, and
that is an incremental volume for the
capital markets,” he continues. The
dematerialisation of equities, the switch
from bearer to registered form for equities
and the creation of a central registration
agency all further mobilised investment in
the mid-2000s. Further steps taken by the
authorities to simplify the tax regime for
foreign investors and bring the markets in
line with global best practice have helped
MARKETS
raise Turkey's profile and its attractiveness,
he argues.
Topbas adds that Takasbank's adoption
and integration of SWIFT five months
ago to enable the automatic pre-matching
of trades represented another significant
step forward. “Firstly, as a major local
provider, we have more efficiency in our
processes, and an increase in straight-
through processing. Secondly, the clients
benefit from improvements in timeliness
and reporting. Thirdly, the market benefits
from increased efficiency and timeliness in
settlement.”
T opbas points to transaction numbers
as proof. “Citi services more than 60% of
foreign investor-owned equities in Turkey;
we clear more than 300,000 securities
transactions a year locally worth more than
USD200 billion. We have a liquid market
for trading purposes and high STP rates
for clearing and settlement of equities and
bonds. Furthermore, we are developing our
own on-exchange derivatives clearing
ability in-house, to cope with the expected
rise in demand in that area, while
supporting Takasbank and Turkish
Derivatives Exchange for the development
of the 'give-up' process. We expect to
launch derivatives clearing in 2008.”
Topbas suggests that securities lending
and borrowing (SLB) activity, in its infancy
in Istanbul, could be given a boost if all
goes according to plan. Launched by
Takasbank as a regulated market and used
mainly for fails coverage by local brokerage
houses, SLB could grow significantly if
international institutions can access the
larger ticket size and greater liquidity that
they need for their strategic trades.
“We expect Takasbank to make the
necessary changes, enabling the creation of
securities lending and borrowing
capabilities that will meet the requirements
of international investors,” he says.
In the meantime, a further important
project for the Turkish Capital Markets
Board is its work on a new Capital Markets
Law, something that Topbas describes as
one of the first important steps in
preparing the country for eventual
accession to the European Union. While
doubt surrounds its chances of EU
membership, Turkey can garner goodwill
by being prepared. ■
INVESTOR SERVICES JOURNAL 29
SECURITIES LENDING
An Asian
lending
spree
Eleven years after the
Asian financial crisis,
m o re countries are
reintroducing
securities lending and
short selling. Ben
Roberts reports.
here's something about the heat of
T summer that seems to precipitate
figurative meltdown of markets.
The credit crunch beginning last August
was ten years almost to the month after
the Asian financial crisis that burned up
the stability of the continent's major
economies. No country was hit in exactly
the same way as another back then, but
the inter-related sequence of bad debt,
central bank hand-outs and plummeting
currency values are echoed neatly today.
Some may wonder how the Far East
would have weathered the storm had they
the structures for securities lending to
jump-start liquidity in markets and
complement their corp o rate bond and
asset securitisation industries. As it was,
bonds, single stock futures and a blanket
of caution became the overriding themes.
Just over ten years on, around half of
the major Asian markets have developed
strong and growing securities lending
m a r kets totalling USD2 trillion,
according to the latest estimates from
Pan Asian Securities Lending Association
(PASLA). These include Australia, Korea,
Singapore and Hong Kong, with Japan
the biggest securities industry at
USD950 billion. Others, however, are still
playing catch-up, with governments and
regulatory bodies making tentative steps
to establishing domestic securities
lending and borrowing (SLB) structures.
Malaysia last year entered into
securities trading by reintroducing SLB
and regulated short selling (RSS) via a
cautious trade model that kept lenders
and borrowers far apart. The aim was to
re-establish the burgeoning SLB activity
“I have high hopes that
DMA will bring Asia on par
with more developed
markets that offer speed,
efficiency and more controls
to investors globally.”
Dato' Yusli Mohamed Yusoff
Bursa Malaysia
that was stopped in the wake of the Asian
financial crisis. Local brokers act as
borr owing and lending agents in
b e t ween, with the Bursa Malay s i a
Securities Clearing (BMSC) at the heart.
The principal relationships are between
the lender and the BMSC on one side and
the borrowers to 'authorised' borrowers
(local brokers) and onto the BMSC on the
other. Transparency became the name of
the game.
But this approach - aimed to 'phase' in
the Malaysian market to SLB - has
produced only modest liquidity. The key
problem has been a lack of supply of
tradable assets from domestic
institutions. Lenders, having to register
as principals, soon discovered the
inefficiency of working through local
brokers, who had an underwhelming
appetite for borrowing.
D evanesan Evanson, chief m a r ke t
o p e rations officer for Bursa Malay s i a ,
explains: “The main issue is supply. The
onshore model has very limited supply. I
think the borrowing appetite is there but
we do not have supply [or tra d able
stocks] within the current onshore
model itself: the category of lenders is
limited. Lenders are limited to lending as
principal. However, that doesn't quite
work because agent lenders out there
cannot actually participate. If you think
of the likes of State Street, it is an agent

lender, it doesn't lend as principal and our
onshore model requires our lenders to
sign on as a principal - so the likes of
State Street, BGI, cannot lend.”
The result has been a stilted system
with very low volumes of trade compared
to the trillions of dollars and relative
i n fo rmality of the West's over-the-
counter lending and repo culture. But
Malaysia did not create one of the world's
b i ggest corporate bond markets by
resting on its laurels. A new system has
been planned that will relax many
restrictions and establish a direct
r e l ationship between borr owers and
lenders - known as the SLB NT Model.
Foreign borrowers and lenders will be
approved by the clearing house to create
genuine OTC transactions. Agent lenders
will be able to get approval to trade.
Further, borrowers and lenders will not
have to disclose details of the trade to
Bursa Malaysia until the parties want to
move the securities, which can be done
immediately.
“We are going to actually approve
lenders, so there is an approval process,
and we are actually putting in a facility
whereby clients of approved borrowers
can borrow from but execute shorts with
their own broker instead of through the
approved borrowe r. That wasn't there
before.”
Evanson reveals that Bursa Malaysia
had consulted with PASLA as to the best
way to update their SLB system. He says
they were referred to the Korean model as
a successful template. “It has got a very
good framework,” he said of Korea, “it
a c h i eves reg u l at o ry objective of the
requirements of the SLB participants in
the market and I think the feedback [from
PASLA] is that it's a system which can
work - they find the system pretty good.
“If you look at the SBL program which
they have in place it is similar to what we
are planning to introduce, so you have a
central intermediary which tracks all
transactions - not withstanding the fact
that the SBL is done on an OTC basis.”
Evanson added that he hoped there
would be an increase in SBL as a result of
the new model and added that the new
model is part of the bourse's phased-
approach in the re-introduction of SBL.
However, he admits “our biggest problem
with the new model is how it's applied.”
There has been a delay in its implementation.
Will the introduction of short selling
in Malaysia transform the securities
lending market? “Well, it should,” says
Evanson. “What we're trying to do is put
in place an infrastru c t u r e. A market
should have an efficient infrastructure in
place - whether or not it is used is another
m at t e r. But obv i o u s ly, that is our
intention, we hope that liquidity will
improve.”
In a speech at the Invest Malaysia
Conference in March, Dato' Yusli
Mohamed Yusoff, CEO of Bursa
Malaysia, declared: “In the move to be
more open, we will expand access to our
market when Direct Market Access
(DMA) is introduced. I have high hopes
that DMA will bring Asia on par with
more developed markets that offer speed,
efficiency and more controls to investors
globally.”
“We strive to balance regulatory
objectives with operational efficiency -
input from the industry has been very
useful in assisting us in meeting the needs
of different stakeholders,” says Evanson.
“It is important for the long-term viability of those lending
models that regulators are comfortable with how they work”
Francesco Squillacioti, State Street
Francesco Squillacioti, senior
m a n aging director and Asia-Pacific
regional business director for securities
finance at State Street, agrees that a
medium between regulation and market
openness needs to be achieved for
countries like Malaysia to thrive in SLB.
“It is a balancing act. For markets where
securities lending is a new activity (or re-
introduced activities) it is important for
the long-term viability of those lending
models that the reg u l at o rs are
comfort able with how they work.
Regulators also have, with a view to the
longevity of the systems they implement,
a need to ensure that their models attract
as much interest and use as possible. To
do that, they are likely to realise that a
balance between the two needs is
necessary.”
The same balance is being sought,
albeit cautiously, in India. Last month the
country broadened its securities economy
following the decision by the Securities
and Exchange Board India (SEBI) to
allow institutional investors to short sell
from 21st April after a seven-year ban.
The government's 2007-2008 Budget,
SECURITIES LENDING
delivered by finance minister Palaniappan
Chidambaram, made several regulatory
concessions, including to “take forward
the idea of Self Regulating Organisations
(SRO) for different market participants
under regulations”. The introduction
appears to show a country at a crossroads.
But far from Mumbai or Calcutta
becoming the new New York or London,
SEBI is keeping a beady eye and a tight
leash over the wheeling and dealing of
borrowed stocks. As yet only futures and
options can be traded, with a ban on day-
trading for institutional inve s t o rs.
Lending and borr owing deals will be
settled after seven days - a lifetime
compared to Western markets - giving
traders more time to cover short
positions. The recent ban on the futures
trading of four more soft commodities -
potatoes, soy oil, rubber and chickpeas -
to join the wheat, rice and two types of
dhal banned last year, will cut down on
the hot stock available. Like Malaysia,
borr owe rs and lenders work through
approved intermediaries. SLB is limited
to 10% of the free float of equity.
Margins and collateral will be applied
upfront, and institutions will have to
declare if they're looking to short assets.
But where seasoned stockpickers may feel
this sucks much of the fun out of short
selling (and with limited stocks to do so),
the regulator seems determined to learn
from the cross-market chaos of the credit
crunch, something India saw only
minimal damage from.
In this year's Budget speech,
Chidambaram acknowledged: “We do not
h ave a seamless national market fo r
securities because of differences among
states on the scope and applicability of
rates of stamp duty.” He therefo r e
proposed a close working relationship
between the Empowered Committee of
State Finance Ministers and the central
government to create “a truly pan Indian
market for securities that will expand the
market base and enhance the revenues of
the state governments”.
The SEBI's change of heart over short
selling was delayed by concerns of the
depressive effect the practice would have
MARKETS
on the markets. But supporters of short
selling point out that there is often a rapid
rise in price of stocks following a period
of short i n g. Further, many domestic
investors make decent incomes from the
revenue of lending assets that would
previously have sat on their long-only
books. Short selling would also add to
SEBI's insistence on transparency, some
a r g u e, by ensuring price discovery,
making it difficult for companies to over-
price shares that are soon to see a
downturn.
An ex-trader in Asia, who declined to be
named, points out that the gr owth of these
new securities lending bases is due to a
Asia securities lending: the major players
(average on loan balances)
gr owing trust in foreign investors that was
greatly tested in the wake of the Asian financial
crisis. He added that securities lending is a key
indicator of a cash-healthy economy, and that
most economies need an SBL platform.
However, he played down the need for a
countryto relax regulation in order to prosper,
pointing out that Russia continues to have a
flourishing securities lending system that is
tightly controlled.
It could be argued that India, like
Malaysia, could use Korea as a model for
the gradual libera l i s ation of its SLB
market. An earlier starter in securities
trading - with one of the most successful
corporate bond markets - Korea is
relaxing many of its regulations without
compromising transparency. In his speech
at the PASLA/RMA Securities Lending
Conference in Sydney in March, Jong-
Hyung Lee of the Korea Securities
Depository explained that the ownership
limits for some securities for foreign
investor is soon to increase. Further, since
January this year, outside investors have
been able to invest in government bonds.
Those who want to borrow KRW50
billion or more in securities from local
lenders must declare the details to Bank
of Korea before borr ow i n g, a recent
increase from KRW10 billion.
This greater allowance gives some indication
of the firmer relationship developing between
the country and the rest of the world. In 2007,
the volume of SLB trades on the Korean
stockmarkets was 91% foreign investors, up
from 82% in 2005 and 56% in 2003, with just
under 1,600 million shares changing hands.
There have even been hints that the prior-
trade information may be replaced by a post-
trade report to run alongside the daily shorting
reports that will be rolled out from 23rd June.
Taiwan, which has only been lending
securities since 2003, has arguably an
even more developed system. Here SLB
trades are split into three categories: fixed
income (fee rate fixed at 3.5% per annum),
the competitive auction (fee rate by 'bids
and offers'), and negotiated trades. The
Taiwan Stock Exchange Corp (TSEC)
m a n ages collateral and acts as a
guarantor in fixed-rate and competitive
auction transactions. It has strict rules for
short selling, of which only cove r e d
shorting is allowed. The daily maximum
for short selling of borr owed stocks
cannot exceed 3% of outstanding shares
per lending stock. The total volume of
short selling borrowed stocks and margin
short sales cannot exceed 25% of
“India could use Korea as a
model for the gradual
liberalisation of its SLB
market. An earlier starter in
securities lending - with
one of the most successful
corporate bond markets -
Korea is relaxing many of
its regulations without com-
p romising transparency.”
outstanding shares per stock.
2007 saw many reforms to its system of
trading, including an early recall option
for lenders, a one-day prior notice in
addition to three and 10-day notices in
fixed-rate and auction transactions. There
were also price restriction removals for
constituents of the Taiwan 50 Index,
Mid Cap 100 and Technology indices.
The market as a whole appears buoyant.
On 14th May the chairman of TSEC, Dr
Rong-I Wu, encouraged Taiwanese firms
based in Malaysia to raise funds in
Taiwan. “The Taiwan capital market will
benefit from a pipeline of new listings,
giving inve s t o rs the opportunities to
capture the returns of successful overseas
Taiwan businesses,” he said in a media
round table.
With new and improved markets, 2008
appears to be a boom year for securities lending
in Asia. Malaysia and India revising their rules
is the fitting next step for a region that has seen
unprecedented gr owth in almost all other areas
of finance.
To this degree, the as-yet immature market
for securities lending in China is a highly
notable admission. To date only the inter-bank
bond market - set up in 2006 - has solid
foundations for trade and gr owth. Short selling
is still technically prohibited, an infrastructure
is still at the planning stage and SLB has seen
only trial runs, despite intern ational
encouragement. With the runaway gr owth of
securities lending around the world - from
increasingly complex derivatives transactions
to high-speed settlement - it may take an
Olympic effort for the People's Republic to
catch up. As Devanesan Evanson says:
“SBL is one of the pre-requisites of a
developed market, and you want to stay in
the direction of a developed market.”n
SECURITISATION

ISJ PANEL DEBATE

LUXEMBOURG ‘Haven’ a good time? Our panel
discusses Luxembourg’s future
FUNDS as a domicile and its new rivals

Harley Murphy, head of offshore management, BNY Mellon Asset Servicing. Harley has worked in the
financial services industry for over 30 years with tenures in the Netherlands, Singapore, Australia, the
UK and Ireland. Based in Dublin, Harley has responsibility for BNY Mellon Asset Servicing's offshore
administration business encompassing Ireland and Luxemburg. He is a qualified accountant (FCCA)
and has a Masters in management and organisation studies.

Bernard Tancré, general manager of Prime Fund Solutions, Fortis Banque Luxembourg
S.A. Prior to joining PFS, Bernard was heading the client service department
of Brown Brothers Harriman (BBH) in Luxembourg, covering the custody
and administration products as well as relationship management. He spent
ten years with BBH, starting in the global controllers area and then moved to the client service group.
Prior to joining BBH, Bernard spent three years at Coopers & Lybrand Luxembourg, on Banking,
Insurance and Investment Fund audit assignments and two years at Discount Bank SA (now Union
Bancaire Privée), setting up and running a fund administration department. Bernard Tancré is a
member of the OPC Committee of the CSSF (Commission de Surveillance du Secteur Financier,
Luxembourg) and chairman of the New Opportunities Forum of ALFI.

Camille Thommes, director general, Association of the Luxembourg Fund Industry.

Prior to joining ALFI, he worked for Banque et Caisse d’Épargne de l’État,
Luxembourg where he held senior positions in the Securities Department
before heading the Investment Fund Department of the bank in 2001. In
1986, he started his professional career at Banque Générale du Luxembourg
(now Fortis Bank) where he occupied various positions in the custody business.
He is a member of several advisory committees to the CSSF (Supervisory Commission for the
Luxembourg Financial Sector) and represents ALFI at the board of directors of CCLux and Profil.
Camille holds a master degree in Economics (section Business Administration) from the University
Louis Pasteur in Strasbourg (France).

Do you think Luxembourg's resistance to
change its tax rules and its defence of
bank secrecy after Germany's call for a
clampdown will see further transfers of
investments to the country? How
significant is its decision?
Murphy: Luxembourg did change its tax
rules to impose a new withholding tax in
2005 when the EU introduced the
European Savings Directive and under
this Directive the withholding tax rate
increases from 15% to 20% from 1 July
2008. So Luxembourg acts in the context
of a harmonised regulatory and legal
framework within the EU. Long gone is
the defining year of 1992 when the
German government introduces 25%
withholding tax resulting in massive
inflow of assets to Luxembourg
subsidiaries of German banks. Since
then, EUSD, UCITS III and MiFID have
created a much more level playing field
and greatly reduced the opportunity for
"regulatory arbitrage". Luxembourg has
now become the domicile of choice for
fund managers distributing retail funds
in Germany and there is probably little
scope for changing that at this stage.
Tancre: While Luxembourg's banking
famed secrecy is very important to the
Private and Retail banking sectors of the

34 INVESTOR SERVICES JOURNAL

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PANEL DISCUSSION
market place, it has had limited impact on
the mainstream Investment Fund
servicing area. The impact on the overall
asset inflow should thus be limited. It is a
fact that investment funds are sometimes
used in private banking structuring
exercises and protecting that segment of
the market has certainly had an impact
on certain players very active in that
field. , Banking secrecy, however, is not
what promoters are seeking when
choosing Luxembourg as a fund domicile.
Thommes: At the last Ecofin on 14 May,
the Commission was asked to submit by
30 September 2008 an assessment of the
functioning of the Directive on the
taxation of savings income. The Council
will then analyse in detail whether
amendments to the directive are
necessary. The withholding tax regime
which has been applied by Luxembourg
since two years on interest paid to
individuals resident in another Member
State has been functioning well.
I would like to recall that, in 2003, the
Member States have agreed that the
combination of banking secrecy and
withholding tax system is equivalent to
the exchange information mechanism.
Luxembourg tax rules are in line with
international practice and European
directives. Investors in Luxembourg
funds are submitted to the legislation of
their home country since they as a rule
do not invest directly into the fund but
through a local intermediary that will
apply its home regulation.
Post-credit crunch - with the desire for
transparency from the G7 and Financial
Stability Forum - do you anticipate
changes to the criteria for setting up a
fund in Luxembourg?
Murphy: The vast majority of
Luxembourg fund assets are in UCITS
III funds. Any eventual changes to
reporting and transparency requirement
will be implemented at an EU level. It is
likely that that the Risk Management
process which was introduced as part of
the UNCITS III regime will receive
additional attention. This requirement
36 INVESTOR SERVICES JOURNAL
means that investment managers must
use a risk management process enabling
them to monitor and measure, as
frequently as appropriate, the risk of a
scheme's derivative positions and their
contribution to the overall risk profile of
the scheme. Whether this means added
focus or change is difficult to anticipate,
but if it changes are coming, then these
will be equally applicable to other EU
fund domicile and not disadvantage
Luxembourg, vis a vis its current
position.
Tancre: Most certainly. Luxembourg has
been historically quiet on the alternative
fund segment. Unregulated offshore
centers have been successful in attracting
this business. Luxembourg has
voluntarily preferred to stick to highly
regulated vehicles to protect the
Luxembourg brand name in both the
retail and institutional areas. At the time
where we indeed expect a push for more
transparency and regulation, and an
inflow of institutional money into that
sector, Luxembourg will be well
positioned. Even with the introduction of
the lighter regulated SIF product,
Luxembourg continues to capitalize on
its brand name and expertise to meet the
new challenges placed on the alternative
funds promoters. The trend of choosing
Luxembourg over other offshore centers
for new launches, or even re-domiciling
existing funds to Luxembourg, is already
visible today.
Thommes: The consequences of the
crunch and its potential impact on the
asset management industry are currently
being analysed at IOSCO and EU level.
We do not expect any impact on the
criteria for setting up a fund but rather
on procedures relating to transparency,
due diligence, risk management,
prudential supervision and valuation.
What impact has the introduction of
130/30 Funds and other 'Sophisticated
UCITS products had on the
UCITS brand?
Murphy: The ability of investment
managers to utilise a much wider
spectrum of financial instruments under
UCITS III certainly gave new impetus to
the UCITS brand and assisted its now
global popularity. This however must be
set against the fact that one of the main
attractions of the UCITS legislation is
its investor protection element. That has
greatly contributed to the UCITS
"brand" and its subsequent distribution
power. Therefore, any modernisation of
the vehicle and the regulation that shapes
it needs to have investor protection as its
main goal. "Sophisticated" UCITS III
funds introduce some complexities to the
product, which may be difficult for the
investor to understand - which investor
really cares about whether a physical or
synthetic shorting in a 130/30 fund is
allowed? The European Commission,
CESR, the industry associations and
industry participants are all aware of
this and are working through the issues
in a very responsible manner - everybody
is diligently working to evolve the
product whilst maintaining that balance
between investment flexibility and
investor protection.
Tancre: I think that we have probably
reached limits in the usage of
sophisticated instruments or techniques
in UCIT funds. The financial crisis has
demonstrated that the combination of
instruments that bring a lot of leverage
and underestimate liquidity risks can
have devastating effect on portfolio
values. It is a problem that is certainly
high on the agenda of the regulator, as it
could really damage the image of UCIT
funds and investor confidence in the
brand name. I certainly expect stricter
interpretation of the rules by the
regulator and maybe even changes in the
regulation to bring better segregation
between products only available to
sophisticated investors versus the retail
products.
Thommes: Luxembourg funds being
largely sold outside the EU, asset
managers had to convince local
regulators to accept the extended powers
provided by UCITS 3. It appears that
 these efforts have been fruitful and that
the UCITS brand is establishing itself as
the world-wide reference in terms of
fund management and distribution.
How important is Luxembourg's
approval of index based funds for the
UCITS III framework have?
Murphy: It is important and only time
will tell how popular these funds become
within the UCITS regime. The main
significance is that they introduce
another string to the widening bow of
the UCITS product. It again
demonstrates that the Luxembourg fund
industry, its regulator, and the
government is actively participating in
the modernisation of the UCITS III
product. As the largest EU fund domicile
it is probably natural that Luxembourg
together with Ireland, are at the forefront
of adopting new measures in the fund
space.
Tancre: This is closing a gap caused by a
counterproductive side impact of the
diversification rules applications. It is an
example of a deviation from the standard
rules that does not cause any issue, as
transparency could not be better to
investors, coupled with a simple concept.
Thommes: There is no doubt that funds
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replicating indexes (which were partly
already authorized under UCITS 1)
benefit from increased interest from
investors.
How important will Luxembourg's
accommodation of alternative
investments be in sustaining its
competitiveness following the recent rise
in alternative investing?
Murphy: Luxembourg is now over its
earlier doubts about the hedge fund
industry and recognises that alternative
funds are complementary to the more
traditional funds industry. Not
surprisingly given Luxembourg's huge
and global promoter base the
introduction of alternative investment
vehicles has been a huge success. The SIF
vehicle especially has been very popular
as a fund for qualified investors. Cayman
and Ireland had respectively become the
hedge fund domicile and administration
locations of choice. The 2007 legislative
changes introduced a suitable
Luxembourg vehicle for hedge fund
managers. The result has been a very
rapid uptake and more than 500 fund
launches.
Tancre: As mentioned before,
Luxembourg has a true value proposition
for the challenges lining up for the
alternative industry and we are indeed
bullish about the future of Luxembourg
in the segment. One could question
whether growth will slow down globally,
but with Luxembourg increasing its
market share, we believe that growth will
be spectacular in Luxembourg. That said,
we also need to recognize that
Luxembourg has built its success on
UCIT funds, and that this success will
continue. The alternative sector brings a
very interesting tranche of sophisticated
and added value activity, even if, volume
wise, alternative asset volumes will
continue to be dwarfed by the mutual
fund business for the foreseeable future.
Thommes: Luxembourg continuously
tries to create innovate products and
adapt its legislative and regulatory
framework to current and future market
needs
The remarkable success of the new
Luxembourg law on specialised
investment funds (SIF) clearly shows
that there is growing appetite for
alternative investments and products
aimed at an institutional, professional
and qualified investor clientele. Over the
past year (March 2007- March 2008), the
number of SIFs has increased from 228
to 629 and the total number of
Luxembourg funds from 2248 to 3012.
The great success of ALFI’s first
www.bravurasolutions.com
PANEL DEBATE

conference dedicated to alternative
investments demonstrates the investors’
interest in Luxembourg as a centre for
the management, domiciliation and,
administration of alternative
investments.
Which countries do you earmark as up
and coming rivals to Luxembourg and
what would they have learned in being a
successful and attractive domicile?
Murphy: Luxembourg with €2000
million in domiciled assets, which is more
than the whole of the Asia Pacific region,
has such a head start on any rival.
Ireland, of course, has been a very
successful rival growing to roughly half
the size, in terms of domiciled assets,
over a period of 20 years. Luxembourg
and Ireland are together instrumental in
improving the fund product. With the
level of wealth creation taking place in
the Middle East it is certainly likely that
we will see centres like Dubai becoming
more significant over the next five to 10
years. This is likely to be more
complementary than competitive.
In Europe it is likely that Poland will
be successful in developing as a centre
but, as in case of Ireland, this is likely to
take 20 years or more to reach any level
of critical mass. Centres such as Malta,
Channel Islands and others will be niche
players but unlikely to reach asset levels
to rival Luxembourg or Ireland. In terms
of lessons there is no doubt that a stable
and rigorous, yet proactive, legislative
and regulatory environment is a must.
This gives the seal of quality and
transparency that investors seek.
Bilateral tax treaties are also very
important. It is little use to have a
wonderful product if the target investor
country does not accept it from a
taxation perspective.
Tancre: Only Ireland comes to mind, but
they have been upcoming for some time
now. They have established an important
footprint in the sector and this
competition with Luxembourg has been
extremely healthy and productive for the
industry as a whole.
Thommes: The UCITS Directive being
the same in all EU member states, all EU
countries are our potential competitors.
However, while most big European
countries mostly cater for their domestic
market, Luxembourg funds are
specifically designed for cross-border
distribution, more and more also outside
the EU. According to PWC/Lipper, 75%
of all European funds distributed in at
least three countries come from
Luxembourg, and these funds are
distributed on average in seven countries.
This is, where we see our main
competitive edge. ■

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Head of Sub-Custody Client Relations: Ulf Norén, ulf.noren@seb.se.
Prime Fund Solutions

Getting you there.

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Fortis Bank S.A./N.V. UK Branch - Authorised by the Commission Bancaire, Financière et des Assurances in Belgium and the Financial ServicesAuthority;
regulated by the Financial Services Authority for the conduct of investment business in the UK.
HEDGE FUNDS
Rules and
regulations -
hedge funds
prepare
Aquin’s COO Roman Harbich considers the
future of the hedge fund industry
concerning transparency and greater
regulation
he fund industry agrees that
T
investors need improved
transparency, and with a
threatened growth in regulatory
supervision, pressure is building for a
cost-effective, easily managed solution
for compliance and disclosure.
Recent calls for greater transparency
in the hedge fund sector on behalf of
regulators and investors have elicited a
mixed response from the fund
management business. The issue of
hedge fund ‘opaqueness’ as it is perceived
by the wider financial world has
increasingly been a cause for concern in
recent years. Although the industry will
be celebrating its 60th birthday next
year, its role has really become
prominent (for both good and bad
reasons) over the last two decades.
George Soros famously made
USD1 billion in 1992 with his Quantum
40 INVESTOR SERVICES JOURNAL
Fund betting on the UK dropping out of
the ERM, while the collapse of Long
Term Capital Management in 1998
raised questions about the effect funds
could have upon the global economy. In
the last few years, certain funds have
become well known for their activist
shareholder stance, activism that has cost
some CEOs their jobs and has had
material impact upon the management
strategies – and shareholder value – of
the companies they invest in. The value
of assets held by hedge funds – estimated
to be up from USD1 trillion in 2005 to
over USD2.5 trillion in late 2007 – is also
giving regulators pause for thought.
2007 – Year of reform
Toward the end of last year in the UK,
the Hedge Fund Working Group, headed
by Sir Andrew Large, began to develop a
code of conduct to create transparency in
the hedge fund community. One of the
primary reasons for the project had been
concern from government ministers in
Europe – particularly the German
government – at the role that activist
funds were having within organisations.
This led to calls for a database in which
hedge funds would register their
interests. The thwarting of Deutsche
Börse’s plans in 2005 for takeovers of the
London Stock Exchange and subsequent
ousting of then-CEO Werner Seifert
stirred comment from politicians, with
one likening the hedge fund industry to
‘locusts’. The strength of feeling
apparent here, has been replicated among
Union leaders.
More recently the issue that has
worried regulators has been the ability of
hedge funds to evaluate assets that they
hold, with the rise in complex instrument
use making valuation for hedge fund
clients less clear. The FSA reprimanded
one small fund in 2006 for a discrepancy
between the value of investments in a
fund that could be realised and the
valuations provided to clients by fund
managers. In 2007, the Alternative
Investment Management Association
published a ‘Guide to Sound Practices for
Hedge Fund Valuation’, with strong
valuation policies and a template for a
hedge fund valuation policy document.
The association also launched an
Investor Steering Committee to make
recommendations, while a committee of
European regulators under the
International Organisation of Securities
Commissions (IOSCO) banner published
its own nine guidelines, all of which were
intended to head off potential problems
in this area.
Short selling tempered
Further concern, as yet unaddressed by
regulatory initiatives, has been raised
over short selling and the influence that
market rumours have had in hitting
companies’ share prices. The practice of
short selling, where one party agrees to
sell stock without owning it and then
buys it to complete the deal afterwards
hoping the price has fallen, is not allowed
in all jurisdictions – for example, it is
banned in China – while in others its
status varies according to the method of
completing deals. The Australian prime
minister, Kevin Rudd, blamed short
selling for exacerbating the recent
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HEDGE FUNDS
market volatility. In Australia, hedge
funds – most closely associated with
shorting despite its use across the
financial services industry – have been
alerted to a crack down on the practice
following hits to the stock value of some
of the country’s major companies on the
basis of market rumour. Similar issues
have hit the headlines in the UK and US
following allegedly false rumours
regarding financial services companies
including Lehman Brothers. While
‘naked’ shorting (no stock borrowed or
owned) requires disclosure and is subject
to certain restrictions in Australia, it is
unclear whether ‘covered’ shorting
(borrowing stock to ensure that the deal
can be completed) requires disclosure and
so regulators are seeking to provide
guidance.
2008 – Year of reckoning
The response from the industry has been
to address these cumulative problems
with ‘self-regulation’ or voluntary
practices. The Hedge Fund Working
Group released its guidelines in January
2008 which focused on independent
valuation and transparency of portfolio
risks, the latter being disclosed on a
quarterly basis. In the US these have now
been supported by further guidelines
issued by two committees of the
President’s Working Group for Financial
Markets calling for improved disclosure
and risk management. The American
recommendations and those supported by
the European heads of state have not
been accepted by all industry participants
however. Alan Brown, chief investment
officer at Schroders Investment
Management, has been critical of the
proposals so far as he says that they allow
hedge funds to choose which rules to
adhere to, as long as an explanation is
given for those that are not adhered to,
with no enforcement behind the guides.
As other fund managers do not have this
luxury – and hedge funds are
increasingly appealing to a group of
investors that are traditionally targeted
by those fund managers – there is a case
to be made.
Although the future is uncertain,
whether the change comes from self-
imposed guidelines or government-
imposed regulation it will mean one
thing – increased transparency. Hedge
funds globally will need to address which
42 INVESTOR SERVICES JOURNAL
information should be disclosed and the
method for transmitting it to the relevant
parties. They will also need to look at the
mechanisms for the collection and
distribution of the data. As funds are
notoriously Spartan – focusing on the
trading of securities rather than the
processes and administration that are
associated with the back office – changes
could be significant and difficult to
manage, not to mention costly.
The operations expertise within a fund
is usually supplemented by its prime
broker or infrastructure provider. These
relationships allow the funds access to
technologies and skills that, through the
providers’ economies of scale, are often
superior and more cost effective than any
systems or processes developed in-house.
Any system must be adaptable enough to
cope with the situation that is settled
upon, with provision for further change
to occur in the near future. If a system is
too deterministic the fund will have to
correctly predict the lie of the land going
forward.
The way ahead
It is also entirely plausible that the
regulators in different jurisdictions
decide to adopt different attitudes to the
funds industry.
The US and Germany, as a case in
point, took contrasting positions. In the
former, Hank Paulson assisted the
drawing up of guidelines; in the latter,
the government suggested the
registration database. It is likely that
even similar rules would be drawn up in
different ways. From a technology
perspective a flexible rules engine would
best serve this purpose, but a full audit
should be carried out to ensure that they
are aware of the systems and data feeds
currently available, and the route by
which these must be connected in order
to develop the gathering, cleaning and
structuring of data into appropriate
reports.
Ideally, any system that they do decide
to use will have a flexible connectivity
option – in technology terms a
sophisticated mapping technology – that
allows them to connect to any system
and data they need.
To provide transparency to their
clients, hedge funds might also need
smart Web clients that allow investors to
access any compliance information online
and to provide board-room quality
reports.
Aquin’s MIG21 system is a hugely
flexible investment compliance solution
that utilises a high degree of automation to
reduce the burden of work upon fund
managers and their compliance officers. It
will serve across geographies and
regulatory regimes. It facilitates post-trade
checking of legal, contractual and internal
investment guidelines in one single system
thus reducing the cost and time associated
with investment process controls.
Recently Aquin and PCE Investors,
the London-based infrastructure
platform for hedge funds, announced a
partnership through which PCE will
use the award-winning compliance
solution from market leader Aquin as
the system of choice for its
infrastructure. With assets exceeding
USD1.4 billion across 15 hedge fund
strategies, PCE is the first non-long
only participant to acquire such a
leading-edge, flexible compliance
solution and this ground-breaking
rules engine will significantly enhance
the operational excellence that PCE is
able to offer hedge funds.
PCE Investors and Aquin can now
provide PCE’s clients with the full range
of support from its institutional scale
operating environment while ensuring
they are able to meet the needs of both
regulators and retail clients via Aquin’s
technology.
By using such technology through an
infrastructure provider, fund managers
are able to cope with regulatory burden
and the need for disclosure without
significantly impacting their business.
MIG21 provides that and, combined
with PCE’s holistic service offering,
gives fund managers the benefits of scale
across their operations.
A study by Aite Group released in
April 2008 showed that concern over
technology and operations is high
amongst hedge funds, with
improvements to the funds’ ability to
manage data and reporting key to this.
Through leveraging relationships
between infrastructure providers and
system specialists such as this, fund
managers can keep focussed on their
main task – chasing alpha – while
keeping operations and technology in
hands of experts, satisfying regulators
and investors. ■
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ANALYSE THIS - DERIVATIVES PROCESSING
Process progress
Some of the industry’s top players examine the
status and challenges of derivatives processing.
What are the biggest data
challenges faced by the
buy-side in processing OTC
derivatives?
MARTIJN GROOT, PRODUCT MARKETING DIRECTOR, ASSET
CONTROL
he buy side faces a number of challenges in
T processing OTC derivatives. These include
complexity in adequately representing these
products in existing systems, correct valuation of especially
the more exotic products, and risk management challenges
especially operational and market risk-related.
The first challenge comes down to correctly modeling
OTC derivatives. Although great strides have been made in
standardization in different derivative product classes, such
as through financial products markup language (FpML),
large parts of existing infrastructure are still often not well
equipped to deal with them. For adequate OTC derivatives
processing, extensibility of a data model is a must-have, as
new terms are often introduced and custom structures are
often set up.
The valuation of derivatives is a thorny issue, especially
when deciding on an authoritative price. Valuation can be
done purely internally on the basis of a model or by looking
at quotes from different brokers. In the first instance, model
risk may be introduced. Some derivatives are so complex
that securities services companies are offering derivatives
44 INVESTOR SERVICES JOURNAL
risk audit services to portfolio managers.
When looking externally, prices from various market
makers may have to be combined to come to a
representative market view, for example by looking at the
highest and lowest price point from several brokers, bid-ask
spread on the best available quote from all brokers, and last
transacted price.
For illiquid products, valuation may have to be done by
looking at “like” products, which means that when a price
cannot be found for a product, pricing for a product with
comparable risk drivers and cash flow structure is used,
which again can introduce model risk.
For market risk management, accurately understanding
the drivers of instrument value again places requirements on
data modeling to represent all terms, but also requires larger
data sets of underlying or related instruments to capture the
volatility. For strategies that span multiple asset classes, data
needs increase correspondingly. From an operational risk
perspective, although central counterparties reduce
settlement risk, product complexity means a larger
propensity for breaks in the trade lifecycle.
Many OTC derivatives have become mainstream products.
The resulting rise in volume has put pressure on manual
processes and drives more automation. On the other hand,
the constant flow of new products means that if you can
keep up from a processing perspective, there are also
significant benefits in being first to market.
If OTC derivatives are not accurately priced, an
institution can also suffer from adverse selection:
counterparties will select the institution as a trading party.
Consequently, more rigorous controls around the valuation
process are being put in place.
In meeting these challenges, buy side firms would greatly
benefit from data management solutions that combine
inherent flexibility in instrument modeling with a strict data
quality process with complete transparency and audit. ■

Is it possible to overcome
the processing challenges
brought about by the
increased use of OTC
derivatives?
GEOFF HARRIES, VICE PRESIDENT PRODUCT STRATEGY, CHECKFREE
TC derivatives have firmly found their place as an
O important tool for asset managers. Whether it is to
add product flexibility or enhance investment
strategies, the rapid expansion in their use has, however,
brought about its own set of challenges - particularly in the
middle and back offices and managing the process flow
associated with them.
As transaction volumes have surged, so has the pressure
on operations to cope with this growth. With experienced
OTC derivatives professionals in short supply and a general
push to reduce rather than increase headcounts across the
board, the best solution is to perhaps consider greater
automation to increase operational capabilities.
Furthermore, part of the solution to this surge lies in
focusing primarily on only the areas that are experiencing
sharp rises in volume rather than looking for a single
solution that will automate every contract from the vanilla
through to the highly exotic. For many, new volume and
growth in credit products has compounded the existing
volume on interest rate swaps and has become the primary
focus for automation of standardised and high volume
business. Asset managers can experience a dramatic
improvement in their operational efficiency and risk
management and develop operational scalability by focusing
on a subset of the total book of business.
By automating the confirmations process, the asset
manager is also reducing his reliance on manual processing
to support trade confirmation and payment processes
involving the handling of cash flows around derivatives
contracts. Many organisations are at different levels of
sophistication when it comes to onboarding to electronic
confirmation platforms: some enter trades manually and
others use spreadsheet uploads while a minority have
integrated the process. The latter is the only solution that
can truly provide scalability and a significant reduction in
operational risk.
While already popular, the use of OTC derivatives has
meant a new derivative processing infrastructure has to be
put in place, virtually from scratch, which also dovetails
with the existing front, middle and back office systems and
procedures, rather than creating a new silo process. To
prevent the unnecessary management of a broad range of
external partners to supply knowledge and technology to
help them eliminate operational risk from this process, it is
ANALYSE THIS - DERIVATIVES PROCESSING
perhaps wiser to choose a vendor who is well placed to support
multi- asset class STP across the trade lifecycle and can also
facilitate the trade capture, confirmation and payment
processes that are generated through OTC derivatives trading.
It is the vendor’s role to deliver a single, integrated solution
that insulates the client as far as possible from the nuances
around connectivity and different operational formats within
the primary industry utilities such as DTCC Deriv/SERV and
SwapsWire.
While it is not yet possible to wave a magic wand that will
solve all the operational issues surrounding the processing of
OTC derivatives, there are vendors that can offer a matrix of
solutions to help clients build a scalable and versatile
infrastructure that will support their growing use of OTC
derivatives and achieve the business objectives of portfolio
protection and portfolio performance to sustain growth. ■
Is STP realistic for
derivatives processing?
GERARD RAFIE, VICE PRESIDENT SALES AND MARKETING, CALYPSO
TECHNOLOGY
inancial institutions have seen numerous drives to
F improve the efficiency of derivatives processing,
including those initiated by the regulators.
Underpinning this initiative is the improvement of straight-
through processing (STP) for derivatives, which means
greater automation of trade processing. The market has
made strides in automating derivatives processing; however,
there may be certain circumstances where derivative
products may not be suitable for end-to-end processing. In
such cases, the key to maximising the automation of
derivatives processing lies within a firm’s ability to define
and apply multi-dimensional workflows within operations
departments and to seamlessly interface to downstream
systems.
Aside from industry pressure, the reasoning behind the
drive to increase STP is to reduce risk and processing costs.
Manual processing is time-consuming, expensive and prone
to errors; meanwhile delayed settlement of the transaction
corresponds to an increase in settlement risk. However while
STP may sound like a panacea for the complex processes
involved in trading derivatives, in reality financial
organisations tackle this in bite-sized pieces.
For many organisations, full automation of derivatives
processing is a step they are not yet ready to take. The
complexity involved in unwinding an erroneous trade is such
that most operations teams would prefer to insert a break in
ANALYSE THIS - DERIVATIVES PROCESSING
the process for checking trade details. This ‘four eyes’
principle provides an opportunity to verify that the details
are correct before the trade is passed for processing. In such
cases, the STP technology used must be flexible enough for
managers to define such a process for handling such trades.
Manual intervention is also required to manage
exceptions highlighted by the back office system. Focusing
operations staff on exception management can result in
substantial cost savings, as this enables them to focus on the
percentage of trades which have inaccurate details rather
than every trade which comes through the system. Rules
are required to identify when manual intervention is
required, and systems are required to support the
implementation of those rules.
Apart from these two areas there are many steps
businesses can take to increase STP. The ability to define
operational workflows to handle a wide breadth of
processing situations is a critical ability. For example, while
most organisations may prefer not to have the confirmation
“The market has made many strides in
automating derivatives processing;
however, there may be certain
circumstances where derivatives
products may not be suitable for
end-to-end processing”
sent without the trade being checked, the automated
generation of confirmations as defined in a trade workflow
can result in a near instantaneous production of a
document ready to review. Messaging workflows can define
how incoming derivative confirmations are handled, and
even automate the matching of keywords.
Finally, the ability to interact with the market
infrastructure is critical in aiding an increase in STP.
Confirmation and payment platforms for the derivatives
market play a significant role in assisting their users with
improving STP. Ease of interfacing to these facilities results
in greater automation in trade processing. Leveraging
internal systems further streamlines the process, so that once
a trade is executed and the confirmation is produced and
verified internally, these platforms can then play their part in
the matching and settlement process.
In summary it is necessary to use business logic to
determine how a transaction should be processed and
implement this logic through the systems that business
employs. Many organisations feel that the complexity
involved in derivatives trading necessitates some degree of
manual involvement in the form of logical breaks in the
automated processes. Therefore it could be argued that it is
not yet realistic to utilise full STP for derivatives, however
the steps which can be automated are beginning to converge
into end-to-end processes which achieve the goals of reduced
cost and reduced settlement risk. ■
46 INVESTOR SERVICES JOURNAL
What are the common
technical solutions to
process OTC and exchange
trading derivatives?”
LAURENT JACQUEMIN, GLOBAL HEAD OF POST TRADE DERIVATIVES,
GL TRADE
ith today’s market conditions, volumes in
W derivatives have risen significantly and with that,
the need for financial firms to control risk. There
are also different types of derivatives: those traded in the
over-the-counter (OTC) markets and those listed on
numerous exchanges. Along with some very subtle but
notable differences, these two types of derivatives trading
share also some commonalities and the need to manage risk.
To address the needs of financial institutions that trade
derivatives, systems provided by independent software
vendors (ISVs) offer features for pricing derivatives, risk
management, and straight-through-processing (STP). Due
to the complex, varied, and ever-evolving nature of
derivatives, systems that facilitate derivatives trading and
risk management require flexibility to maintain alignment
with the market and their respective businesses. They also
need to be scalable and high performers to be able to handle
the computationally intensive derivative calculations and
increasing volumes. Finally they must be resilient to
minimise the impact of system failure and ensure business
continuity.
The standardisation and automation of operational
processes is another common technical solution to trade
both OTC and listed derivatives, which means using STP. It
allows institutions to process high volumes of both types of
derivatives trades. STP also helps increase efficiency of the
operations surrounding trade confirmations, settlement,
payment processing, and lifecycle management of deals. It
is also possible to adapt the configuration system to support
changes in business rules or the introduction of new
derivative instruments. Exception management goes hand-
in-hand with STP as rules define the automated flow and
they must also define how these are routed to personnel
that can remedy the situations quickly.
A different issue that vendors must also focus on when
providing STP technology for derivatives is to look at
capacity planning requirements. STP needs efficient
indicators to be able to handle trading volumes variations.
There are a number of features available for processing
listed derivatives, including market audit tools which
analyse data during the trading day and scan for unusual
patterns of trade execution and volume. Upon such
occasion alerts are issued to adjust STP rules to
accommodate the growing volumes. ■

“Systems that facilitate derivatives
trading and risk management require
flexibility to maintain alignment with the
market and their respective businesses”
Trading in derivatives, whether OTC or listed, clearly
requires proper risk management to protect the trading
organisation from the various facets of risk: market
exposure, operational risk, and credit risk. Managing market
exposure entails computationally intensive applications to
price large portfolios of derivative positions and calculate
their sensitivity to various market factors across numerous
simulation scenarios -- all of this in near real-time
conditions to provide critical decision-making information in
a fast moving market. Operational risk management provides
provisions to limit risk taken by individuals within the
organisation -- this must be flexible enough to protect, but
not constrain the business. Credit risk is not normally an
issue for listed markets as deals are cleared through an
exchange and settlement risk is not tied to any given
counterparty. However for OTC systems, credit risk is very
real and risk levels of counterparties should be tracked along
a variety of dimensions, such as settlement risk, potential
future exposure.
It is important to note that a software solution is still a
tool, no matter how advanced or effective. No derivatives
trading operation will succeed without a qualified and
knowledgeable team, regardless of the technical solution. ■
How can banks use post-
trade services to gain a
competitive advantage?
JESSE DRENNAN, DIRECTOR PRODUCT MARKETING, TRAIANA
ost-trade services are becoming a new way for banks
P to add value to their clients and to differentiate
themselves from their competitors. But what are
banks looking for and how should vendors respond? Let us
take the FX markets as an example.
FX dealers – of both cash and derivative instruments -
manage a bewildering series of processes tracking their
client trades, from trade date activity beginning with the
receipt of orders, to trade allocations and confirmation,
then proceeding to settlement date with processes such as
trade and payment netting, client reporting and position
ANALYSE THIS - DERIVATIVES PROCESSING
and settlement reconciliation.
Typically each of these activities has a separate internal
process, which leads to grossly inflated costs, and in many
cases, a level of duplication which would have many CIOs
gritting their teeth.
Many banks are responding by taking all of their client
connectivity and post-trade services and outsourcing them.
There is increasing evidence that banks are looking for a
single connectivity solution - in effect, a ‘universal adapter,’
that links a bank to its clients, with a single hub that
centralises all post-trade client interactions.
While STP is important to the client, they are resistant to
the idea of going through months of plumbing each time
they ask for a new asset class or service from a single dealer.
The Holy Grail therefore for vendors is to offer trade
processing, without imposing technical protocols and
standards on the client. In this paradigm the client is able to
“There is increasing evidence that banks
are looking for a single connectivity
solution - in effect, a ‘universal adapter’
- that links a bank to its clients”
send information in their preferred format using deliveries
such as spreadsheets, PDF reports or faxes.
Clients are demanding of their dealers automated and
direct feed of deal tickets, market data and position
summaries that can be sent, analysed and processed as and
when and in the format that they require. To ease the burden
of managing the variety of client behaviours, dealers are also
employing single screens to manage client account setups,
which link disparate account definitions across internal
systems to the client, as well as applying client-specific
naming conventions to reports generated on client reports
and profile how trade data is to be serviced by the dealer.
This end-to-end solution reduces errors and breaks in the
system while improving processing time. It also makes it far
easier to reconcile across multiple systems by consolidating
them through a single processing hub. We have worked with
clients that have managed to reduce multiple systems (25 in
the case of one major bank) down to a handful, so that
booking, allocation and confirmation are all externalised to a
single hub.
The advantages of this type of client connectivity solution
is most apparent in the bank-to-client space where a client can
be connected to their bank through a single service
consolidating allocation and confirmations, give-ups, and
netting on flows for a range of currency products including
cash, options and non-deliverable forwards.
Improved post-trade processing offers advantages for
banks and clients alike, but ultimately it is the wider market
that will be the winner. Efficient processing acts both as a
catalyst to market expansion and acts as a facilitator for the
adoption of electronic trading, which increases liquidity to
the benefit of all. ■
INVESTOR SERVICES JOURNAL 47
ANALYSE THIS - DERIVATIVES PROCESSSING
How much of derivatives
processing can be
automated?
FREDERIC PONZO, MANAGING DIRECTOR, NET2S
TC and structured equity notes are very manual
O
because every single contract is different. A lot of
trading is getting more vanilla, even if it's still on the
exotic side. There is price pressure, so automation is one of the
key things to continue to develop, starting with simple things
like creating a term sheet. Before, for example, people would get
an email from the trader who structured the deal with the client
and priced it. Then they sent it back to their lawyers, and
they're going to charge tons of money to write a contract that
is not exactly the same as the one before, but not very different.
Just automating this process saves about GBP10 million in
legal fees, let alone the consistency and the ease of managing
that contract afterwards. That GBP10 million can be three
times the cost of the actual project.
In essence we are a capital markets consultancy advising
banks, asset managers and hedge funds on their technology and
core technology systems. That means we advise on which
systems firms should use, everything from client connectivity
to all the management systems, all the routings. However, we
also develop risk management systems, everything from
“On the pricing and structures side,
there is nobody who is doing a good job;
there is no off-the-shelf derivatives
processing product that is satisfying”
reporting, pricing, management for the buy-side but more
importantly credit risk, market risk and operational risk.
Our third main line of business is data management, so
historical data, compliance, reporting, decision supporting
analytics all the way down to straight through processing.
What we do is we're called when there is a problem, usually to
try and identify the problem in the first place and fix it
afterwards. So we're probably in between the investment firms
who carry on what they have to do in implementing technology
and the vendors and we come into - we don't create technology
really, we make it work.
The actual creation of derivative instruments can be maybe
not 100% automated but facilitated a lot. Most people are using
Excel spreadsheets and tweaking them ad nauseum until
they've got something that they're happy with. At the moment
about 80% can be automated, at best we are at 20-30%. This is
48 INVESTOR SERVICES JOURNAL
very much a work in progress; those efforts and technology
projects which really kick-started summer last year.
On the pricing and structures side, there is nobody who is
doing a good job; there is no off-the-shelf derivatives
processing product that is satisfying. The right approach being
implemented by three of our clients not using vendor products
is a template-based approach where you've got families of
structures that essentially look the same.
What will change are capital protection the actual stocks or
baskets you put as you're indicator and your benchmark. Once
you've broken down the family of products into a dozen main
categories, you cover essentially 80% of your business. Then
you can build an application that will be able to automate that
particular type of structure. No one is doing that today: if you
want to do that, you have to build it yourself, or somebody
building it for you bespoke.
That's the stage we're in. That's the difference between
creating a template with set parameters compared to
something where you have to write code. No one does it the
way it needs to evolve to for people to implement. We really
looked hard at the end of last year if there was a vendor we
could use instead of reinventing the wheel and building it
ourselves and the answer was no.
There will always be a part of the spectrum which will
require very specific parameters, but even on capital protected
structured products - which is another big one in terms of
volume - it's getting standardised, not just the templates but the
terms and conditions, the redemption clauses, the fine print in
the contract. The main clients for that kind of products are the
private banks. It's a bank creating a contract and securitising it
through a vehicle. Those contracts are then sliced in smaller
chunks and sold to clients. They need to be able to process that;
they need to be able to notify every single time there is a market
event. But at the moment we are still looking to close that 20-
30% gap that remains manual. ■
What makes the
structured and derivatives
area difficult to handle?
RACHID LASSOUED, CO-HEAD OF ASSET SERVICING, SGSS
ost investors do not have the time or the critical
M mass to build their own in-house financial
engineering department capable of pricing these
instruments correctly. In the same manner, investment banks
structuring products are increasingly facing demands to
provide independent valuation to their clients.

This is specifically to address those needs that SGSS has
launched in 2005 independent valuation services for OTC &
structured derivatives through all asset classes.
The main challenge with complex derivatives lies in their
uniqueness. Every product should be regarded as unique, and
is a challenge in itself.
Each product bears a number of primary and secondary
risks. Some are managed dynamically, or transferred through
various instruments (correlations swaps, basket swaps,
variance swaps). The valuation of those products is the result
of the hedging policy which is different for each counterpart
or structuring side, which makes the valuation
“trader choices” dependent. Take the same product structured
by ten investment banks, you may easily end up with ten
different prices.
So the valuation exercise is really awkward because of the
specificity of the structured product world. Giving a
calculated price, without taking into account the natural link
between valuation and hedging could be well misleading. To
cope with that, we have set up our service with a persistent
idea in mind: the only suitable business model is rather
“service” than “consultancy” based (which is the business
model for ASP providers). ASP platforms assume that the
products are in some way generic, but we think this is not a
word that would apply to structured and complex derivatives.
We have been the first player in the independent valuation
industry to understand that clients are not only expecting
calculated prices and sensitivities on super calculators backed
by web front end to collect information, they need more
valuable services. They are requesting a dialogue to
understand the specificities of the structured derivatives
world, to figure out how the valuation was performed. They
also need to understand why there is a difference between
calculated price and counterparty price, if any. Explaining
where the discrepancy lies, if any, should be the market
standard along with a strong emphasis on education and
expertise transfer to improve communication between the buy
side and the sell side. We have the strong belief that clients
are expecting to get something valuable from the outsourcing
experience: shared expertise, being central within the whole
process, accrued flexibility.
It takes a huge amount of resources to achieve a quality
service level on complex derivatives: a strong financial
engineering team with investment banks standards; state of
the art models & numerical methods, modular pricing
libraries components with script language functionalities, grid
computing facility. It also needs a consistent data management
architecture, run by complex data specialists that can: acquire
all data feeds, normalise the data, organise hierarchies and
multi-sourcing; control the data quality using sets of
automated rules; perform mathematical controls and re-
engineer data when controls discover errors. It also needs
quantitative research capabilities: research & development is
essential to stay ahead and bring solutions in an ever changing
structured product industry, an exhaustive market practices
knowledge database for hedging and calibration issues.
Only with this organiation would you be able to tackle the
challenges related to exotic and structured derivatives. ■
ANALYSE THIS - DERIVATIVES PROCESSING
Should we fear OTC
derivatives?
DAVID DIXON, PRODUCT MANAGER, BUY-SIDE PROGRAMME, MISYS
The recent market conditions and the current weakness of
equities has led to pressure on the buy-side to start looking to
move into OTC derivatives - customers are looking for greater
margins and derivatives clearly provide one means to achieve
this. There is some understandable reticence to make this
transition: the market risk is well-publicised, and the operational
risks are exacerbated because the buy-side is typically less
familiar with these instruments. The fear is justifiable but in
many ways it is that of the unknown, rather than that of
something that is unachievable or risky.
The recent changes to regulations have increased
transparency and have also ensured that companies put the right
systems in place before they can make the move into OTC
derivatives, something that should prove beneficial to the buy-
side in the long run. While buy-side volumes in derivatives
would be expected to be comparatively low, the range of
instruments dealt will be wide, so a system to process OTC
derivatives needs to be flexible. The systems available to provide
the functionality have traditionally been seen as large, complex
and difficult to implement - for companies just beginning to
venture into OTC derivatives, this is often a barrier too high.
A good system will be capable of performing all the
processing required, perform valuations, handle confirmations
and settlements, calculate and monitoring market risk, and
providing all the maintenance functions to reduce operational
risk. Such a system can automate a lot of the processes that
make the shift to OTC derivatives seem so complex.
Vendors from the sell-side already have the experience in
delivering such systems and as such have begun to leverage
their expertise for the buy-side. A number of sell-side
technology vendors have started to offer solutions to the buy-
side as many traditional buy-side vendors have struggled in
coming to terms with OTC derivatives.
Buying out-of-the box systems has worked for the sell-side,
but the buy-side has neither the history nor the volume to be
comfortable in making such a big decision. ASP solutions enable
companies to start using the software quickly and with a much
smaller capital outlay. It is sold on a fee-per-user basis, so the
incremental costs can be much more easily managed and scaled
as necessary. Companies can therefore begin using the solution
quickly and with much less risk.
Hesitancy to move into OTC derivatives is entirely
understandable. However, it is important to see the path to
entry as attainable and not just a pipe-dream. So be cautious, yes;
but with preparation and the right system there is no need to
fear derivatives. ■
INVESTOR SERVICES JOURNAL 49
FUND FORUM - VENDOR PROFILES
Advent serves clients in 60 countries through a network of offices
that spans the globe, and our staff speaks more than two dozen
languages. This global reach and regional presence lets us localize
our solutions to fit a variety of complex business requirements,
including exotic instrument coverage, county-specific regulations,
and integration with local vendors. And our solutions are designed
to enable firms with international operations to integrate multiple
offices on a single technology platform.
Our deep experience in the world’s financial markets from 25 years
experience, combined with our understanding and appreciation of
cultural differences, allow us to provide comprehensive solutions
and customized services on a global scale.
Contact:
Tel: +44 207631 9240
Email: emea@advent.com
Web: www.advent.com
Established on 16 October 1999 in the Kingdom of Bahrain, Gulf Finance
House (GFH) is one of the most respected Islamic investment banks in
the Middle East region in its quality and innovation of product offering. At
the cutting edge of the rapidly expanding international Islamic banking
industry, the Bank is committed to the Islamic Sharia’a investment
products.
GFH’s core product offering, is the conception, high level planning and
arrangement of infrastructure developments of projects in the Middle East
and North Africa (”MENA”).
We have a wealth of diversified products to match our client portfolio
needs, including but not limited to asset management, private equity,
venture capital and other investment products.
During its eight years of operations, GFH has successfully launched
several development infrastructure projects with an aggregate estimated
development value exceeding US$20 billion.
2007 was the most successful year in the banks’ history, closing with a
net profit of US$ 340 million, an increase of 61% compared to the
previous year. The Bank is listed on the London Stock Exchange Kuwait
Stock Exchange, Bahrain Stock Exchange and the Dubai Financial Market.
Derek Angus, Executive Director
Asset Management, Head of Sales
Tel: +973 17538538 ext 677, Fax: +973 17532787
PO Box: 10006, Manama, Kingdom of Bahrain
e-mail: dangus@gfh.com
50 INVESTOR SERVICES JOURNAL
A global leader with nearly 200 years of experience, Brown Brothers
Harriman (BBH) helps many of the world's most sophisticated mutual
funds, investment managers, banks and insurance companies achieve
their international business objectives.
BBH provides specialist services and innovative solutions to clients in
close to 100 markets for custody, accounting, administration, transfer
agency, securities lending, foreign-exchange, brokerage services,
outsourcing solutions, and data management services (Infomediary®).
BBH maintains a presence in each of the principal financial centres
around the globe. Our commitment to quality client service, client-
focused technology, comprehensive industry knowledge, and strategic
partnering with clients are some of BBH’s key differentiators.
For more information about BBH and our integrated service
approach please visit www.bbh.com, or come meet us at Fund
Forum Barcelona 2008.
Infomediary is a registered trade mark of Brown Brothers
Harriman & Co.
Interactive Data Corporation (NYSE: IDC) is a leading global provider of
financial market data, analytics and related services to financial
institutions, active traders and individual investors.
The Company's businesses supply real-time market data, time-sensitive
pricing, evaluations and reference data for millions of securities traded
around the world, including hard-to-value instruments. Many of the world's
best-known financial service and software companies subscribe to the
Company's services in support of their trading, analysis, portfolio
management and valuation activities. Through its businesses, Interactive
Data Pricing and Reference Data, Interactive Data Real-Time Services,
Interactive Data Fixed Income Analytics, and eSignal, the Company has
approximately 2,300 employees in offices located throughout North
America, Europe, Asia and Australia.
The Company is headquartered in Bedford, Mass. Pearson plc (NYSE:
PSO; LSE: PSON), an international media company, whose businesses
include the Financial Times Group, Pearson Education, and the Penguin
Group, is Interactive Data Corporation's majority stockholder.
For more information about Interactive Data Corporation and its
businesses, please visit www.interactivedata.com.
HEDGE FUNDS
Analysis from an insider
Gordon Wilson, managing director of Caledonian Fund Services
(Europe) Limited, Isle of Man, comments on financial housekeeping
and good practice for hedge fund managers, particularly those dealing
with lower levels of AUM.
s a new accountant almost 20
A years ago, I received some
advice from a wily old client.
“Every pound’s a prisoner” he told me,
and his point was: spend wisely, and
only when absolutely necessary.
Like most successful entrepreneurs,
he lived and breathed the ethos of high
client service. To him there was little
point in paring back costs if clients suffered lower levels of service and
their ongoing custom was put at risk. What set him apart was his no
nonsense approach to spending money.
Recently my career has taken me into the world of hedge fund
managers, perhaps the most commercial animals in the world’s corporate
jungle. Many managers have seen significant of growth in their
businesses but are becoming more aware that every penny now needs to
be fought for just that bit harder.
Funds
Managers recognise two key things: one, they have a responsibility to do
everything to grab every bit of performance for investors; two, the size
of the funds will dictate levels of fees. Managers should review a
monthly profit and loss account for their funds with a focus on those
revenue and expense items which are not directly related to investment
performance.
If a manager does not receive a user friendly profit and loss account
report from their administrator monthly, then this should be requested
along with the NAV package.
Managers should consider expenses - fees, charges and commissions -
by those financial institutions that the fund deals with. Are the charges
in line with what has been agreed at the outset? Consider also the time
period since such arrangements were initiated, how frequently have they
been reviewed and whether tariffs have ever been benchmarked against
alternatives?
Examine also the active management of cash. All managers know
cash is a key part of any portfolio, but sometimes they lack either time or
expertise to maximise cash related returns.
For example, if there is no offset between debit and credit balances at
the same institution, managers must consider the need for debit positions.
On foreign exchange, institutions can make significant returns,
particularly from those trying to place deals in a hurry. There are now
many comparator applications to assess the value of rates offered which,
when used as part of the deal negotiation, can help ensure that treasury
dealers offer a competitive market rate. Managers who entrust FX to
their administrators should consider bringing the decision making in-
house, as administrators will often take the first rate offered.
Administration is another consideration. A deal done with a big
administrator when AUM was high and rising may not be the most
52 INVESTOR SERVICES JOURNAL
appropriate for a fund that has decreased in size. Managers should
consider the costs of the services being provided as well as their choice
of service provider. For example, does the cost of daily NAV remain
justifiable? Or is the minimum fee, which may have been not applicable
when the fund was larger, now starting to bite? Alternatively, has the
service level from the big administrator tailed off in line with the fund
falling down their list of priorities as it fell in size?
One final thought: managers should evaluate the commercial viability
of smaller segregated portfolios and smaller classes. These small pools
of assets often have disproportionately high associated fixed charges as
each is, in effect, a fund within a fund. While they can allow a diversify
strategy and widen investor appeal, care needs to be taken that each is
individually viable.
Managers
Manager contacts tend to generate “stickier” capital. However, a busy
fund manager will not have enough personal contacts to maximise the
fund’s potential, nor the time to properly look after them. Capital raised
via sales teams and distributors has a higher likelihood of flowing
straight out again at the slightest performance dip, with scant apparent
regard to the reasons behind the dip.
Managers should review their relationship management strategy to
maximise all the business they and their sales team come into contact
with. Products such as DCRM by Digiterre provide a tailored platform
for managers to gather more information on clients and contacts use it
more effectively. They can also provide a better distribution platform for
communications than a monthly email.
The most successful companies are those with the strongest brands.
The tried and tested principles of strategic brand building now apply in
the fast maturing hedge fund market.
The selection and use of technology has become almost as important
as the trading itself. Any manager who has not carried out a technology
review recently should consider doing so, with regular re-evaluation,
particularly for those still relying on spreadsheets or an internally
developed platform.
It is now possible for hedge fund managers to run one system from
multiple locations. At Caledonian, our core accounting system is Advent
Geneva, where we have data located in Cayman that we access it globally
using a secure internet connection. The same applies to our shareholder
servicing system and the benefits are significant. It presents some very
interesting opportunities for those managers prepared to leverage
technology in lower cost centres and with more attractive jurisdictions,
particularly for trading support and reconciliation functions. ■
The above represents the personal views of Gordon Wilson and not
necessarily the views of Caledonian Fund Services (Europe) Limited or
the Caledonian Group. None of the above constitutes advice and no
reliance should be placed on any of the content of this article. Any and
all liability is specifically excluded.

Survival of the
fittest
As competition between European fund
centres heats up, Joe Corcos takes a look
at how some of the smaller, newer centres
are comparing to the older, more
established players
EUROPEAN FUND CENTRES
he crusaders, Napoleon, the
T British Empire and the Luftwaffe
have all at one time fought to be
masters of the island of Malta for the
strategic advantage it would give them in
at times of war. Now the archipelago in
the middle of the Mediterranean is using
its proximity to the mainland continent to
its advantage as the most recent of the
European fund centres. Malta is the
newest domicile space, but is already
becoming crowded and now joins such
fund centres as the Channel Islands, the
Isle of Man and even the diminutive
Gibraltar.
Like eager children, Europe’s smaller
and newer fund centres are claiming a
place at a table traditionally dominated by
the larger presences of Dublin and its
perennial rival Luxembourg.
While direct competition with these
two giants is not necessarily practical or
desirable, most other European fund
centres have instead sought to carve their
own specialist niche in the sector.
Guernsey, for example, has successfully
established itself as something of a
specialist in private equity. The Isle of
Man has also fashioned itself as an
authority in alternative investments and
has launched an energetic and widespread
marketing initiative aimed at
reinvigorating itself.
This need to constantly innovate and
improve their services and capabilities in
order to survive and thrive is a challenge
even the established fund centres must
address. A myriad of factors contribute to
the success of a funds centre and the
identity that such centres establish for
itself. Regulation, geography,
infrastructure and capacity all play
important parts in the high stakes
business of establishing a country or city
as a fund centre.
So far, Malta has been relatively
successful in attracting administrators
and funds. Some of the smaller, more
specialised funds in particular are
attracted to the lower cost of doing
business on the island and the accessibility
and flexibility of the regulator. However,
larger funds also have a presence.
Dermot Butler, the founder of the
administrator Custom House, is already a
believer. “You can do smaller funds in
Malta because it's a less expensive
jurisdiction. You can do an awful lot more
for less in Malta. Custom House
INVESTOR SERVICES JOURNAL 53
EUROPEAN FUND CENTRES
redomiciled to Malta from the British
Virgin Islands and we’re going to be a
doing a certain amount of work in Malta
because it's a sensible place to be doing
it,” he says.
Others agree. Apex Fund Services set
up shop in Malta in January of this year,
and its managing director of the Malta
Branch, Anthony O’Driscoll, says: “I
“The whole strategy of the Maltese government in the run
up to EU accession has been to reorient the whole
financial sector to be onshore.”
brought a client here at the start of
March, and the chairman of the
regulator came down and met the client
personally himself. And that wasn’t a
unique case.
The structure within Malta meets all
requirements. If there’s anything these
clients need or think that the regulator
needs to be more flexible on, he’s open to
new ideas and initiatives. It’s still an
extremely regulated jurisdiction, though,
people leave with that impression [that it
is] very well regulated but very flexible.”
In 2004, there were ten Ucits, non-
Ucits, and PIF funds licensed in Malta.
By the first quarter of this year that
number had grown to 164. The first
quarter of 2008 has also seen Malta
attract 35 new hedge funds, in contrast to
last year when 51 were licensed over the
course of the whole year. In terms of
volumes and net asset value (NAV), there
has been an approximate ten-fold
increase in the last three years.
According to Dr Michael Xuereb,
director of marketing at the Malta
Financial Services Authority, Malta’s
strategy has been to set itself up as an
onshore fund domicile as well as
administration centre, gradually getting
rid of its offshore industry, which was
operating from roughly 1988 to 1994.
He says: “The whole strategy of the
Maltese government in the run up to EU
accession has been to reorient the whole
financial sector to be onshore.”
The island’s offshore industry was a
“stop gap”, according to Xuereb, in order
to buy time for the government to
examine and prepare for regulation of
54 INVESTOR SERVICES JOURNAL
financial services inside Malta with an
eye to opening up for foreign investment.
“For Malta it’s about getting the right
kind of players, large or small.
“We have to have a framework which is
flexible enough to accommodate the
requirements of the various types of
funds. Hedge funds aren’t treated like
retail funds, for instance. Also we realise
Dr Michael Xuereb , MFSA
there are different kinds of hedge funds.
There are hedge funds that cater for a
certain type investor and hedge funds
that cater for a more professional type of
investor. The more sophisticated the
investor the less regulation and less
investment restrictions when it comes to
investors who really know what they’re
investing in and what risks they’re
taking. The whole framework is built in
that manner.”
EU status and access to funds using the
Ucits structure gives Malta a major
advantage. After all, over 70% of the
trillions of Euros invested in collective
investment schemes across Europe are
Ucits.
Membership of the EU is not
something that the Channel Islands and
the Isle of Man share with Malta, which
could be seen as being a decided
disadvantage.
“Dublin and Luxembourg have an
advantage because of the Ucits initiative
and they are members of the EU and as
such are treated slightly differently”,
admits Andrew Howat, who heads up
Capita’s new Guernsey office.
Guernsey in particular has come off
one of its most successful years to date
with a 35% rise in funds under
management.
According to Patrick Firth, the
managing director of Butterfields Fund
Services on Guernsey, in order to remain
competitive the jurisdiction “needs to do
more of the same, maintain levels of
expertise and service quality. Also we
must remain competitive in the area of
corporate governance. Guernsey is very
much open for business and should
continue much in the same vein and
constantly look for opportunities to
develop our service offering.
“Also it must maintain competitiveness
in the area of corporate governance.
Guernsey is very much open for business
in that sense. It must continue much in
the same vein and constantly look for
opportunities where its appropriate to
modify regulation to adapt to
requirements of our clients, the fund
managers and so on.”
Over the last few years private equity
has become a specialism in Guernsey, to
the extent that some administrators
based there are concentrating solely on
this particular market.
Of this factor, Firth says: “Regarding
private equity, the experience of the
service providers, including the lawyers
and accountants is a significant factor in
the choice of Guernsey which has
become a centre of choice because of the
expertise on the island. There are also
certain advantages to the types of vehicle
used for private equity such as the
Guernsey limited partnership”
And Peter Niven of GuernseyFinance
says: “What we provide is a very good,
pragmatic regulated framework. And you
can come over and see the regulator,
which is very accessible. This is
important to clients, because they want
to know they can react smoothly in these
kinds of markets, which are quick. And
they need the opportunity to get these
big products out on the market place.
“So what people want to know is that
they’re not going to be hassled by the
regulator. They know they’ve got
certainty, and that certainty is a very big
factor when compared to the lumbering
giants of our bigger competitors.”
Niven goes on to say that one
jurisdiction that he does not regard as a
competitor is the Isle of Man.
The Isle of Man has set itself the goal
of having USD 100 billion of assets
under administration and USD 50 billion
of assets under management by 2010.
The island’s fund administration business
stands at approximately USD 60 billion
all told. However, there is the perception
in some quarters that the Isle of Man
may lack the capacity and resources to
truly compete.
Butler says: “I personally think the Isle
of Man is already starting in the position
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EUROPEAN FUND CENTRES
of not having enough capacity. They say
they have, but I mean if you take one of
the administrators that they have in
Dublin I suspect they could soak up the
whole of the Isle of Man’s capacity, in
terms of what’s available. My feeling is
that the Isle of Man may have trouble in
the future, they say not.”
The fact that the Isle of Man is not able
to distribute Ucits has shaped its
expertise, claims Brian Donegan, director
of foreign direct investment at Isle of
Man Finance. What Donegan calls
“dislocation” in the market has benefited
the Isle of Man.
“When we got involved in 2003, we
The Isle of Man and Malta have seen a rise in the number of funds licensed in
their jurisdictions over the last few years. But both will have to continue to adapt
and ensure flexibility for investors.
56 INVESTOR SERVICES JOURNAL
focused very much on fund
administration and attracted people like
Fortis and HSBC,” says Donegan.
“Caledonian from the Caymans came to
the Isle of Man. If you look at all the
other jurisdictions you would compete
with, Dublin is for all intents and
purposes full; there’s very little resource
available. Capacity is a big issue. Isle of
Man is a very big island compared to
Jersey and Guernsey, which would be our
competitors. So we have room to grow.”
The perception that Dublin is “full” is
one that is shared by Custom House’s
Butler. “Capacity in Dublin is becoming a
factor purely because it’s getting very
expensive. Dublin is one of the top three
most expensive cities in Europe,
presumably coming behind London and
Moscow”, he says.
According to Butler, if a manager of
one of the smaller funds chooses Dublin
to set up shop, they will “crucify
investors”.
Apex’s O’Driscoll adds that the
regulator in Dublin is not as
“approachable” as its counterpart in
Malta. He also maintains that
administrators in Ireland are now forced
to hire graduates rather experienced
employees.
However, Kevin Hogan, who heads up
the Dublin branch of Maples Finance,
disagrees. He says: “The IoM is a small
destination as is Malta, and Ireland
compared to those locations is a
significantly larger developed country ”.
In terms of NAV, Luxembourg is the
largest fund centre in Europe with EUR
1,951.141 billion in January 2008,
according to the Association of the
Luxembourg Fund Industry. This is
contrasted to its nearest competitor,
Dublin, which according to Irish Funds
Industry Association had EUR 803,133
billion in the same month.
However, Luxembourg had a head start
on Dublin, which has only established
itself over the last two decades. The
extent of Dublin’s success can be gauged
in the fact that it is now regarded as one
of Europe’s – and the world’s – pre-
eminent fund centres.
Hogan says:“Over the last 20 years of
growth all of our finest graduates who
would have gone abroad have stayed and
learned the business. I think our
economy is changing fundamentally from
agricultural and manufacturing to one
very much focused on financial services.
It's a case of ‘bring it on’,” he says.
What is more than certain is that
Dublin will never be able to rest on its
laurels. Even for a centre so large and
successful, innovation and an eye to the
future are constant requirements. The
Channel Islands, Malta and the Isle of
Man will be constantly improving and
developing for more business, and
marketing will become a larger factor
than it has ever been. The funds centre
that puts the most time, effort and
resources into bolstering reputation will
come out on top. ■

The path of securitisation
rior to 1970, the purchase and sale
P of loans was a strictly private
transaction. The financial health of
a loan was tied directly to the originator
and investor’s pro-rata ownership share of
interest was 100% making the loans very
illiquid. Then securitisation – a legal and
financial method of allowing debt to be
issued as fixed income securities or bonds.
Securitisation usually starts with the
creation of a special purpose vehicle (SPV)
to which a loan originator sells their assets.
The debt and equity holders of an SPV no
longer have any recourse back to the seller
– so that the financial condition of the
originator has no bearing on the SPV’s
shareholders and any risk and return is
born by the SPV’s liability and equity
holders. The SPV legal framework allowed
for the transference of risks and returns
from originators to other third parties,
such as money managers, other banks,
insurance companies, pension funds, etc.
Mortgages were the first widespread
collatoral asset type to be pooled via the
pass through structure which passed on
the interest and principal payments of the
underlying collateral to the bond holders
on a pro-rata basis.
In 1970 the US Government National
Mortgage Administration (GNMA)
guaranteed the first mortgaged backed
security (MBS). Today the outstanding US
MBS debt stands at USD10.9 trillion.
The next stage was the development of
the collateralised mortgage obligation
(CMO). Fannie Mae (Federal National
Mortgage Association) issued the first
CMO in 1983. In response to difficult tax
and accounting issues the US Congress
SECURITISATION
added the Real Estate Investment Conduit
(REMIC) through the Tax Reform Act
1988, after which investors were no longer
limited to the overall inherent risk of a
given mortgage pool – cash flows, based on
payment rules, were now shaped into
different classes, or “tranches”.
Other collateral asset types — such as
automobile receivables, credit card
receivables, health care receivables,
manufactured housing receivables,
intellectual property rights (e.g., David
Bowie bonds which he famously
securitised in 1997), aircraft leases and
even movie revenues — were securitized.
In general, these are called asset-backed
securities, as the underlying assets are, for
the most part, consumer-related debt or
leases. Subprime mortgages are counted as
ABSs.
The collateralisation debt obligation
(CDO) is a structured credit product. A
CDO is constructed from fixed income
assets, as described above. They are
divided into tranches of risk, which are
bought by different investors who are
willing to take different levels of exposure
to the risk of the loans defaulting.
Aite’s report, The Securitization Endgame:
ABS Collateralized Debt Obligations, shows
that while securitisation still has an
economic purpose the ABS CDO has fallen
victim to poor underwriting, misplaced
loans, easy to access warehouse financing
and outsized leverage and excessive
flexibility given to collatoral managers.
With less capital to securitise and no ready
buyers, the ABS CDO has almost
disapeared from USD226 billion issuance
in 2006, to USD1.5 billion in 2008. I
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MENA FUNDS
Leader of the pack
The Middle Eastern and North African
(MENA) funds region stands out from the
crowd as the predicted best performing
emerging market in 2008
n Deutsche Bank’s sixth annual
I Alternative Investment Survey, 1,000
respondents from 500 investment
firms worldwide representing nearly
USD1 trillion in hedge fund assets
predicted that the Middle Eastern and
North African (MENA) funds region
would be the top performer for 2008(see
graph overleaf).
The majority of investors said they were
planning to increase their allocations to
emerging markets in 2008, but the MENA
region was predicted as being the top-
performing region with 32% of
respondents intending to increase their
investments and 12% planning to maintain
their presence. It was also the only region
to have 0% reduction in investments. Asia
(ex Japan) was the only other region that
had such a high increase in planned
investment. The survey also found that
high net worth individuals, consultants and
family offices and wealth management
companies are the most interested in
investing in the region. Interestingly, along
with Russia, it was also the region that the
fewest number of respondents wanted to
comment on. This perhaps reflects the fact
that the region is so attractive for
investment that respondents don’t want to
admit their exposure.
Against the current volatility of the
European and US markets, the growing
attraction of emerging markets for foreign
investors is clear. Many of the markets
58 INVESTOR SERVICES JOURNAL
were and continue to be untouched by the
West’s liquidity and lending freeze. The
commodities boom plays a part, with hedge
funds in particular looking for new ways to
invest in this area, including farm land.
Opportunities for investment in real estate
have also bolstered the trend.
However, many emerging markets tend
to present challenges for investors. Less
developed legal and regulatory
frameworks, as well as less efficient
financial services, often interrupt the flow
of returns. In this respect, the MENA
region presents a happy median between
internationally recognised, robust
regulations and legal frameworks, and
those less developed in emerging markets.
There are various market drivers that
have contributed to the development of
this robust regulatory infrastructure
within the MENA region. The most
prevalent is the desire of many countries in
the region to use the wealth from oil to
diversify the economy and to develop other
industries within the country. Qutaiba
Hawamdeh, head of asset management at
AB Invest, explains that the MENA region
- in particular the countries of the
Cooperation Council of the Arab States of
the Gulf (GCC) Bahrain, Kuwait, Oman,
Qatar, Saudi Arabia, and the United Arab
Emirates - is experiencing an
unprecedented growth in liquidity due to
the high oil prices.
“Unlike similar historical episodes, the
local governments are more prudent and
wiser in utilising these windfalls,” he says.
“The governments have paid down most of
their public debts, and are currently
investment grade rated in general. They
are also investing heavily in infrastructure
as well as in non-oil industries so as to
diversify away from reliance on oil.
Through active partnering with the private
sector, mega projects in tourism,
petrochemicals and fertilizers, knowledge
and economic cities are planned and under
execution across the board. Ras Al
Khaimeh Government, for example,
partnered with Saraya Holdings and Arab
Bank to develop and build Saraya Islands at
the heart of the Emirate. Saraya Islands is
a USD3.1 billion mixed-use project. Saudi
Arabia announced the development of
seven cities in the kingdom, at an estimated
investment of USD500 billion. The most
notable of these is King Abdulallah Bin
Abd El Azziz Economic City north of
Jeddah which is expected to cost USD27
billion.”
International relations have become
another market driver. Craig Roberts,
managing director of Apex, a full service
fund administrator, which arrived in Dubai
three years ago and opened an office in
Bahrain this year), explains:
“Since 9/11 there has been a significant
level of interest in keeping funds that are
generated within the region for use within
the region. Investors are not as interested
in investing in Europe or the US; they are
interested in keeping things closer to home.
This has required the creation and
establishment of a much more
sophisticated financial system. This, in
turn, has attracted western investors into
the region who see opportunities in this
development.”
Internal investors have become
increasingly more powerful. They are
asking for products that are Sharia
compliant, which in turn has led to the
growth of Sharia finance in the region.
“Conventional investors and banking
systems have become much more familiar
with the requirements of these products,”
says Roberts. “They can now see that there
is not a great deal of difference between
conventional funds and Sharia compliant

funds as far as their risk and return
parameters go. Also that there is also no
difference with regards to liquidity,
whereas before there was probably a
perception that it was harder to have
liquidity and that it would be harder to buy
and sell quickly.
“For the past 5-10 years there has been a
tendency to imitate conventional products,
the Islamic financial community is now at a
stage where they are able to create their
own products. That will further generate
growth within the funds industry because
they will be adding new risk profiles, more
diversification and a greater range of
opportunities.”
Qutaiba Hawamdeh highlights the
incredible growth rate of Shariah-
compliant finance.
“The Sukuk market has expanded
phenomenally in the past few years at a
compound average growth rate of 150%
annually between 2005 and 2007,” he says.
“Assets seeking Shariah compliant
investment are estimated to be around
USD500B in the MENA region. However,
Islamic finance and the Sukuks market still
lack a universal set of acceptable Sharia
criteria and an active trading market.
Despite that it is estimated that the Islamic
finance market will exceed the USD1
trillion mark by 2012.”
These factors have had a massive
influence on the internal development of
the economy and have opened up the
region for external investment. Dubai and
Bahrain are the main financial centres in
the region, with Qatar and Abu Dhabi
following closely behind along. Saudi
Arabia and Kuwait also considered as
leading financial centres, but are not open
to external investment.
Dubai has taken the lead in creating the
Dubai International Financial Centre
(DIFC). Opened in 2004, the DIFC is a
110-acre free zone specifically designed to
act as a gateway for external inventors into
the MENA region. It has a robust and
transparent regulatory framework and a
well-developed stock exchange - the Dubai
International Financial Exchange (DIFX)
which opened in September 2005. It is also
rapidly developing its mid and back office
financial services for the growing numbers
of registered funds, banks and other
financial institutions arriving in the region.
It also boasts independent fund
administrators and back office processing
services that are extending its reputation
as an emerging market with a strong
infrastructure. By mid November 2007
Dubai Financial Services Authority
licensed its 200th firm and has since then
licensed over 30 more with a planned 500
by 2010.
Bahrain has been established as
recognised financial centre for 20 years and
has a large numbers of registered funds
and investment banks. A recent report by
the Central Bank of Bahrain stated that the
net asset value of funds under
management by Bahrain's mutual funds
“Conventional investors and banking systems
have become much more familiar with the requirements of
Craig Roberts, Apex Sharia products”
industry grew by nearly 73% to USD15.6
billion during 2007 and the number of
funds registered with the CBB rose to
2,483 at the end of December 2007. This
compares with the 2,199 funds registered
in 2006-end when assets under
management totalled USD9 billion.
A large proportion of this growth is
because of foreign investment, with a 75%
increase in assets of foreign funds
registered in Bahrain in 2007, rising from
USD 6.3 billion in 2006 to USD11.1 billion
in 2007. The number of foreign funds rose
from 2,102 in 2006 to 2,360 in 2007. This
compares with the Islamic fund industry,
which grew by 78.5% to USD1.3 billion,
invested through 87 funds, compared with
USD750 million and 80 funds in 2006.
Although its regulatory framework is not
quite as robust as that of the DIFC, it is
rapidly catching up and is developing a
regulatory infrastructure that will be of a
similar standard to the DIFC’s.
The Qatar Financial Centre (QFC) is
developing a model based on the DIFC. It
is not yet finished, but the region has the
same vision for economic diversification
and will compete in the future. Abu Dhabi,
which according to the Financial Times
MENA FUNDS
is “the largest and wealthiest of the seven
emirates of the United Arab Emirates”
closely follows. It has an estimated
USD500-850 billion under the
management of the Abu Dhabi
Investment Authority and 90% of the
UAE’s oil. But its regulatory framework is
not as developed as either Bahrain or
Dubai’s at the moment.
The tremendous growth in the region
has also begun attracting more specialist
independent financial service providers, as
the need for modernisation of the IT
environment and the need for more
specialist fund advice has increased. Smart
Stream, for example, which has just
opened an office within the DIFC, is
building up the centre’s funds processing
capabilities as Christian Scheibl, Smart
Stream’s regional director Europe,
explains: “The various market drivers,
increasing volumes in the market, growth
in Shariah compliant banking and finance
in the region, inward investment from
global financial institutions in the market,
have created a need for various regulatory
requirements to be fulfilled, especially
since the region has opened up
significantly to the outside world as a
financial market. There is more need for
risk management and risk reduction.
There are also more demanding customers
in the region, with wealth management
being a big industry. The speed of growth
is very attractive for institutions outside of
the region especially in the payments area.
“As a consequence of increasing
volumes and these other factors there is a
definite need for modernisation of the IT
environment. This means the need to
replace legacy systems, and is why we are
here.
“What we are doing is not
fundamentally new and is already present
in more developed countries, like the US,
Europe and the UK. What you see in a
typical bank in Dubai is very silo-based
INVESTOR SERVICES JOURNAL 59
MENA FUNDS
processing and therefore less transparency,
more risk, more redundancy and, no
information sharing between departments.
We will install automation into these
institutions, reduce cost and risk by
getting rid of these disparate silo-based
systems and creating a layer on top of
them which allows automation of
transactions from their inception.”
Developments in the region have also
attracted much more specialised and
independent funds services, such as Apex.
Independent and unaligned to any banks,
they can allow clients to choose the best of
breed service provider and to facilitate a
service to their own particular
requirements. This availability of this kind
of specialist best of breed approach adds
value to the funds industry by enriching
the environment, and attracting more
funds.
Proposals for a single economy by the
countries of the GCC, may also further
increase the popularity and the value of
the MENA funds region in the future, as
Hawamdeh is keen to emphasise:
“Creating a single GCC economy is a
beneficial to the whole of the MENA
region,” Hawamdeh says, “as more
competition and deregulation, as well as
more openness will enhance market
capitalism and dynamics, which will
Deutsche Bank Survey of Hedge Funds Planned Exposure to Emerging Markets
In Deutsche Bank’s sixth annual Alternative Investment Survey 1000 respondents from 500
investment firms predicted that the MENA region would be a top performer for 2008, with
32% planning to increase alloation of assets and none planning to redu ce.
60 INVESTOR SERVICES JOURNAL
improve the efficiency of the overall
economies through a more efficient
allocation of resources.
Other factors related to these plans lie in
economic problems caused by the GCC
country’s ties to the US dollar as Roberts
says: “One of the reasons it’s such a
“Creating a single GCC economy is a beneficial to the whole
of the MENA region as more competition, deregulation, and
openness will enhance market capitalism and dynamic”
Qutaiba Hawamdeh, AB Invest
popular issue at the moment is because
most of the currencies of countries in the
GCC are pegged to the dollar. The dollar
weakness is causing a lot of pain within
the region, because a lot of things are
imported from around the world and when
you are effectively using US dollars to
import them the dollar weakness is
making them more and more expensive
every week.”
The GCC is also rather like the EU, in
that the countries of the GCC see it as
advantageous to pool resources and work
together as economy diversifies and opens
up, as Roberts explains: “The GCC has
been in existence for a long time, it’s at a
similar stage to the preliminary stages of
the EU. They are trying to streamline
processes and flows in communication and
information between the regions.
“They are also trying to get some
momentum as far as working more
collectively, trading more powerfully with
other economic areas and countries and
are trying to establish a framework for
this. Whether it will become a single
economic area like the Euro is likely,
whether it will happen in the near future I
doubt very much. They are already talking
about having a common currency and that
has been delayed, and postponed several
times already. They are looking at 2010,
but I doubt that will happen. But it’s
certainly on the agenda and something
that will eventually happen but how long I
don’t know.”
The region’s desire to diversify its
economies away from oil into financial
services and tourism combined with
political forces - such as the effects of 9/11
on the attitude of investors within the
region towards external investment - has
created both a strong international
financial services industry and a strong
desire to benefit from external investment
into it.
The resulting development of a robust
regulatory framework and strong financial
services community is continuing to
attract investors. But the shadow of
politics still looms over the growth in the
region. Western countries have become
increasingly cautious towards the
accumulated wealth in these regions
especially in relation to sovereign wealth
funds, which they feel may potentially
enable countries to wield power and
influence corporate and banking activity.
It will be interesting to watch, as parts
of the region open up and others stay
closed, how relations with the outside
world will continue to affect its
development. ■

Principals versus
prescriptions,
regulators versus
private litigators –
Catherine Kemp
navigates the class
actions landscape
he last five years have brought
T three of the largest securities
class action settlements in
history. WorldCom in 2005, which
totalled USD6.2 billion, and in 2007
Enron, which came to USD7.2 billion,
and Tyco which settled at USD3.2
billion. These unprecedented peaks
highlight the growing trend for class
action litigation in the US. Considering
that they have occurred in a post Private
Securities Litigation Reform Act
(PSLRA) environment, an act that raised
pleading standards in order to curb the
routine activity of litigating against
insurers of securities whenever there was
a drop in stock price, they also
demonstrate that the act may have curbed
unnecessary litigation but it hasn’t
curbed the appetitive class action
litigation.
The PSLRA was passed in 1995,
statistics on filings before and after show
that the act certainly didn’t cause a
reduction in the numbers of filings. The
graph (page 64) demonstrates the levels
of securities class action federal filings
between 1st January 1991 and 1st July
2007, reported in 2007 by NERA
Economic Consulting. Numbers of
filings have, if anything increased with
an unprecedented peak in 2001 and high
levels at other points including 1998 and
2002.
The numbers of settlements have also
risen over the past ten years. The recent
Cornerstone report on settlements found
that the numbers of securities class
actions settled between 1998 and 2007 (in
cases of fraudulent inflation in the price
of stock) increased from 29 to 111.
However since the instalment of the
PSLRA there are higher dismissal rates.
According to the 2007 NERA report the
Case specific
dismissal rates have increased from
19.4%, in cases filed from 1991 to 1995
and 39.1% for cases filed from 2001 to
2005, a difference of just under 20%. So,
while the act has not reduced numbers of
filings, it has made it more difficult to get
the case passed through to the costly
stage of discovery. The threat of which is
apparently what made it easy for
plaintiff ’s lawyers to persuade defendants
to settle quickly out of court and was
why the act came into being.
But perhaps the most distinctive
element of the post PSLRA market is
that there has also been a dramatic
increase in the average settlement
amount. According to NERA, in a time
period from 1st January 1996 to 30th
June 2007, the average settlement
between 1996 - 2001 was USD16.3
million, and between 2002 - 2007 it was
USD 40.5 million. Indeed, ten of the
largest settlements in history have
occurred between 2004 and 2007, all of
them over USD 1 billion.
In the last ten years, as Matthew Allen
insurance and financial service litigation
partner at Eversheds, has explained
spikes in activity have largely been
related to events in the market. Between
2000 and 2001 there were a lot of
business collapses and financial
restatements like Enron and WorldCom,
in the last 12 months there has been an
increase on the back of the sub prime
debacle and related credit crisis.
CLASS ACTIONS
There has also been an increase in
large-scale frauds in recent years; in the
aftermath of the act corporate behaviour
seems to have become worse. Thomas
Dubbs, a senior partner at Labaton and
Sucharow which specialises in the
representation of institutional investors
in US securities litigation, explains:
“The PSLRA was designed to, among
other things, create incentives for
institutional investors to control class
actions and to codify higher pleading
standards to make it more difficult to
bring class actions. This has resulted in a
higher dismissal rate for class actions, so
the PSLRA has worked but the conduct
in the market place has gotten worse,
with the occurrence of mega frauds such
as Enron and WorldCom.”
The PSLRA has also affected a change
in the type of lead plaintiff and the way
that securities class action litigation is
used. Beata Gocyk Farber, senior counsel
at leading plaintiffs class actions firm
Bernstein, Litowitz, Berger &
Grossmann LLP, says:
“The big frauds, like Enron and
WorldCom resulted in a tremendous
spike in the amounts of settlements. But,
like the Cendant case they have also
achieved a tremendous amount of
corporate governance reform. The
PSLRA put an emphasis on the plaintiff
with the biggest loss, which in many
cases was the institutional investor.
Plaintiffs lawyers began approaching the
INVESTOR SERVICES JOURNAL 61
CLASS ACTIONS
big institutions to act in this role, which
created a new type of elite plaintiff.
Financial institutions now treat the
securities law, not only as a way to
recover losses but also as a way to
achieve corporate governance reforms
“Bill Lerach once said: ‘I have the greatest practice in the
world, I have no clients’. That tells you about the mindset
driving a lot of these class action lawsuits before the
PSLRA.”
James Moyle, Clifford Chance
and change standards on how Wall
Street does business. WorldCom for
example, changed the laws relating to
due diligence.”
James Moyle, complex class action
litigation and regulatory investigation
partner at Clifford Chance in New York
who has represented many large
financial institutions, agrees:
“Bill Lerach, the class action plaintiff ’s
lawyer who is about to spend two years
in federal prison [after his involvement
in the lawsuit kickback scheme, which
paid lead plaintiffs to be involved in
cases], was the number one class action
lawyer in the US. He once said: ‘I have
the greatest practice in the world, I have
no clients’. That’s an interesting
statement because it tells you about the
mindset driving a lot of these class
action lawsuits. But with the PSLRA in
1995 you see a great increase in the
number of large institutional investors
taking a more active role in class actions,
and as a result cases tend to have more
merit and tend to focus on more
significant corporate governance type
issues.”
These large-scale fraud cases caused
people to become increasingly
disillusioned with corporate behaviour.
To address this, a legislation called
Sarbanes Oxley was introduced. It was
intended to raise standards for all US
public company boards, management,
and public accounting firms, creating an
environment of increased sensitivity to
regulations and corporate responsibility.
Dubbs continues: “The combination of
the Sarbanes Oxley regulation and
vigorous enforcement by the private bar
has lead to greater regulatory sensitivity.
62 INVESTOR SERVICES JOURNAL
The regulation improved financial
reporting and corporate governance by
increasing awareness within senior
management that financial reporting was
important and that there would be
serious consequences for inaccurate
financial reporting.”
Farber emphasises that private
litigation is now considered an essential
part of reinforcing regulation and of
fiduciary responsibility. “Private
litigation is one of the tools that
investors should have available to them,
to deter wrong-doing and achieve
corporate governance and business
practice reforms,” he says. “Regulation
can be effective but there have to means
of real enforcement otherwise it doesn’t
have any teeth.”
Monitoring private class action
securities litigation activity is also now
seen as an integral part of a financial
institution’s fiduciary responsibility. In
recent years companies like Interactive
Data have noticed an increased need
amongst financial institutions - banks,
brokers and money mangers, for
information about securities litigation.
Charles Price, senior director at Entity
Data Products, Interactive Data,
explains: “Clients rely on the trust
company to manage many aspects of
their investments. We understand that
monitoring corporate actions, including
class actions, may form part of their
fiduciary responsibilities. It is our
understanding that an investor typically
must file a proof of claim to participate
in the recovery. We’ve seen an increased
demand over the last several years, which
led us to create a dedicated service to this
market place, [the web-based Xcitek
Class Actions service, which has been
helping clients track class action events
since 2005].”
In the post-PSLRA environment it
seems large-scale fraud leads to
heightened sensitivity to corporate
governance and increased regulations.
The Act’’s emphasis on the lead plaintiff
and the resulting rise of the elite lead
plaintiff has fuelled the recent spikes in
levels of class action filings and the
unprecedented settlement amounts.
While the purpose of the PSLRA was
effectively to reduce levels of
unnecessary or disruptive class action
litigation, there are other causes for
filings. And ultimately, as Moyle explains,
to a large extent the plaintiff ’s lawyer is
always going to have a vested interest in
ensuring that there is interest in private
class action litigation.
“The one thing we see over and over
again is that class action lawyers are very
resilient at developing new theories of
liability, and finding ways to get at the
deep-pocketed defendant and they will
continue to do that because they are
entrepreneurial,” he says. “They are like
an investment banker looking for the new
type of financial instrument to sell to the
market.”
With increasing globalistion it is
interesting to see the effect that the US
appetite for securities class actions has on
institutional investors based outside of
the US and to explore the need for an
equivalent system here.
In a recent report by GOAL Group, the
European withholding tax and class
action services specialist, states that
between 2000 and 2007 European
institutional investors’ non-participation
in US securities class actions resulted in
nearly USD12 billion being left
unclaimed. This is due to the opt-out
system in the US - all investors are
automatically represented in a class
action unless they choose not to be. In the
US institutional investors view it as their
fiduciary responsibility to monitor the
market and to apply for their share of the
settlement. The report demonstrates that
this has not been the case here, and that
UK and European investors in the US are
not being adequately represented.
Steven Everard, managing director at
GOAL Group, who wrote the report,
describes the situation in the UK:
“From our perspective awareness of
US class actions is definitively becoming
more global. A lot of funds are becoming
aware that they should really be
participating in US class action litigation.
“For many funds, local authorities, fund
managers and asset managers there was a
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CLASS ACTIONS
perception that getting involved in
overseas litigation would be like airing
your dirty laundry in public, everyone
would say your judgement was flawed if
it was known that if your investment had
gone wrong. But they are now starting
to realise how simple it is to get involved
and on a totally anonymous bases.”
Once it has become standard practise
for institutional investors and
investment managers to monitor class
action activity the problem may be
resolved, especially given the ease an
investor can claim their share of a class
action.
However, there are other issues. For
example, sometimes the US courts are
reluctant to certify a class, which
includes non-US residents. Paul Olden, a
specialist in dispute resolution and
securities class actions at Dutch law firm
NautaDutilh, says: "In Holland we have
an opt-out binding settlement like in the
US. I do not think this exists anywhere
else in Europe with only a few exceptions
for very specific cases. What we can do
here is strike a settlement, have it court
certified and it will be binding on all
injured parties who do not opt out. What
we are now seeing is that if a case has a
link with the US, but the US court is
reluctant to certify a class, which
includes non-US residents, sometimes
they turn to the Netherlands to see if a
settlement can be struck here to cover
the non-US citizens. This is now pending
in the Shell case, where basically two
settlements will exist simultaneously,
one for the US investors and the Dutch
settlement will cover the rest.
"I think there should be a worldwide
system for settlements. It seems
incredibly strange that you can strike a
settlement for US residents and that the
non US residents, who are in the same
situation, do not have access to the same
compensation. Unfortunately, that is
utopia."
For most European countries,
instituting an opt-out system would be
considered unconstitutional because it
takes away a plaintiff ’s right to litigate
on their own terms once a settlement has
been made. But some say the opt-out
system is a crucial part of the success of
the US style class action as it means that
a plaintiff can get compensation for
losses which on an individual bases
wouldn’t be enough to claim for. Also,
64 INVESTOR SERVICES JOURNAL
defendants are often happy to settle a
class action because it means no one else
can litigate against them on the same
issue.
There are other differences between
the US and European legal systems.
Olden says:
"There are very few countries in
Europe, which have the opportunity for
punitive damages, so for controlling a
company's behaviour the trust is placed
in the hands of regulatory bodies like the
Financial Services Authority (FSA).
That's a very different approach. Nor do
we have contingency fees for lawyers or
juries. It's not like in the US where law
firms go after a case, put it on their
balance sheet, invest in the case and
market it like a financial product, which is
basically what it is. Also our judges are
appointed for life and not elected, so they
have no stimulus to be a plaintiff friendly
forum."
But as Everard points out, corporate
mismanagement is a universal problem
and there needs to some way to ensure
parties outside of Europe get adequate
compensation. He gives the example of
Northern Rock.
“If that was a US company it would
have had class action written all over it.
The same can be said for the Societe
Generale case,” says Everard. “I think
there certainly needs to be more
legislation across the UK and Europe to
make class action possible, because the
shareholders have a right to make sure
that what they are investing in is being
run properly.
“In the US there is the legendary
Sarbanes Oxley legislation, we don’t have
January 1991 - June 2007: Securites class actions Federal filings
anything of that ilk here. Fund managers
and trustees probably feel morally
obliged to do their best for the funds, but
under Sarbanes Oxley there would be
serious repercussions for the trustees and
pension fund mangers if they did not do
their duty.”
However, Europe has MiFID, which
stipulates that there must be
transparency in the documentation of
best execution among fund managers.
Indeed, the UK’s financial market is
attractive because the regulations are
principals based rather than prescriptive.
"After Enron and WorldCom US
regulation became punitive,” says Sunil
Chadda, principal consultant and head of
Alternative Investments at Carne Group.
”They overreacted with Sarbanes Oxley
and it forced American firms overseas.
They have come to London because it's a
city they know and because it has
principals based regulation rather than
punitive. In the US the regulation is,
'thou shalt not do ABCD' whereas in the
UK it's, 'thou shalt look after your client’.
If the UK were to introduce a draconian
Sarbanes Oxley-type law then it may
have serious issues for London as the
world's financial capital."
The US remains the world’s most
litigious country – the use of private
class action litigation as a way to enforce
corporate governance is characteristic of
this. The way that the UK and other
countries in Europe will ensure that
investors get adequate compensation
from the mismanagement of their shares
has two emphases: one on companies
based in the US and the other for those
based outside. Neither of which are being
driven by punitive corporate governance
Sourced from a
2007 NERA report,
the graph
demonstrates that
the numbers of
filings have, if
anything, increased
post- PSLRA (1995)
with a peak in 2001
and high levels in
1998 and 2002. The
subprime debacle
and subsequent
credit crunch are
expected to cause
another peak.
 GZa^VWaZ

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PENSION FUNDS - TRANSITION MANAGEMENT
Life in transition
Ben Roberts looks at the growing profile of transition
managers in reallocating a pension fund’s asset portfolio
organ Stanley this year
M
estimated that pension funds
make up a USD20 trillion
industry. As the credit crunch throws up
increasing market volatility, the
reallocation of pension fund assets to
lessen risk, cut losses and maximise
returns has sparked a debate in the
industry as to the use and influence of
transition managers to direct the future of
a portfolio.
The profile of transition management
has risen in the last few years although it
has been argued that the practitioners of
transferring assets have diversified. Sam
Lundqvist, transition manager at Russell
Investments, points out that many parties,
such as investment banks, a fund
custodian's broker division and indexers
all engage in simply moving assets from A
to B. But dedicated transition managers -
the ultimate middlemen hired specifically
to smooth the process from one asset
strategy to another - are reporting more
business with pension funds at the same
time that their stock in trade has become
more competitive.
Lundqvist points to a growing
awareness among the managers and
trustees of pension funds that knowledge
is power. Where previously managers of
pension funds would seek “the path of
least resistance” and hand the
responsibility of asset allocation to the
fund's custodian or new manager, they are
66 INVESTOR SERVICES JOURNAL
now scouring the market for the most
appropriate business model that
independent transition managers can
offer. “As people are becoming more
educated they're researching [transition
managers], doing their due diligence.
People are using transition managers
rather than their custodian or new
manager more and more.”
Lachlan French, head of transition
management at BGI, estimates a 70%
increase in transition values overall and
“that number would be pretty indicative of
pension funds”. Jamie Cashman at Mellon
Transition Management also reports
more pension funds as clients.
“Accounting and regulatory changes for
pensions in an environment of persistent
high volatility should accelerate transition
activity,” he believes.
Credit Suisse has also seen a rise in
mandates from pension funds. Like
Lundqvist, Hari Achuthan, director of
pension strategies and transition
management at Credit Suisse in New
York, puts this down to a greater
education among pension fund managers
but also an improved service and
transparency from transition managers.
He also cites the increased communication
among pension funds in each region. “We
think they speak to each other, and as you
hear about more transition managers
handling mandates, those pension funds
that were on the fence have started using
transition management services.”
This increase in proactivity is fuelling
this greater competition among transition
managers for new clients. Transition
managers often enter into the 'beauty
parade', presenting their business models
to pension fund managers in a bid to
oversee the portfolio. The pension fund's
ability to choose gives it the upper hand.
“They're going out of the market place
and saying, 'okay, three transition
managers with different business models:
come and present on why you should do
this and I will pick the best one',” says
Lundqvist. Pension funds will assess each
business model based on their needs, new
market trends and criteria such as
transparency. The recent rise in
investment of alternative assets, such as
hedge funds, is something transition
managers need to be familiar with - or risk
being overlooked for someone who is. “All
transition managers have had to up their
game, really, to be able to incorporate
these additional changes into their
services,” Lundqvist adds.
So, why has there been a greater use of
transition managers? One reason is
organisation. Karen Olney of Merril
Lynch says that the running of a pension
plan becomes problematic when “a plan
that is held by a company and run for
many years” has different parties involved
- from trustees to consultants and asset
managers - who all have different ideas as

to how the pension plan is run. The same
problem can apply, say transition
managers, when a pension fund wants to
change its portfolio. Transition managers
oversee the whole process, linking the
legacy asset managers with target
managers along with all the necessary risk
assessments. In addition, Lundqvist states
that the potential losses since the “tough
years” of 2001 and 2002 have also
increased the need for a fast and efficient
service.
Transition managers also emphasise
that they can keep a fund exposed to the
desired markets during the transition.
Before, an outgoing manager would sell
assets for cash and then handing the cash
to the new asset manager to buy the new
assets. In the interim between the two
portfolios the fund - in a purely cash
position - would lose the exposure to
certain markets. For example, says French:
“if you have an equity portfolio and you
disinvested that to cash and the market
rose 3% before your portfolio was
reinvested, then you would have
underperformed your benchmark by 3%
As you can probably gather a 3% daily
move is something that we have seen not
infrequently over the last six to nine
months.”
There can also be a reduction in cost and
risk b--y using a transition manager, they
argue. Mark Dwyer, managing director at
Mellon Transition Management, says
good transition managers are specialists in
selling large numbers of securities. They
reduce market risk by ensuring that
currency accounts and cash flows are
correctly in place and the timing of sales -
for example, the staggered sale of large-
cap shares to market makers - does not
affect the bid/offer spread. They can also
save cost, says Dwyer, in the areas of
settlements, brokerage, and fees to the
custodian. In all, he describes the global
aspect of one pension fund transaction as
a “multi-dimensional jigsaw”. Achuthan
says that by using a transition manager
“you can potentially go from paying two
pennies a share in US equities to paying a
penny a share while better managing
opportunity costs.”
David Goodman at State Street explains
that his firm rolled out an algorithmic
model at the start of 2008 that assesses
the correct time for a fund to trade its
PENSION FUNDS - TRANSITION MANAGEMENT
assets. Created in conjunction with
“leading academics”, the system
“As people are becoming
incorporates “very fast calculation more educated they’re
methodology for creating trades” by
assessing tracking errors and the market researching transition
impact of transactions. In theory the
system will pinpoint the window of managers, doing their due
opportunity between selling assets too
early - and adversely affecting the market -
diligence. People are using
and waiting too long and missing rising transition managers rather
stocks while they are still cheap. He cites
this as an example of the expertise that than their custodian or new
transition managers can bring to a
portfolio reallocation. manager more and more”
The increase in pension buyout firms
snapping up portfolios has also increased
the profile of transition management.
Sam Lundqvist,
Dwyer emphasises that transition
managers have a crucial role in giving an
Russell Investments
independent valuation to a portfolio in
between the estimates of the current
portfolio manager and the future owner.
They can also mastermind the amount and
execution of the premium a pension fund
manager will pay the buyout party, which
is often a combination of securities and
cash.
However, some believe assigning
transition managers is a process that needs
to be treated with caution, particularly
managers who act as a principal trader.
This is where the transition manager - in
selling the portfolio's content to the
market - buys those assets directly from
the pension fund in exchange for a
premium for taking on the risk of the “We’re not convinced of the
asset. The pension fund might want to do
this to speed up the selling of assets,
benefits of pre-hedging”
particularly those that are illiquid.
Transitions of bonds and foreign Mark Dwyer, Mellon
exchanges have historically taken place
with the manager acting as a principal in Transition Management
this way, according to Lundqvist. “The
transition provider is therefore at an
information advantage to the market, often
a number of days before the trades are
placed. This information advantage can
provide an easy profit-making opportunity
for a proprietary trading desk.”
Some have questioned whether the
transition manager is acting in the pension
fund's best interests by principal trading,
particularly with regard to pre-hedging.
This is where a transition manager
working as a principal makes trades in
advance of the pension fund selling an
asset to them in order to accommodate the
INVESTOR SERVICES JOURNAL 67
PENSION FUNDS
purchase. The price at which an asset
would be sold to the transition manager is
often based on the closing market price on
the day they agree on the deal. If a
transition manager sells the very stock he
is about to buy from a pension fund shortly
before the market closes he will potentially
drive down the final price of that stock,
and so pay less to the client. This way he
has made a profit. But Goodman and
others argue that if a transition manager
had the best price for the client in mind
they would make these trades prior to
market close in the client's name, and
remain on an agency basis.
Lundqvist, Achuthan, and Goodman all
emphasise that they work as fiduciaries
and maintain a client's best interest. In
October the UK transition management
industry released a paper known as the T-
Charter, a standard code of practice for
transition managers. The 10-point plan
took many years and debates to formalise,
though Goodman stresses “I think 90-odd
percent of the T-Charter, I think,
everybody agrees with”. Following the T-
Charter, however, is only voluntary. “I
don't think the FSA or any regulatory
body would outlaw principal trading per
se between sophisticated investors, [but] I
think there would be rules with respect to
people who are in possession of insider
knowledge where the trading as a
principal would preclude them from any
type of trade.”
Achuthan, however, proposes that
principal transactions can potentially
benefit pension funds by addressing the
challenge of the stockmarkets' liquidity
threshold. In this case, a transition
manager acting in a principal capacity is in
a position to use multiple sources of
liquidity to complete the transaction in a
shorter time period, thus potentially
reducing the opportunity costs. “For
instance, if a fund had to execute USD1
billion in notional value of emerging
markets ETF EEM the fund/the provider
can trade it on an agency basis, which can
take multiple days because EEM trades at
a notional value of approximately USD3
billion a day and this transaction would be
33% of average daily volume.
“In addition, trading over multiple days
can potentially increase opportunity costs
and expose a fund to signalling risk. A
provider can create the ETF and tap into
68 INVESTOR SERVICES JOURNAL
the liquidity of the underlying
constituents of the ETF's; thus
identifying the most efficient path to
achieve the desired investment outcome in
a shorter time frame and potentially
reducing opportunity cost. As such, the
provider is able to accomplish this by
creating the flexibility of utilising all of
the liquidity in the ETF, underlying equity,
and futures markets.”
In the US, the concept of the
controllers of a pension fund acting as
fiduciaries gained greater awareness after
the passing of the Employee Retirement
Income Security Act in 1974 - a law that
set a standard for the management of
pension plans. Although it has not
outlawed the practice of principal trading,
including pre-hedging, it is considered a
more binding code for management than
“I don’t think the FSA
would or any regulatory
body would outlaw
principal trading per se
between sophisticated
investors”
David Goodman,
State Street
the T-Charter.
Mark Dwyer says: “We're not convinced
of the benefits of pre-hedging”. He
instead emphasised the fiduciary duties of
a transition manager that are built into
their legal contracts - “we would talk
about transition information leakage” with
the client, he says. Lundqvist is also in
support and wants the T-Charter to be
contractually binding.
The UK's Pension Regulator confirms
that a pension fund's trustees have sole
responsibility for appointing transition
managers in exactly the same way as
appointing the fund manager. The
Financial Services Authority has not
banned managers acting as a principal, but
it has rules against insider trading. In
2004 it imposed a GBP190,000 fine on
Morgan Grenfell and Co. for employing
the same abuse of market knowledge that
critics of pre-hedging have highlighted.
The final notice to the firm read: “The
firm's programme trading desk engaged in
trading of some of the component
securities of the customer's programme
trade between the provision of limited
information to enable the firm to provide a
quote for that trade and the strike time for
that trade. The customer paid more than
they otherwise would have done for this
trade due to the firm's trading in these
securities”. But the line between pre-
hedging - which is allowed for the
manager to buy a pension fund's asset -
and deliberately front-running the market
to force down the asset price is indistinct.
Lundqvist acknowledges that the situation
is “various shades of grey”.
Aside from best practice and its debates,
when should a pension fund bring in a
transition manager? Jamie Cashman of
Mellon Transition Management says, “the
more time the transition manager is
granted to conceive of a transition
strategy, the more successful it is likely to
be,” and that most basic analytics can be
conducted within 36-48 hours. However,
“for especially complex fund
restructurings, it is not uncommon for a
transition manager to be leading
discussions weeks (even months) ahead of
the actual implementation”.
Lachlan French of BGI says they
should brought in as early as possible. “We
can give that feedback to a client as to
what are the most cost efficient ways of
restructuring and what the likely cost is.
The pre-trade [report] will highlight a
significant assets allocation shift and that
means we need to establish a futures and
maybe a currency forward hedging
strategy. Then when we load the final
decision in our risk management systems
we know that we are expecting to put a
futures and currency hedge on. To us it's a
bit of advance notice that we need to apply
a risk management strategy to a portfolio
and will give some indications of how
long the trade will take, what are the
difficult names in that process”.
Mark Dwyer points out you must bring
them in “before you fire your asset
manager”. Achuthan acknowledges that
the timing of engaging a TM is crucial
and “ideally a fund would want to bring in
a TM a few weeks prior to getting a
transition completed”. ■
 ISJ Directory of Services
T: +44 (0) 844 499 6388
C: Saghar Bigwood or Stephen
Everard
A: 7th Floor, 69 Park Lane,
Croydon, CR9 1BG
E: sbigwood@goalgroup.com or
severard@goalgroup.com or
info@goalgroup.com
C: Cornelia Keth
T: +49 69 718 3738
F: +49 69 718 6050
E: cornelia.keth@bhf-bank.com
C: Moritz Ostwald
T: +49 69 718 6838
E: moritz.ostwald@bhf-bank.com
A: Strahlenbergerstraße 45,
63067 Offenbach a.Main
Germany
W: www.bhf-bank.com
International - Europe
Olivier Storme
T: +352 4767 2847
olivier.storme@caceis.com
International - North America
Barbara Lewnowski
blewnowski@olympiacapital.com
France
Partick Lemuet
T: +33 (0)1 57 78 03 34
E: patrick.lemuet@caceis.com
T: +47 22 94 92 95
F: +47 22 48 28 46
Contact: Bente I. Hoem
E: bente.hoem@dnbnor.no
W: www.dnbnor.com
W: www.handelsbanken.com
/nordic_custody_services
T: +46 8 701 2988
F: +46 8 701 2990
C: Johan Wennerberg
E:custodyservices@handelsbanken.se
A: Blasieholmstorg 12,
SE - 106 70,
Stockholm, Sweden
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-
ing tax and class action compensation. Our research has shown that in excess of
US$6 billion of withholding tax remains unclaimed each year by the rightful owners
and beneficiaries and the amounts for class actions is even larger.
To establish your potential ability to reclaim over-withheld taxes and/or class action
compensation GOAL provides a free proof of concept analysis. We simply require details
of the income entitlement(s) and/or trade details together with the type and domicile of
the underlying beneficiaries. We do not need the name(s) of the beneficiaries.
Our Products include GTRS, Class Actions, GQI, e-Reclaim, GOAL TaxBack, DMS
and Bespoke Software Development.
Custody & Clearing
BHF-BANK is one of Germany's most prestigious private banks. Its roots date back to the
year 1854. As an advisory, service and sales & trading bank, we offer our discerning clientele
a comprehensive array of customised solutions. BHF-BANK combines the strengths of a
private bank with a long track record of capital market competence.
Trust, an individual approach and impartiality - these qualities are at the very heart of the
long-term guidance and advice we provide for our clients. Our bank's activities are grouped
within the divisions Asset Management & Financial Services, Financial Markets & Corporates
and Private Banking.
The bank's longstanding experience in the German securities services market goes hand
in hand with a corporate culture that values prompt acknowledgements and short
decision-making channels.
BHF-Bank offers tailor-made custody services to meet its clients' particular requirements.
It's reporting services include a comprehensive SWIFT reporting matrix as well as its
Internet-based reporting tool cds@web. Assets under Custody: EUR309 bn No of funds: 409
CACEIS, with EUR2.3tr under custody and EUR950bn under administration is
one of the world's leading asset servicing providers, dedicated to institutional and
corporate clients and the premier provider in the sizeable French market. We are
rated AA- by S&P, which reflects the significant financial support of our share-
holders, Crédit Agricole S.A. and Natixis. Our services combine powerful IT sys-
tems and expert staff to help clients reduce their costs, improve service quality to
their investors and focus on their core business.
Through offices across Europe and North America, CACEIS delivers a compre-
hensive set of high quality services, covering custody and depositary/trustee, fund
administration, transfer agency and corporate trust.
Designing custody solutions
– for the Nordic region
One region • One custodian • One point of entry
DnB NOR is the largest and leading provider of Custody, Clearing and
Remote Member Service in Norway. In addition, DnB NOR provides a wide
range of value added services to both Foreign and Domestic clients.
Through an Alliance solution with banks in Sweden, Finland and Denmark,
DnB NOR can offer seamless regional products, which can be customized to
our client's needs.
The cornerstone of Handelsbanken’s philosophy is to put the client and the
client’s needs in focus. Nordic Custody Services are locally present in all the
Nordic markets and offer a wide product spectre to a diverse client base.
Each client is allocated an account manager in each market, fully
responsible for the day-to-day activities, as well as a regional relationship
manager. Handelsbanken provides specialised and tailor-made custody services
including complete corporate action services, securities borrowing and lending
for all Nordic countries, as well as settlement and clearing services to clients
that are remote members of the Nordic stock exchanges.
INVESTOR SERVICES JOURNAL 69
 ING Wholesale Banking Securities Services provides award winning local and region-
al custody services for investment professionals. We are proud to be the largest cus-
todian provider in terms of assets and number of foreign clients in Central & Eastern For further information please
Europe. ING has been providing Securities Services in CEE since 1994 and we will contact
continue our ongoing pursuit of excellence through new technology. Innovation and Lilla Juranyi, Global Head
client focus are the key drivers to service our clients the best way. Custody
at + 31 20 7979 435
Other activities of ING Wholesale Banking Securities Services are Paying Agency or contact her by email:
Services and web-based management of employee stock option & share plans. Lilla.Juranyi@mail.ing.nl
ING is your local partner in: Belgium, Bulgaria, Czech Republic, Hungary, Poland,
Romania, Russia, Slovak Republic and Ukraine.

Intesa Sanpaolo’s Transaction Services include : INTESA SANPAOLO S.P.A.

Financial Institutions Transaction
• Sub Custody, Derivatives and Remote Membership Clearing Services
P.zza della Scala 6
• Global Custody and Depository Bank for mutual funds, pension
20121 Milan
funds, real estate funds, private equity funds and hedge funds Italy
• Fund Administration for mutual funds, pension funds, real estate T: +39 02 8794 2466
funds, private equity funds and hedge funds F: +39 02 8794 1519
W: intesasanpaolo.com
• Paying Agent for foreign funds and sicavs
C: Riccardo Lamanna
• Cash and Payment services like swift to checks, mass payments, E: riccardo.lamanna@intesasan-
checks and cash letters paolo.com

Business Development –
Investment Fund & Global
KBL, leading service provider in the Luxembourg fund industry, offers one-stop shop Custody Services
facilities to international fund promoters. 43, boulevard Royal
Product structuring (of SICAV, FCP, SIF, SICAR, SEPCAV, …), global custody L-2955 Luxembourg
services as well as an efficient fund administration and transfer agency infrastructure Stéphane Ries e-mail :
are some of our fields of expertise that will bring added value to the management of stephane.ries@kbl-bank.com
your assets. Sandra Cortese e-mail :
For all kinds of Undertakings for Collective Investment going from plain vanilla sandra.cortese@kbl-bank.com
cash, money-market, equity and bond funds to sophisticated alternative, venture Stéphane Pesch e-mail :
capital/private equity, pension pooling and funds of hedge funds, KBL offers expert stephane.pesch@kbl-bank.com
legal, fiscal and technical advice as well as access to the global markets. Tel. : (352)4797 3512
Fax : (352)4797 73910
www.kbl.lu

Nordea is the leading financial services group in the Nordic and Baltic Sea region
and operates through three business areas: Nordic Banking, Banking & Capital
Market Products and Savings & Life Products.
Nordea is the leading custody services provider in the region. Nordea provides high T: +47 2248 6238
quality, tailor-made custody services for local and foreign investors dealing with Contact: Anne-Lise Kristiansen
Nordic, Baltic or global securities. Head of Sub-custody and
- The leading financial services group in the Nordic and Baltis Sea region Clearing
- A world-leading Internet banking and e-commerce operation E: anne-lise.kristiansen@nordea.com
- The largest customer base of any financial services group in the region
- A leading asset manager in the Nordic financial market
- The most comprehensive distribution network in the region

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.

aSantander is Spain’s leading financial institution and the largest bank in the euro
zone by market capitalization. Our commitment and contribution to the securities
industry is well established after more than a century of providing services in this field. 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.

70 INVESTOR SERVICES JOURNAL

 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
T: +46 8 763 5770 securities worth over 560 bn EUR and provide services in more that 75 markets, 10
of them under the SEB name (Sweden, Norway, Finland, Denmark, Luxembourg,
F: +46 8 763 6930
Germany, Estonia, Latvia, Lithuania and Ukraine).
C: Goran Fors, Global Head of
Custody Services We offer a full range of securities services including corporate action and informa-
tion services, securities lending and services to remote members of the Nordic and
E: goran.fors@seb.se Baltic stock exchanges. We continuously develop new products in connection with
W: www.seb.se clients and partners to ensure we deliver the high-quality products our clients
demand. We always strive to make the processes more efficient. With a history of
over 150 years in the securities industry; we know the market and our clients well.

Sébastien Danloy
Global Head of Sales,Investor
Services
Société Générale Securities
Services
T: +33 (0)1 41 42 98 65
E: sebastien.danloy@socgen.com
W: www.sg-securities-services.com
Société Générale Securities Services offers institutional investors, asset man-
agers and financial intermediaries a comprehensive range of financial securities
services: custody, clearing & trustee services, fund administration, asset servic-
ing and transfer agency. SGSS currently ranks 3rd European custodian and 9th
worldwide custodian (Source: Globalcustody.net) with EUR 2,580* billion in
assets held and valuates 4,354* funds representing assets of EUR 405* billion
(as of June 2007).

Financial Asset Services is the custody and investments-servicing division of

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

C: Neil Daswani,
Global Head, Securities Services
T: +65 6517 0022
E: Neil.Daswani@sg.standard-
chartered.com
W: www.standardchartered.com
Standard Chartered leading the way in Asia, Africa and the Middle East.
Standard Chartered has a history of over 150 years in banking and is in many of the
world's fastest-growing markets with an extensive global network of over 1,200
branches (including subsidiaries, associates and joint ventures) in over 50 countries
in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom
and the Americas.
As one of Asia's leading custodians, Standard Chartered has an impressive track
record across the 16 Asian markets in which it provides securities services. It serves
global, regional and local custodians and broker-dealers, as well as local and regional
fund managers. The Bank plays a key role in promoting the development of these
markets and keeping the international investor community informed of industry
developments across the region.

Swedbank provides client-focused custody services to domestic and international secu-

rities lending (including auto-borrow facilities), derivative clearing services, proxy vot-
ing, full corporate actions and income service. Flexibility is an important aspect of
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

T: +43 50505-58510
F: +43 50505-58579
C: Andreas Petzl , Head of Sales
and Relationship Management
E: Andreas.petzl@ba-ca.com
W: www.hvb-custody.com/
Unicredit Markets & Investment Banking (MIB) serves as UniCredit Group's global
product and competence center for global financial markets and investment banking
services, including Custody throughout Central and Eastern Europe, including Austria.
Brand diversitiy under which the group operates (Bank Austria Creditanstalt, HVB,
Bank BPH, Bank Pekao, Zagrebacka Banka and International Moscow Bank), has its
roots in local market presence and knowledge, contributing into a single unified
product across the region. In 2006 the group was recognised by no less than 3
independent surveys as being the best region custodian
The group's ability to deliver service excellence across 13 markets is the cornerstone
of our success. From participation in local market associations to our inter group
training sessions, to a client consultative approach, the group continues to work
towards making a single impression - excellence.

INVESTOR SERVICES JOURNAL 71

 Data Services
Avox
Market Data & Analytics provides high-value real-time market data, indices and back Redwither Tower
office services. Information from diverse sources are provided to its customers, Redwither Business Park
tailored to their specific information needs. Accuracy and reliability are ensured by Wrexham, LL13 9XT
collecting the data from the Group’s own trading platforms, such as Xetra® and United Kingdom
Eurex® and cooperation partners like STOXX Ltd. and the Irish Stock Exchange.
Avox®, a majority-owned subsidiary, validates, corrects, enriches and maintains
T: +44 (1978) 661 813
business entity data. With an operational model, unique in the industry, Avox®
enables clients to comply with regulatory requirements and to achieve a holistic view F: +44 (1978) 661 668
of the risk exposure towards a client. W: www.avox.info

Interactive Data Corporation (NYSE: IDC) is a leading global provider of financial

market data, analytics and related services to financial institutions, active traders
www.interactivedata.com
and individual investors. The Company's businesses supply real-time market data,
time-sensitive pricing, evaluations and reference data for millions of securities trad- T: 020 7825 7800
ed around the world, including hard-to-value instruments. Many of the world's best- F: 020 7608 3514
known financial service and software companies subscribe to the Company's services Brendan Beith
in support of their trading, analysis, portfolio management and valuation activities.
European Sales Director
Through its businesses, Interactive Data Pricing and Reference Data, Interactive
Data Real-Time Services, Interactive Data Fixed Income Analytics, and eSignal, the eu-info@interactivedata.com
Company has approximately 2,300 employees in offices located throughout North Fitzroy House
America, Europe, Asia and Australia. The Company is headquartered in Bedford, 13-17 Epworth Street
Mass. Pearson plc (NYSE: PSO; LSE: PSON), an international media company,
London EC2A 4DL UK
whose businesses include the Financial Times Group, Pearson Education, and the
Penguin Group, is Interactive Data Corporation's majority stockholder.

SmartCo is a leading provider of data management solutions for the financial industry.
SmartCo’s software, Smart Financial Data Hub, covers all the data area, including SmartCo
financial instruments, market data, third parties, funds, transactions, and provides 37 rue de Liège
full connectivity, a powerful and user friendly front-end, traceability, quality control, 75008 Paris
data enrichment and customisable workflow. France
Our solutions are based on SmartPlanet, an innovative technology focused on data
management, and able to meet evolving business requirements. T: + 33 1 58 22 29 60
SmartCo offers to its customers the ability to respond in the fastest way to regulatory E: info@smartco.fr
and business changes. W: www.smartco.fr
For further information: www.smartco.fr or info@smartco.fr

Telekurs (UK) Ltd

Telekurs Financial specialises in the procurement, processing and distribution 15 Appold Street
of international financial information. Financial market specialists at Telekurs London
Financial gather information from all the world’s major trading venues – directly EC2A 2NE
and in real time. The Telekurs Financial database with its structured, coded
securities management data is unique in terms of its depth of information and T: +44 (0) 20 7550 5000
data coverage. With offices in 22 countries, Telekurs Financial combines the F: +44 (0) 20 7550 5001
advantages of global presence and local know-how. E: info@telekurs.co.uk
W: www.telekurs.co.uk

Fund Administration
Apex Fund Services Ltd is a global hedge fund administration solution for hedge C: Peter Hughes
funds and private equity clients located in 9 separate jurisdictions across the globe. Group Managing Director
The company uses the software solution, PFS PAXUS, which is a fully integrated T: +1 441-292-2739
hedge fund accounting system combined with web-based reporting to allow clients F:+1 441-292-1884
and investors to access their information 24/7 securely online. We will tailor all
E: info@apex.bm
solutions to meet your needs and our continuing focus on the quality of service and
the relationship with each and individual client ensures that we retain our ethos of A: 31 Reid Street,
providing a personalized service rather than a generic solution. Hamilton,HM11
Highly qualified and experienced staff, mirrored with top tier technology and Bermuda
competitive fee structures make Apex Fund Services Ltd the clear choice for your
fund administration needs. WWW.APEX.BM

CACEIS is an Investor Services company with six offices across Europe. Owned in International: Olivier Storme
equal parts by Crédit Agricole and Natixis, CACEIS provides Custody, Fund T: +352 4767 2847
Administration and Corporate Trust services to demanding Corporate and E: olivier.storme@caceis.com
Institutional clients. We have considerable expertise in Cross-Border Fund
Distribution Support as well as Alternative Investment and Private Equity servic-
ing. France: Patrick Lemuet
Our staff have the language skills and industry knowledge to develop business T: +33 (0)1 57 78 03 34
relationships into strong partnerships and our powerful IT systems are constantly
updated to ensure high levels of process automation. E: patrick.lemuet@caceis.com
CACEIS is responsible for over EUR1.75 trillion held under custody, and over W: www.caceis.com
EUR850 billion under administration.

72 INVESTOR SERVICES JOURNAL

Daniel Cann, Director
Daniel@folioadmin.com
William Harris, Director
William@folioadmin.com
Folio Administrators Limited
Folio House, Road Town
British Virgin Islands
www.folioadmin.com
T: 284 494 7065
F: 284 494 8356
www.imfcfundservices.com
t +31.20.644.4558
f +31.20.644.2735
Mrs. Consuelo Nardon
e: consuelo.nardon@imfc.nl
Rivierstaete Building,
Amsteldijk 166, 1079 LH
Amsterdam, Netherlands
C: William J. Salus
A: PFPC, 301 Bellevue Parkway
Wilmington, DE 19809 USA
T: 302.791.2000
E: information@pfpc.com
C: Fergus McKeon
A: PFPC Riverside Two
Sir John Rogerson’s Quay
Dublin 2, Ireland
T: +353-1-790-3500
E: Information@pfpc.com
C: Stuart Mauger
T: +44 (0) 1481 744479
F: +44 (0) 1481 744529
E: stuart.mauger@rbc.com
A: PO Box 48 Canada Court
St Peter Port Guernsey GY1 3BQ
C: Deanna Bidwell (Cayman)
T: +1 345 949 9107
F: +1 345 946 1288
E: deanna.bidwell@rbc.com
W: www.rbcprivatebanking.com
Sébastien Danloy
Global Head of Sales,Investor
Services
Société Générale Securities
Services
T: +33 (0)1 41 42 98 65
E: sebastien.danloy@socgen.com
W: www.sg-securities-services.com
Swiss Financial Services
(Ireland) Ltd.
Block 4B,Cleaboy Business Park, Drawing upon an extensive track record of proficiency, dependability and
Old Kilmeaden Road,
Waterford, Ireland
T: +353 51 351180
F: +353 51 871595
Adrian Maher
E: amaher@swiss-financial.ie
Folio Administrators Limited, part of the Folio Group of Companies supplying
fund administration, company management, director services and insurance
management, is the leading fund administration company in the British Virgin
Islands.
We specialize in servicing the needs of start-up to medium sized hedge funds,
covering all aspects of fund formation, structuring and on-going operations.
We work closely with an extensive number of banks, brokers, custodians,
auditors and lawyers to ensure that our clients receive the best independent
advice and structures.
Established in 2002, IMFC Fund Services B.V. is a boutique hedge fund
administrator and a trustee with its offices in Amsterdam and Sydney. IMFC
offers third parties administration and related services to all type of onshore and
offshore funds combining high quality, independency, technology, timely
calculation with flexibility, experience, custom-made solutions and competitive
rates. Our services include: fund set-up and corporate services, NAV calculation
and other accounting services, R&T agent and other investors and compliance
services. For more information visit our website: www.imfcfundservices.com
PFPC is a premier provider of processing, technology and business solutions to the
global investment industry. Our core offering includes accounting, administration,
investor services, middle-office services and regulatory administration services.
Whether your products are U.S. or non-U.S. domiciled funds, trust
vehicles, limited partnerships or commingled investment products, PFPC's
multi-jurisdictional, multi-fund capability allows us to process your complex fund
structures from hedge funds, fund of funds and private equity funds to
master/feeder and multi-managed funds.
As one of the world's leading third-party fund administrators, PFPC has over 30
years of experience delivering personalised solutions to the global marketplace. PFPC
services an international client base from the United States, Luxembourg, Ireland
and Poland, and from a presence in the Cayman Islands and London.
Our clients have access to a broad range of value added services and tailored solu-
tions including global custody and fund administration services for funds domiciled
in the Caribbean and Channel Islands.
Our services include Trustee, banking and credit facilities, treasury and foreign
exchange, trade execution, financial accounting, corporate services, derivative sup-
port services and online access, leveraging a custody network that covers 80 plus
markets worldwide. Our service combines leading edge technology with professional
expertise and a truly integrated service delivering creative, customised solutions.
Société Générale Securities Services offers institutional investors, asset man-
agers and financial intermediaries a comprehensive range of financial securities
services: custody, clearing & trustee services, fund administration, asset servic-
ing and transfer agency. SGSS currently ranks 3rd European custodian and 9th
worldwide custodian (Source: Globalcustody.net) with EUR 2,580* billion in
assets held and valuates 4,354* funds representing assets of EUR 405* billion
(as of June 2007).
responsiveness, Swiss Financial Services acts as administrator as well as registrar
and transfer agent of funds investing in a broad range of financial instruments.
These include futures, foreign exchange, equities, options, bonds and other funds.
We perform accounting and administration services for diverse fund types
domiciled in, but not limited to, the United States, Bahamas, Cayman Islands, B.V.I.
and Ireland.
INVESTOR SERVICES JOURNAL 73
 Fund Services offers comprehensive fund administration services including fund
set-up, registration and support around the world (currently 28 countries), fund
accounting, NAV calculation, compliance management, risk control and reporting.
We provide a flexible offering from the full range of services, including Private W: www.ubs.com/fundservices
Labelling, to selected functions. Services are based on leading fund administration C: Mr Gerhard Fusenig
architecture, multi-source pricing and powerful compliance tools. T: +41 44 235 4992
Capabilities also extend to services for hedge funds through our teams in Cayman, E: gerhard.fusenig@ubs.com
Ireland and Canada. A: UBS Global Asset
In times when management attention is increasingly focused on value creation, it Management, Fund Services,
may be rewarding to re-evaluate whether asset administration remains a strategic Stauffacherstrasse 41, PO Box,
core business to you. CH-8098, Zurich, Switzerland
Luxembourg: Jean-Paul Gennari, tel. +352-44-1010 1
Switzerland: Markus Steiner, tel. +41-61-288 4910
UK: Mark Porter, tel. +44-20-7901 5000

Hedge Fund Administration

Custom House is one of the world’s largest independent alternative investment Custom House Administration &
and hedge fund administrators and the first and only one to be awarded a Corporate Services Limited
Moody’s Management Quality Rating. A: 25 Eden Quay, Dublin 1,
Ireland
Custom House offers a round-the-world, round-the-clock service from its T: +(353) 1 878 0807
office in Dublin and representative offices in Chicago and Singapore, enabling
F: +(353) 1 878 0827
it to provide, not only complete global administration services, but also the
C: dermot.butler@
ability to produce daily dealing NAVs.
customhousegroup.com
Custom House is authorised by the Irish Financial Regulator under Section 10 of C: david.blair@
the Investment Intermediaries Act, 1995, which authorisation does not extend to the customhousegroup.com
Chicago and Singapore representative offices. ww.customhousegroup.com

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
Newedge Global Prime Brokerage Group is a global, multi-disciplinary, solution-
providing team dedicated to delivering superior services to alternative investment Philippe Teilhard de Chardin,
industry participants including hedge funds, commodity trading advisors (CTAs), fund Global Head of Prime Brokerage
of hedge funds, family offices, and institutional investors (insurance T +44 20 7676 8536
companies, banks and pension funds). Vincent Tournant,
The Newedge prime brokerage team offers a global range of brokerage services Head of Business Development
covering a wide range of asset classes including equities, bonds, currencies,
commodities, and their related listed and OTC derivative products. We also offer an T +44 20 7676 8171
innovative portfolio-based cross-margining solution, a dedicated account management Duncan Crawford,
desk, hedge fund start up services, quantitative information on the hedge fund Head of Capital Introductions
industry, capital introductions services, and recently prime brokerage services to T +44 20 7676 8504
Sharia compliant hedge funds. E: pbinfo@newedgegroup.com
Newedge is a major new force in finance, resulting from the merger of the two broker- www.newedgegroup.com/
age firms - Calyon Financial and Fimat - on January 2nd, 2008. Newedge is wholly primebrokerage
owned by Calyon and Société Générale, with both companies having 50% ownership.

74 INVESTOR SERVICES JOURNAL


VocaLink
Drake House
Homestead Road
Rickmansworth
Hertfordshire
WD3 1FX
T: +44(0)870 1650019
F: info@vocalink.com
W: www.vocalink.com
W: www.dataexplorers.com
T: +44 (20) 7392 4000
F: +44 (20) 7392 4004
A: 155 Commercial Street,
London E1 6BJ United Kingdom
London: Julian Pittam
T: +44 (20) 7392 5018
E: jp@dataexplorers.com
Boston: Tim Smith
T: + 1 (617) 973 5099
E: tim.smith@dataexplorers.com
T: +1 212 901 2224
C: Michelle Lindenberger
E: Michelle.lindenberger@equi-
lend.com/info@equilend.com
A: 17 State Street, 9th Floor
New York NY 10004
T: +44 20 7743 9510
A: 54 Lombard Street
London EC3V 9EX
W: www.equilend.com
T: US- +1 617 204 4500
T: UK- +44 (0)20 7469 6000
C: Christopher Jaynes
E: info@eseclending.com
W: www.eseclending.com
A: 175 Federal Street, 11th FL,
Boston, MA 02110, US
A: 1st Floor, 10 King William
Street, London EC4N 7TW, UK
W: www.eurexseclend.com
T: +41 58 854 2066
F: +41 58 854 2455
E: info@eurexseclend.com
Eurex Zurich Ltd., Selnaustrasse
30, 8021 Zurich, Switzerland
T: +41 (0)44 218 14 14
F: +41 (0)44 218 14 18
E: info@finace.ch
A: COMIT AG, Buckhauserstrasse
11, CH-8048 Zurich, Switzerland
W: www.finacesolution.com
Payments & Settlements
VocaLink is the payment transaction specialist. Trusted by the world's top banks our
automated payment system processes over 90 million transactions per day. The
VocaLink switching platform powers the world’s busiest ATM network and provides
end-to-end management of Europe's largest ATM estate, while the Real-Time
Payments platform provides the central infrastructure for the UK Faster Payments
service. The VocaLink EuroCSM delivers reach for our clients throughout the SEPA
and beyond with a range of value-added services that leverage our know-how and
technical capabilities. VocaLink is the partner of choice internationally, working with
BGC to process Sweden's automated payments.
Find out how we can help your business at www.vocalink.com
Securities Lending
Data Explorers Limited, a specialist and independent company, offers impartial
quantitative measurement of securities lending performance services to the global
securities financing industry. We help our clients monitor and understand the
relative performance of their lending activity and risk, and turn raw lending, borrow-
ing and collateral data into useful, actionable information. We also provide proxies
for short selling information.
Working with the industry we ensure information flows are appropriate and peer
groups relevant. We are not involved in transactions.
All of our services: Performance Explorer, Transaction Explorer, Risk Explorer,
Index Explorer and Report Explorer are web based and available to clients
over the internet.
EquiLend Holdings LLC was formed by a group of leading financial institutions to
develop a global platform for the automation of securities finance transactions.
The EquiLend platform is designed to increase efficiency by standardizing, cen-
tralizing and automating front and back office processes, while delivering global
access to liquidity, reduced risk and scalability. The EquiLend platform is
designed to process equity and fixed income securities finance transactions on a
global basis.
Investors include: Barclays Global Investors; Bear, Stearns & Co. Inc.; Credit
Suisse; The Goldman Sachs Group, Inc.; J.P. Morgan Chase & Co.; Lehman
Brothers; Merrill Lynch; Morgan Stanley; Northern Trust Corporation; State Street
Corporation; and UBS.
eSecLending is a leading global provider and administrator of customized securities
lending programs and they have grown to become one of the largest lending agents
in the marketplace. Their program has been adopted by some of the world’s largest
and most sophisticated asset gatherers including pension funds, mutual funds,
investment mangers and insurance companies. eSecLending’s approach has
introduced investment management practices to the securities lending industry,
offering beneficial owners an alternative to the custodial lending model. Through
eSecLending, beneficial owners have achieved optimal returns, greater transparency
and increased control over their program as compared to traditional lending models.
eSecLending maintains offices in Boston, London and Burlington, Vermont.
Securities Finance Trust Company, an eSecLending company, performs all regulated
business activities. Additional information about eSecLending is available on the
company’s website, www.eseclending.com.
Eurex is one of the largest derivatives exchanges and the leading clearing house in
Europe. Wherever you are located, we provide you with access to the benchmark
futures and options market for European derivatives. Eurex also offers short term fund-
ing products, such as Eurex Repo. Eurex Repo is among the forerunners in providing
integrated trading and clearing for repo transactions. Eurex’s latest innovative market-
place is called Eurex SecLend.
Eurex SecLend. Europe’s leading investment banks participate as borrowers in the
Eurex SecLend marketplace, acting as principal brokers, dealers and intermediaries.
They all benefit from Eurex’s leading state-of-the-art trading and processing services.
For Eurex, service and technology innovation is not just a buzzword. New trends are
being transformed into inventions through the adoption of advanced trading practices.
Find out more on www.eurexseclend.com.
FINACE® is the only fully integrated solution today which supports the future busi-
ness model within the area of Securities Finance and Collateral Management. The
architecture of FINACE® is based on a stable, leading edge technology platform,
which was developed with performance and robustness as the focus of design. With
flexibility at its core, customer-driven extensions and modifications can be quickly
and easily applied to the standard component set.
INVESTOR SERVICES JOURNAL 75
Securities Lending .
New York: William Smith
JPMorgan is a leading global financial services firm and a world-class securities T: 212-623-5664
lending provider, delivering superior results for our clients. As a premier agent E: william.z.smith@jpmorgan.com
lender, we offer full-service capabilities: discretionary, principal, directed, auctions London: Michael Fox
and exclusives, designed to meet the risk and reward needs of our sophisticated T: 44 207 742 0256
client base. The scale and scope of our franchise includes a strong capital base and E: michael.uk.fox@jpmorgan.com
access to our firmwide resources, including disciplined risk management, product Australia/Japan: Stewart Cowan
T: (61-2)92504647
innovation, operational excellence, global processing capabilities and top-tier service E: stewart.t.cowan@jpmorgan.com
professionals. Asia: Andrew Cheng
Information about our programs and capabilities is available at T: (85-2)28001809
jpmorgan.com/securitieslending. E: andrew.cheng@jpmorgan.com
Sydney: David Brown
Contact: www.jpmorgan.com/wss T: (61-2)92504606
E: david.ldn.brown@jpmorgan.com

Pirum provides a full suite of automated reconciliation and straight through process-
ing (STP) services supporting Operations within the global securities finance T: +44 20 7220 0961
industry. The company's on-line SBLREX service encompasses daily contract F: +44 20 7220 0977
compare, monthly billing comparison, mark-to-market & exposure processing, C: Rupert Perry
pending trade comparison, income claims processing and custody reconciliation.
E: rupert.perry@pirum.com
Subscribers to Pirum’s services significantly increase their operational efficiency
A: Pirum Systems Limited
and reduce their risk by using Pirum’s solutions, as staff are able to focus on fixing
the exceptions instead of using their time to check and process routine business. 37-39 Lime Street
These automated processes are more scalable and risk controlled too, allowing London, EC3M 7AY
significantly higher volumes to be managed without corresponding increases in W: www.pirum.com
operations headcount.

Santander is the only Spanish financial institution with a team exclusively dedicated
to securities finance & with the purchase of Abbey in 2004 has expanded its
capacity on a Global basis with trading teams in London (UK) & Connecticut (USA). W: www.gruposantander.com
T: (3491) 289 39 42/54
Santander's leading local capabilities in Spain, Portugal, UK, USA & Latin America,
E: securitieslending@
along with its solid balance sheet & combined with the state-of-the-art technology,
provides its clients with the broadest range of solutions in securities lending & gruposantander.com
financing, including availability across all assets classes, as well as access to
uncommon emerging markets.

Email: securities.finance@sun-
gard.com
Around the world, USD9 trillion in securities financing is managed on SunGard’s
proven solutions for international and U.S. domestic securities lending and repo for Contact: Switch board: +44 (0)
over 250 clients. Through our Loanet, Global One, Martini and Astec Analytics prod- 208 081 2000 Marketing: +44
ucts and services, we provide comprehensive business solutions and information with (0)208 081 2853
worldwide reach for equities or fixed income securities financing. These solutions –
all in an integrated, exception-based processing architecture – includes order rout- Visit: www.sungard.com/loanet
ing, pre-trade analytics, trading, position management, operations, accounting, set- www.sungard.com/globalone
tlement and reconciliation. www.sungard.com/martini
www.astecgroup.com

Technology .
Advent Software EMEA, established in 1998, provides trusted solutions for the front
through to back office operations, based on a true real-time fund/portfolio
accounting platform, to the investment management community throughout Europe, T: +44 (0)20 7631 9240
Middle East and Africa. Advent has an established network of offices across the F: +44 (0)20 7631 9256
region serving a growing client base of asset managers, hedge fund managers, prime E: emea@advent.com
brokers, fund administrators, wealth managers, private banks and family offices who A: One Bedford Avenue,
continue to improve their businesses using Advent’s suite of integrated investment London WC1B 3AU, UK
management solutions. Advent Software EMEA is part of Advent Software Inc. W: www.advent.com
(Nasdaq: ADVS), a global organisation that has been providing solutions to the
world's leading financial professionals since 1983. Firms in more than 50 countries
using Advent technology manage investments totaling more than US $8 trillion.

Aquin are the market leader in investment compliance software with MIG21® pow-
ered by Aquin LawCards® for global compliance including UCITS III and SEC 1940. Annette Lindinger
The company has built its reputation on solid compliance and IT experience in long press@aquin.com
term relationships with its clients. T: +49 69 21 93 66 600
Aquin services a blue-chip client base of the world’s leading investment F: +49 69 21 93 66 650
Mainzer Landstr. 199
management companies, hedge funds, fund administrators and custodians. These 60326
include Citi, State Street, BNP Paribas, Credit Suisse, CACEIS Investor Services, Frankfurt am Main
Allianz Global Investors, Pioneer Investments and Commerzbank. The company has Germany
its headquarters in Frankfurt, Germany with subsidiaries in Boston, London, Paris, W: www.aquin.com
Dublin, Luxembourg and Zurich.

76 INVESTOR SERVICES JOURNAL


A: BI-SAM Ltd
1 Cornhill
London EC3V 3ND
T: +44 (0)20 3008 5834
F: + 44 (0)20 3008 5831
E: marketing@bi-sam.com
W: www.bi-sam.com
Broadridge Financial Solutions
The ISIS Building
193 Marsh Wall
London E14 9SG UK
T: +44 (0) 20 7551 3000
E: info@broadridge.com
W: www.broadridge.com
T: UK +44 (0)20 8390 5000
Boston +1 617 482 8800
Hong Kong +85 225 812 880
F: +44 (0)20 8390 7000
E: info@dstintl.com
A: DST House, St Mark’s Hill,
Surbiton, Surrey, KT6 4QD
W: www.dstinternational.com
W: www.eagleinvsys.com
T: +44 (0) 20 7163 5700
F: +44 (0) 20 7163 5701
A: Mellon Financial Centre
160 Queen Victoria Street
London, EC4V 4LA
W: www.f-tradeware.com
T: +44 (0)20 7493 2773
F: +44 (0)20 7495 4858
C: GrahamBright
E: info@f-tradeware.com
A: 31 Dover Street
London W1S 4ND UK
Fingertip Developments Ltd
Curtain Court
7 Curtain Road
London EC2A 3LT
UK
T: +44 (0)20 7100 9280 Unrivalled extensibility allows you to develop your own functionality with your in-
enquiries@fingertip- house development team.
developments.com
BI-SAM is a leading provider of analytics software, client reporting and data manage-
ment solutions to the investment management community.
Our integrated and innovative solutions have already been adopted by many
renowned asset managers in France, Belgium, Luxembourg, UK, Hong Kong and
Singapore who have assets under management ranging from 10 to 450 billion Euros.
The B-One suite of products covers: performance measurement, performance attri-
bution (equities, balanced and fixed income), risk attribution (ex-post and ex-ante),
as well as multi-lingual client reporting and factsheets. This suite of products can be
used either as stand-alone applications or ASP hosted solutions.
The Company has approximately 45 employees in offices located in Europe (Paris,
London, Luxembourg). Offices in Asia and North America are under consideration.
The Company is headquartered in Paris.
Broadridge Financial Solutions, formerly ADP Brokerage Services Group, with nearly
$2.0 billion in revenues and more than 40 years of experience, is a leading global
provider of technology-based outsourcing solutions to the financial services industry. Our
integrated systems and services include international securities processing, investor
communication and outsourcing solutions. We offer advanced, integrated systems and
services that are dependable, scalable and cost-efficient. Our systems help reduce the
need for clients to make significant capital investments in operations infrastructure,
thereby allowing them to increase their focus on core business activities.
Proxy Edge – comprehensive solution for institutional global proxy voting management.
Gloss – leading international STP system which automates the trade processing lifecycle from
trade capture through confirmation, clearing agency reporting and settlement.
Tarot - a UK retail and private client stockbroking, custody and fund management solution.
Securities Data Management – outsourced data services for securities operations.
DST International is the world’s premier vendor of technology solutions to the global
investment management community with over 700 clients in 55 countries, and
1500 employees in 19 of the world’s leading financial centres. Our wide range of
asset management solutions meet the needs of fund managers, dealers, settlement
staff, custodians and record keepers operating as international asset managers; from
front office simulation, opinion management and modelling functions, through data
management, dealing and settlement to custody and corporate actions. The suite of
products can be used either as stand-alone applications or brought together in flexi-
ble combinations according to specific needs.
Eagle Investment Systems LLC is a global provider of financial services technology,
serving the world's leading financial institutions. Eagle's Web-based systems support
the complex requirements of firms of any size including institutional investment
managers, mutual funds, hedge funds, brokers, public funds, plan sponsors, and
insurance companies. Eagle is committed to providing enterprise-wide, leading-edge
technology and professional services for investment accounting, data management,
and performance measurement. Eagle’s product suite is offered as an installed
application or can be hosted via Eagle ACCESS, Eagle’s application service provider.
Eagle Investment Systems LLC is a division of The Bank of New York Mellon
Corporation. To learn more about Eagle's solutions, contact 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
trade life cycle. It is part of the Dharma Group of companies and benefits from the
joint contributions and experiences within the group of market traders, business ana-
lysts, financial services professionals and skilled Microsoft Certified programmers.
The company has developed a suite of applications that integrate and Straight
Through Process (STP) real-time trading, back office administration, accounting and
compliance. Ultra.net®, S-Messenger® and H-Fund® are the company's flagship
products all based on Microsoft.NET infrastructure. The company also offers a
Member Concentrator for hosted SWIFT connectivity and Member Administered
Closed User Group (MA-CUG) services for Corporates and Hedge funds. For more
information see: www.f-tradeware.com
Elemes NM is your partner in global agent bank custodian network management pro-
viding a global view of your relationship network in a powerful and easy to use pack-
age. It includes diary, invoice verification, document management, multi-entity
views, reporting, account information incorporating fee and rate structures, contacts,
notes and supports eFee – electronic fee invoicing technology.
Flexibility does not stop with the software, our commercial terms offer adaptable
pricing to suit present and future requirements for all sizes of organisation.
INVESTOR SERVICES JOURNAL 77
 IGEFI is the foremost provider of software solutions for international fund promoters, A:IGEFI Group Sàrl - 7, Rue des
third-party service providers and fund managers. Its prestigious client-base is testi- Primeurs, L-2361 Strassen
mony to our commitment, service and quality with more than 200 expert staff sup- T: +352 26 44 211
porting clients from seven offices worldwide including Bangalore, Boston, Frankfurt, F: +352 26 44 21 44
Geneva, London, Luxembourg and Paris. MultiFonds is operational in more than 20 E: marketing@igefi.com
countries worldwide and support investment funds assets in excess of US$ 2 trillion. W: www.igefi.com
MultiFonds Fund Accounting and MultiFonds Transfer Agency are developed on a C: Mr. Jesper Steiness - Head of
"one system-one database" philosophy and provide significant advantages including Business Development, Europe &
reduced overhead and IT support costs and single look and feel reporting for global Asia
clients. E: jesper.steiness@igefi.com

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.

Misys provides integrated, comprehensive solutions that deliver significant results to

over 1,200 financial institutions globally. Our buyside solutions help asset servicers,
asset managers and hedge funds handle the latest complex products, streamline
processes, reduce costs and improve STP. Misys Summit is our award winning,
multi-asset class solution that boasts 18 years OTC derivatives market expertise. www.misys.com
With extensive OTC buyside coverage and the market leading structured products
module, tcm.marketing@misys.com
Misys Summit delivers the solution you need for handling the end to end process
for OTC. We also provide a customisable ASP service for fast implementation and
lower costs.

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 Financial Technologies is an industry leader in the global provision of wealth

and asset management solutions and services to the Private Banking, Mass Affluent London Office:
and Retail Banks as well as Institutional and Fund Managers. More than 180 finan- Martin House
cial institutions in 30 countries have chosen Odyssey solutions.
Odyssey focuses on providing a comprehensive range of components for portfolio 5 Martin Lane
management (PMS), advisory process, customer relationship (CRM), compliance, London EC4R 0DP U.K.
risk, analytics and Enterprise Data Management (EDM). The components are
deployed on a single scalable wealth and asset management platform, facilitating T: +44 (0)20 7621 5800
the enterprise-wide implementation of solutions and data management. Founded in
Luxembourg in 1995, Odyssey today has offices in the key financial centers, includ- F: +44 (0)20 7621 5899
ing London, New York, Singapore, Zurich, Frankfurt, Brussels, Geneva, Madrid,
Toronto and Tokyo. Odyssey’s operational head office and main development centre E: info@odyssey-group.com
is located in Lausanne, Switzerland. Throughout this knowledgeable network Odyssey W: www.odyssey-group.com
employs over 600 professionals.
peterevans is a leading provider of front to back office solutions for the financial services
sector. With 23 years experience peterevans takes a sophisticated and dynamic
approach to assist customers in reducing costs and witnessing an increase in margins by
seamlessly replacing costly and restricting legacy platforms. peterevans works in a col- peterevans
laborative manner and sees clients as partners to help meet all the demands in today’s New Broad Street House
marketplace. The xanite product suite offers a highly configurable, flexible and fully 35 New Broad Street
integrated, browser based, comprehensive front to back solution that complies with mes- London EC2M 1NH
sage standardization and settlement harmonization. Deployed as a single application or T: +44 (0) 29 20 402200
integrated as components into your existing platform. Each of the xanite modules can be E: info@peterevans.com
delivered via an ASP or self-hosted. Covering: wealth management, custody corporate W: www.peterevans.com
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.

78 INVESTOR SERVICES JOURNAL


T: +1 609-987-2400
F: +1 609-514-4794
C: Lorne Whitmore, Vice
President, Global Sales &
Product Management
E: lwhitmore@pfs.com
A: 600 College Road East,
Princeton, NJ 08540, USA
W: www.pfs.com
Redi2 Technologies, Inc.
1771 Broadway St.
Oakland, CA 94612
T: +1 (510) 834-7334
E: info@redi2.com
W: www.redi2.com
T: +44 (0)20 7260 1900
F: +44 (0)20 7260 1911
C: Elizabeth Gee, sales director
of SimCorp Dimension
E: elizabeth.gee@simcorp.com
W: www.simcorpdimension.com
A: SimCorp, 100 Wood Street,
London EC2V 7AN
T: +44 (0)20 7826 4470
F: +44 (0)20 7826 4480
C: Nick Stevens
E: sales@singularity.co.uk
A: Singularity
4th Floor, 101 Moorgate
London EC2M 6SL UK
Further Contacts:
US T: +1 212 946 2685
Singapore T: +65 9616 7732
Visit SunGard at
www.sungard.com
T UK: +44 (0) 8452 303 065
T US: 1-888-650-1831
F: +44 (0) 8452 303 064
E: info@fintuition.com
A: FinTuition Ltd
1 Berkeley Street
London W1J 8DJ
United Kingdom
W: http://www.fintuition.com
Princeton Financial® Systems, a wholly owned subsidiary of State Street
Corporation, is a leading provider of investment management and accounting
systems and ASP services for global institutional investors.
Its flagship PAM® investment management systems provide comprehensive STP-
ready functionality that can be licensed for in-house use or accessed via the
Internet. PAM® systems are currently used worldwide by over 275 leading invest-
ment managers, insurance companies, mutual funds and unit trusts, pension funds,
hedge funds, endowments, banks and corporation, which manage combined total
assets over US $3 trillion.
Princeton Financial has offices located throughout the United States, United
Kingdom, Belgium, Australia, Singapore, Amsterdam and Canada. Form more
information, visit Princeton Financial’s website.
Founded in 2002, Redi2 Technologies is a leading provider of fee billing solutions to
the global financial services industry. Redi2 offers flexible, feature-rich solutions
that help firms streamline operations, improve cash flow, reduce costs, enhance
client service and meet compliance obligations.
Redi2’s flagship fee billing and revenue management solution Redi2 Revenue
Manager helps financial professionals more easily manage the fee billing process,
including client setup, multi-currency fee and accrual calculations, invoice and
advice generation, accrual reconciliation, adjustments and reversals.
Our open APIs and support for industry-standard relational databases ease integra-
tion with third-party solutions, including accounting, performance measurement and
CRM systems.
SimCorp Dimension is a powerful, comprehensive and truly seamless investment
management system. It can handle NAV and other calculations, with complete relat-
ed accounting, for a huge variety of fund structures and product types, including
regional specialities.
SimCorp Dimension has been designed from scratch as an enterprise-wide system,
handling all aspects of the investment management process and related administra-
tion functions, consistently. Data is recorded once into a core database so that
reporting is made easy, there is no reconciliation of data and no duplication of pro-
cedures.
Over 100 Capital Markets firms worldwide rely on Singularity to achieve step-change improve-
ments in efficiency and cost-effectiveness. Across front, middle and back office operations,
Singularity's clients are improving performance by automating process and leveraging their
human capital most effectively. Our process automation solutions combine deep knowledge
and long-standing capital markets experience with award-winning technology. Clients include
JPMorgan, Bank of Tokyo Mitsubishi UFJ, Raymond James, Prudential, Invesco, BNPParibas,
Morgan Stanley, American Express and M&G.
-By cutting latency in securities processing, our clients are recognising new
efficiencies, reducing costs and increasing throughput
-By streamlining their customer on-boarding processes, our clients are gaining faster
access to fees, increasing customer satisfaction, gaining greater cross-sell opportunities.
-By automating their KYC & other compliance processes, our clients & reducing risk.
-By improving collaboration in their client reporting cycle, our clients are providing more
timely and insightful investment performance information.
With annual revenue of USD5 billion, SunGard is a global leader in software and
processing solutions for financial services, higher education and the public sector.
SunGard also helps information-dependent enterprises of all types to ensure the con-
tinuity of their business. SunGard serves more than 25,000 customers in more than
50 countries, including the world’s 50 largest financial services companies.
Training and Education
FinTuition is an international training company based in London specialising in the
securities finance business: securities lending, equity finance, hedge funds, prime
brokerage, repo and collateral management.
FinTuition offers a regular schedule of open-enrolment courses from introductory to
advanced levels as well as tailor-made in-house training and consulting. We have
course locations in Asia, Europe and North America.
FinTuition training relies heavily on exercises, role plays and case studies to pro-
mote a better understanding of securities financing and trading concepts through
contextually reinforced learning.
For more information about our courses, course dates and course directors, please
visit our website www.fintuition.com
INVESTOR SERVICES JOURNAL 79
 FORESIGHT

FORESIGHT
Vincent Camerlynk, global head of
business development of BNP
Paribas Investment Partners and a
member of the executive board,
looks into the crystal ball in the wake
of the bank’s latest moves.
BNPP bought IMS in April and a minority stake in IMPAX
last year. What prompted this expansion into the UK?

In acquiring IMS, a major London-based multi-manager and a

minority stake in Impax, a UK investment manager focusing on
the environmental markets, BNP Paribas Investment Partners
has achieved two major goals: it has further reinforced its abili-
ty to deliver comprehensive and innovative solutions to a global
clientele,, and it has strengthened its position in the UK market,
which remains a priority for BNPP IP.

Was BNPP attracted more to the quality of the funds or

to the UK market?
Both in equal measure. The UK will unquestionably remain one
of the most important global distribution markets. It is also par-
ticularly well suited to the BNP Paribas Investment Partners
model, in which highly specialised expertise is integrated with- Vincent Camerlynk
in a large and stable organisation, and flourishes in consequence.

Will BNPP continue to expand into the UK market in spite
of current market conditions, notably the credit crunch?
Yes, and in different areas. BNP Paribas Investment Partners
already has an extensive presence in the UK, where it is a major
force in the international capital markets.
The Asset Management and Services Division (AMS), which
takes in private banking, asset management, insurance, security
services, personal finance and real estate, is also present in the
UK through four of its business lines.
BNP Paribas Investment Partners has over a number of years
enlarged its presence in the UK, with the acquisition of FFTW,
with the strategic alliance with Fauchier Partners, and most
recently with the IMS and Impax transactions. We have also
seen a particular interest from British institutional investors in
Overlay Asset Management, our currency overlay specialists.
Do you know of any other banks that may be buying
UK funds? Do you think this is a market trend, or is it
specific to BNPP?
It may be that other banks are looking to buy UK funds. But I do
believe that our multi-expertise model is extremely attractive to
boutiques which may have strong management capabilities but
lack the financial resources to build a global network. BNP
Paribas Investment Partners aims to cover the full spectrum of
the asset management capabilities in a consistent way, and so we
may well continue to expand the range of our activities in the
UK, and elsewhere. ■
Next issue:
Christopher Fawcett of Fauchier Partners

80 INVESTOR SERVICES JOURNAL

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