S ERVICES WWW.ISJFORUM.COM
JOURNAL
VOLUME 3 - NOV / DEC 2004
PURE BLISS
DOMICILE DUBLIN: THE FIRST FIFTEEN YEARS
Contents
62 The real Madrid The might of the banking & investment markets in Spain
78 A Change of Heart Central Trade Matching has evolved since the collapse
of the GSTPA report Omgeo
80 Conference Digest Transparency was cited as the main cause of stagnation
at the securities lending summit in Edinburgh
CIBC Mellon puts the right people behind you to ensure you receive
unrivalled support. Contributing daily to the continuing success of
more than 1,200 custody clients, our knowledgeable professionals
understand your goals and are ready to help you attain them with
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Enabling You to
Focus on Your World
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Letters to the Editor
ISSN 1744-151X
WWW.ISJFORUM.COM
4 INVESTOR SERVICES JOURNAL
DPM IS THE HEDGE FUND ADMINISTRATOR
At DPM, we offer a complete suite of services designed to solve all your adminis-
trative needs and improve your operational efficiency – no matter how challenging
it may look.
From the most basic administrative reports, to complex portfolio valuations, risk
analysis and transparency, DPM has the systems, infrastructure and experience to
handle your toughest administrative challenges.
Our shareholder services are thorough and complete. From shareholder communi-
cations, documents fulfillment and AML compliance, to secure Internet access to
your proprietary shareholder database, DPM provides the products and services
you need, in the format you prefer.
To focus on investing and investor relations all day long, at the end of the day, you
can rely on DPM.
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FT Interactive Data has provided global corporate Take advantage of immediate access – please call Nat Sey
actions event data for over 30 years and has a wealth on +44 20 7825 8744 or email: ISO15022@ftid.com today.
of experience in gathering, updating validating and www.ftinteractivedata.com
delivering this data. By mapping its corporate actions data
to the MT564 event types specified within ISO 15022,
Custody & Outsourcing tion. Managers can create various tems, backed by an expert help desk to
investment scenarios and stress test help ensure the highest level of cus-
New York - Citigroup is to acquire ABN market changes to see the potential tomer support. referencePoint Managed
AMRO’s direct custody, securities clear- impact on their portfolio as well as gen- Data Service is a service bureau solu-
ing, and fund services businesses in erate on- demand customised reports of tion that aggregates pricing and refer-
selected European and Asian markets. their portfolios' risk exposure using ence data from multiple sources includ-
Upon completion, these ABN AMRO multiple VaR methodologies ing both customer and vendor content.
businesses will join the Global SunGard Data Management Solutions
Transaction Services unit (GTS) in will leverage best practices and build a
Citigroup’s Global Corporate and Funds & Administration
scalable service infrastructure, based on
Investment Banking Group. The trans- Chicago - The hedge fund sector posted its referencePoint platform, which will
action is expected to broaden the prod- a 0.9 per cent performance gain for the help meet the data management needs
uct capabilities and client growth oppor- third quarter 2004, largely reversing a of other SunGard business units as well
tunities for GTS, one of Citigroup’s pub- 1.0 per cent loss in the second quarter as their financial institution customers.
licly reported business units. The trans- of this year, according to results pub- SunGard Trading Systems has also
action includes ABN AMRO’s domestic lished by Hedge Fund Research, Inc. launched Management & Compliance, a
custody business in the Netherlands (HFR), a leading source of hedge fund reporting tool that helps customers to
and its network domestic custody busi- information and performance data. proactively manage both their regulatory
ness in Russia, Greece, India, Based on the HFRI Fund Weighted obligations and their trading business.
Indonesia, South Korea, Poland and Composite Index, which measures
Taiwan, servicing approximately 550 equally weighted performance across 19
financial institution and corporate Regulation & Infrastructure
distinct fund sectors, the industry also
accounts. The transaction should add in saw $16.9 bn in net asset inflows in the Washington - The Securities and
the order of $240 bn of assets under quarter, a marked improvement over the Exchange Commission (SEC), chaired
custody to GTS’s $7.3trillion custody $7.5 bn in inflows seen in the second by William Donaldson (pictured below),
portfolio. quarter. The increase suggests a return has voted to adopt a new Rule 203 (b)
to the faster rate of capital flow experi- (3) –2 that will require hedge fund
New York - GW Capital Management, enced in the 12-month period ending
LLC, a wholly owned subsidiary of March 30, 2004, when net inflows aver-
Great-West Life & Annuity Insurance aged $21.2 bn per quarter.
Company, and Maxim Series Fund, Inc.
have selected the Bank of New York to
provide custody services for its Maxim Technology
Series Equity Index Funds, which total William Donaldson
New Jersey - Automatic Data Processing
approximately $1.6 bn in assets under (ADP) reported 8 per cent revenue
management. Great-West Life & growth and $.35 earnings per share for
Annuity Insurance Company, headquar- the first quarter ended September 30,
tered in Denver, serves its customers 2004. Revenues approximated $1.9 bn
through a range of health care, life and compared with $1.7 bn in fiscal 2004.
disability insurance, annuities, and Pretax and net earnings grew 6 per cent advisers to register with the
retirement savings plans and services. and 7 per cent, respectively. Commission under the Investment
Advisers Act of 1940 by February 1
Toronto - With the expansion of its Pennsylvania - SunGard Data 2006. The rule is the culmination of an
strategic alliance with RiskMetrics Management Solutions, an operat- initiative to study hedge funds and their
Group, RBC Global Services now offers ing group of SunGard has launched advisers that commenced over two
BENCHMARK RiskManager, a web- referencePoint Managed Data Service years ago. The new rule will eliminate
enabled risk management tool that pro- (rMDS), with Banc of America Securities the ability of hedge fund advisers to rely
vides estimation techniques to help as a charter member of the service's on an exemption from adviser registra-
identify and measure sources of risk advisory panel. Slated to begin opera- tion designed for advisers providing
within investment portfolios. Expanding tion in the first quarter of 2005, the new advice to only to a small number of
the BENCHMARK platform to include service will offer financial institutions an clients. The rule also contains provi-
RiskManager from RiskMetrics Group, outsourced solution for the loading, sions for non-US advisers to limit the
this new tool integrates market and cleansing, formatting, enrichment, stor- extraterritorial application of the
portfolio data across asset classes to age, management and distribution of Advisers Act to offshore advisers to off-
form a source of investment informa- data to a variety of downstream sys- shore funds that have US investors.
At DPM, we offer a complete suite of services designed to solve all your adminis-
trative needs and improve your operational efficiency – no matter how challenging
it may look.
From the most basic administrative reports, to complex portfolio valuations, risk
analysis and transparency, DPM has the systems, infrastructure and experience to
handle your toughest administrative challenges.
Our shareholder services are thorough and complete. From shareholder communi-
cations, documents fulfillment and AML compliance, to secure Internet access to
your proprietary shareholder database, DPM provides the products and services
you need, in the format you prefer.
To focus on investing and investor relations all day long, at the end of the day, you
can rely on DPM.
Custody & Outsourcing quarter 2004 grew 10 per cent from a October this year. Commenting on
year ago to $645 million, while total future goals, chairman of the Board
Taipei - As of August 31, 2004 State customer loans expanded at the same Jaap Kamp (pictured) said: “SWIFT is
Street provides investment services — rate to $67.2 bn. Net interest margin planning to change its governance to
including fund accounting and custody at 1.83 per cent was the highest in six create more affordable access for
— for almost 60 percent of the SITE quarters. smaller users.” To further its commit-
funds in Taiwan. In the past six months ment to the Far East, SWIFT will
State Street has added 14 new man- appoint a senior manager to work with
dates to service SITE funds, bringing Funds & Administration
the local authorities and improve pay-
the total to 28 new mandates in the New South Wales - BNP Paribas ment systems.
last 18 months, most recently from Securities Services has been appointed
Allianz Dresdner Asian Pacific Dynamic by the Office of the Protective
Strategy Fund; Fuh-Hwa Global Regulation & Infrastructure
Commissioner (OPC) to provide a full
Balanced Fund; Polaris Global Short range of core custody and investment Shanghai - The Depository Trust &
Duration Diversified Bond Fund; and administration services, including Clearing Corporation (DTCC), the finan-
Prudential Financial Global Selection accounting, tax and statutory reporting. cial services post-trade infrastructure
Fund. SITE funds, aimed at collecting The OPC is an agency established in organisation, has opened a new office
investment funds from the public, were 1985 as part of the NSW Attorney in Shanghai to provide further coverage
established in 1983 in order to provide General’s Department. Its primary for its global corporate actions busi-
an investment channel for small objective is to protect and administer ness. The new service centre will sup-
investors and to introduce more the financial affairs and property of port DTCC’s Global Corporate Action
sophisticated investment behavior to individuals unable to make financial (GCA) Validation Service, which pro-
the Taiwanese securities markets. decisions for themselves. A wide range vides brokers, banks and other finan-
of legal, technical, financial and other cial institutions an automated, stan-
Beijing - SEB is to apply for a banking services are provided by the OPC such dardised source of global corporate
licence in Shanghai to further improve as liaising with financial and legal insti- action announcement information for
the services offered to its client base. tutions, managing a business and mak- 100+ events, ranging from rights offer-
Lars H Thunell, president and group ing investments. OPC presents BNP ings to elective dividends to tender
chief executive said: “China is one of Paribas with the opportunity to offers and stock splits. The service is
the fastest growing markets for SEB's strengthen its market positioning as a provided by Global Asset Solutions
clients. China's importance in terms of leading provider of value added invest- LLC, a wholly owned subsidiary of
global sales sourcing and production is ment administration services to finan- DTCC. DTCC selected Shanghai after a
increasing day by day.” SEB has been cial institutions in Australia and New survey of nine potential sites. Search
present in Asia for 25 years through Zealand. criteria included availability of a large
offices in Beijing and Singapore. SEB's skilled and educated labour pool,
Beijing representative office will contin- varied language availability, cost-effec-
ue to operate and focus on marketing Technology
tiveness and quality-of-life .
and client services. Beijing - SWIFT is in the process of
extending its reach to China and India Tokyo - Japanese stocks and other
Singapore - DBS Group Holdings and is working with its partners in each securities are to be dematerialised
(DBS) reported net earnings of $362 region. The messaging utility within five years. The law concerning
million for the three months to 30 announced its plan at the Annual Sibos book-entry transfer of corporate bonds
September 30 2004, up 24 per cent event, held in Atlanta, Georgia in and stocks was promulgated on 9 June
over third quarter 2003. Total earnings 2004 and requires dematerialisation of
for the first nine months of 2004 were stock certificates of publicly-held cor-
$1.70 bn, a 132 per cent increase over porations to be implemented by 9 June
the same period in 2003. Compared to 2009. Infrastructures and market
second quarter 2004, net profit was 57 participants will have five years to
per cent lower. However, if one-time prepare their systems for demateri-
gains of $497million from the disposal Jaap Kamp alised stocks. The elimination of stock
of Wing Lung Bank and DBS Thai certificates is intended to streamline
Danu Bank (DTDB) stakes were and accelerate settlements for trades
excluded from the second quarter fig- of stocks and reduce risks and costs
ures, net profit would be 3 per cent related to the issuance and trading of
higher. Net interest income for third stocks.
home
DELIVERING A DOMESTIC
MARKET FOR EUROPE
Profile - CEO eSecLending
Bidding ties lending trading desk. From State Street Peters moved
to Credit Suisse First Boston where she helped build an
agency-lending program for the company in New York.
Change
Although the daily commute from home in Boston to
work in New York proved challenging, Peters relished the
opportunity of witnessing the first securities lending auc-
tion, which eSecLending conducted on behalf of CalPERS,
the California state pension fund, while working with
CSFB. “This was a major change in the securities lending
world, which was being reshaped to
ensure lenders could get what they
deserve,” she says. “The product
enabled lenders to design their own
program and reap the economic ben-
efits of doing so.”
Susan Peters When eSecLending was launched,
the auction product was designed
through the joint efforts of
eSecLending’s president Ty Danco
and Dan Kiefer of CalPERS. Peters
then joined the Company to bring on
board the administrative function
As one of the most popular required to support the securities lending process. The
team successfully designed a product that combined the
new approaches to securities auction feature and the administrative work of the agent
lender. Today, eSecLending has a fully functioning product
lending, the auction model that enables lenders to auction their securities and receive
the same administrative functions provided by a custodian.
affords lenders and borrowers Commenting on the demand for securities auction
greater choice. services, Peters says: “When securities are loaned on a
daily basis through a traditional agency lender, all that is
evident to the lender is the demand from the borrowing
community on a per-security basis. Lenders do not see
ISJ speaks to Susan Peters, a the overall benefit that a borrower derives from having
pioneer in this field and CEO of exclusive access to an entire portfolio. From our model
we have seen that borrowers are willing to place mean-
eSecLending. ingful bids in front of the lender in order to have that
access. Access to an entire portfolio is priced differently.
The borrowers know their ability to cap- with the broad category of collateral such as reporting, risk management and
ture a portfolio for the benefit of their held and the broad category of securities operational efficiency. This change bene-
program says a lot about their ability to that are on loan,” says Peters. “The abili- fits the lenders more than ever. We are
deliver assets to the hedge fund commu- ty to monitor individual risks associated very fortunate to be working in a time
nity. This is an added value.” with the securities they hold is a very where people are willing to make some
As market conditions improve, lenders powerful tool as the risk from one secu- significant changes to what they're offer-
are beginning to question whether they rity to another can vary dramatically.” ing. These changes include different types
are deriving best value from their lend- of lending platforms, co-operative efforts
ing program, whether their risk and Growth such as Equilend, single stock auctions or
return needs are being met and whether Now that securities lending providers the ones that we offer. More routes to
they are receiving excellence in opera- have quelled lenders’ fears, on loan bal- market and greater technological and
tional and reporting functions. “Lenders ances are likely to increase. “The growth operational efficiency benefits the lender
believe they deserve better treatment, in hedge funds has exceeded all and that is a good thing.”
better service, a better product and bet- expectations. Statistics indicate there are ISJ
ter returns,” says Peters. about 6000 hedge funds. On loan
balances are increasing due to the Susan C. Peters, Chief Executive
A unique approach increased activity in the hedge fund Officer, eSecLending LLC
In keeping with eSecLending’s unique community. But from our perspective,
approach to securities lending, Peters the amount on loan is far less important Susan Peters' primary responsibilities
admits the product has a strong bias than the amount of return the lender within eSecLending LLC are global
toward the lender. “We are willing to con- receives from their on loan balances. business strategy and execution.
cede that the auction model may not Loan balances are not a good indicator Prior to her appointment as chief
always be the best way to go to. We of success unless the risk/return profile executive Officer of eSecLending,
encourage clients’ use of other routes to is optimal. We are more interested in
market because that is how they can ben- loan balances that are coupled with a Peters was chief operating officer in
efit from optimal use of what the market- high rate of return.” charge of the operations and lending
place has to offer. strategies and was instrumental in
building eSecLending’s administrative
agency capabilities. Formerly, she
“Loan balances are not a good indicator of success served as director of Credit Suisse
unless the risk/return profile is optimal.” First Boston's agency lending pro-
gram in New York. She was also pre-
viously the head of trading for State
We have a good model for different Governance Street Global Securities Lending.
types of assets but it is not the best In a season of mergers, acquisitions and
model for all types of assets. In order to IPOs, corporate governance is close to Susan is an attorney by training,
increase our offering to the lenders util- Peters’ heart. “It is entirely appropriate beginning her career at Skadden,
ising multiple providers, we offer consol- that each lender thinks about his or her Arps, Slate, Meagher & Flom. Over
idated reporting. We can accept a data internal proxy and corporate governance the course of her career, Susan has
feed from any source, including our auc- issues. Major institutional investors want become a widely recognized expert in
tion platform or another agency pro- to have their votes counted,” she says. securities lending. Some examples of
gram. This approach enables the lender “However, it is equally important that her industry contributions include: a
to manage their risk and collateral more the lender balances voting against the leadership role in creating the
effectively.” Peters’ value added principle revenue to be derived from lending his or Navigator Fund while at State Street
is widely applied across the securities her securities. We are in an age where the and obtaining all of the necessary SEC
lending industry. For eSecLending, this revenue to be derived from lending secu-
principle includes the auction platform’s rities or making their portfolio available exemptions; her testimony before
ability to obtain a commitment from the in an auction is significant. Each lender both the Financial Accounting
borrower community to maintain a core should have a policy with their lending Standards Board and the Govern-
level of cash collateral on loan at any agent to ensure they are addressing this mental Accounting Standards Board
given time. “This enables us to effectively issue. We work closely with our lenders to regarding securities lending issues
manage cash collateral by having a core derive an appropriate policy that address- and co-authorship of a white-paper
balance in place,” says Peters. es both their desire to lend securities and submitted to the SEC while a member
eSecLending can also manage different to participate in corporate actions. This is of the RMA sub-committee on securi-
types of collateral through an internal a very important part of our relationship ties lending and her work on the
risk management system. with clients.” International Organization of
The company will assess the risks
associated with individual securities it Technology Securities Commissions’ paper
holds as collateral and individual securi- Peters is also an active promoter of regarding securities lending transac-
ties out on loan. “Most agent lenders technological change. “Technology is rap- tions authored by the US Federal
will only look at the risks associated idly changing in order to address issues Reserve.
in Dublin, particularly with the emer- year end. This is expensive and to a and could force promoters to look at reg-
gence of pan-European pensions,” he large extent administrators are biting istering their funds in other jurisdictions.
says. “Not many people are jumping up the bullet.” From a marketing perspective, it is good
and down about the that funds are regulated and
non-UCITS CCF at the that fiduciaries act inde-
moment, but it will “The regulatory change in the last nine to pendently on behalf of the
create an additional
interest for investment
twelve months has been phenomenal” shareholders.”
Service providers like
when it arrives.” Citigroup believe regulated
Butler’s business is an active hedge fund Multiple domiciles funds ensure greater investor protection.
services provider. “There was a point As an appointed However, Wright adds, it is important to
when these funds were the ‘in’ thing, trustee for Irish enforce regulation, which is not burden-
when markets were difficult. Now that regulated funds some and costly for the promoter or the
markets have stabilised, there is a and service management company who is setting up
demand for other products and the provider to funds the fund. “This can be achieved by
hedge fund buzz has softened but it is authorised in at liaising between local industry bodies
still a growth area.” least five regulatory and the regulator before regulation is
Apart from Dublin, Ireland boasts a jurisdictions, finalised.”
variety of cities that are top of the list for Citibank The increasing sales of regulated funds
outsourcing non-core fund activities. International plc to retail investors is testimony to the
Service providers such as State Street, Ireland Branch is creative regulatory oversight for these
Citco, Fortis and International Financial responsible for
Services have seized upon the low costs $15bn worth of Bronwyn Wright
of doing business in centres such as assets. Regulatory
Kilkenny, Cork, Galway and Naas developments such as UCITS III, the EU Irish Registered Collective Investment Schemes
respectively. Savings Directive, late trades, market tim- (No. of Funds including sub-funds)
ing and the CCF; constitute the daily t 2004 3616
Law of the land agenda of senior vice president Bronwyn 2003 3507
At a European level, Ireland is subject Wright and her team. “The regulatory 2002 3300
2001 2870
to the provisions of the European Union change in the last nine to 12 months has 2000 2392
Savings Directive, which are supposed to been phenomenal,” says Wright. 1999 1967
into effect in January next year. “Service providers have to equip 1998 1693
According to the Directive, fund adminis- themselves with market knowledge in 1997 1221
trators will be deemed the final paying order to provide promoters with value 1996 985
1995 759
agent and will be obliged to report to the added services. Its not just about cutting 1994 597
administrator’s local tax office informa- the NAV anymore. Promoters want to 1993 409
tion on interest income, as opposed to know about new legislation such as the 1992 299
capital gains earned by EU individual CCF, UCITS III ( product / management 0 500 1000 1500 2000 2500 3000 3500 4000
investors. directive), and how it affects them.”
No. of Funds (incl. Sub-funds) Source: IFSRA
“The directive is likely to be enforced According to many service providers in
next year for interest earned this year,” Ireland, regulation should combine prac-
says Dermot Butler, chairman of Custom tical laws and an intuitive marketing plan
House Fund Administration. Service for the funds industry. “You can achieve
providers are also waiting to hear how that balance if you have open communi- Irish Registered Collective Investment
Schemes in the UCITS Fund Structure
the USA Patriot Act will affect the hedge cation between the industry and the regu-
funds industry. New audit protocols, lator,” says Wright. “This balance should 350 328.6
which will affect the way in which infor- be achieved at the consultation stages of a B
mation is presented for audit, are also on particular piece of legislation.” 300 285.3
B
the horizon. Service providers in Ireland have 250 238.5
Butler is outspoken on the issue of praised UCITS III for giving promoters 215.1 B
regulation and the costs associated with and fund managers greater flexibility for 200 NAV Euro bn
B
compliance. “All such regulation means the investment instruments. “We need to 145.3
more checking, more information gath- ensure the mind, management and sub- 150 B
ering and more reporting,” he says. stance of the fund’s board of directors is 94.5
“However, there are some EUSD exemp- practically achievable and that we do not
100 B
tions. For example, if less than 40 per make it burdensome for promoters to set 50 42.9
B
11.814.720.7
0.7 2.2 6.3 8 B B B
cent of a fund’s assets are in interest up businesses in a home jurisdiction,”
earning instruments, no report needs to says Wright. “The promoter is responsible 0 B B B B
2000
2003
2002
1993
1998
1992
1995
2001
JULY 2004
1996
1999
1997
1991
1994
be made. But nobody has made it clear for the substance of a fund and for work-
whether that 40 per cent is a daily figure ing with the service provider in the home
or based on the status of the fund at jurisdiction. This practice can be costly Source: IFSRA
vehicles. Service providers work with Cooperation other alternative investment funds. The
promoters and regulators to ensure that The Irish legislators are assessing original notice from the regulator has
regulation is practical. Under the man- whether sub-funds within an umbrella been refined in the last few months.
agement directive of UCITS III, for investment company should be allowed “The retail fund of funds product has
example, promoters are obliged to artic- to cross-invest. According to Brian provoked a lot of interest,” says
ulate to clients how the interpretation of McDermott, partner at law firm AL McDermott.
the Directive differs from one jurisdic- Goodbody, the regulator is already To the delight of the alternative
tion to the next. comfortable with this possibility. “It investment industry, IFSRA is chang-
Launched at the beginning of the year, has always been permissible for unit ing its tune on the appointment of
the CCF has been widely accepted by trusts and would simply require a small prime brokers to Irish hedge funds,
the funds industry. “A CCF’s assets are company law change in order to be following industry efforts to afford
mobile and enable pension funds to permissible for umbrella investment greater flexibility to the brokerage
benefit from their scale, higher regulato- companies,” he says. industry. The regulator has published a
ry provisions, greater buying power and If non-UCITS CCFs and cross invest- revised version of its draft guidance
the use of an international provider in ment were not enough for the legisla- note and has sought comments from
Dublin,” says Wright. tor’s plate, the creation of a separate the industry. “The changes have been
The CCF enables pension funds to cell type legislation, which would accepted in principle and the extent of
pool their assets into a legal structure, protect the assets of sub-funds of the custodian's monitoring role in this
which is charged one brokerage new arrangement is the final
and settlement fee. The product
was launched in competition to
“Providers who can service all hurdle to be addressed,” says
McDermott.
the FCP in Luxembourg and is types of funds will be the winners” Previously, the assets made
intended to compliment the available to prime brokers for
hedge fund structures, which have also umbrella investment companies from rehypothecation was limited to 100 per
caused a rush to the market by global the liabilities of other sub-funds, is also cent. Following regulatory interven-
financial institutions. “Institutions have on the cards. “Assets of a sub fund of tion, it is likely that this figure will
purchased hedge fund administrators an investment company are in theory at increase to 140 per cent.
rather than build the capability in order risk of being exposed to liabilities of a “This will be very effective for prime
to provide an immediate hedge fund highly leveraged or risky fund within brokers,” says Brian Wilkinson, direc-
service,” says Wright. the same umbrella,” says McDermott. tor of Bank of Bermuda GFS Dublin.
“This potential risk has provoked The rules governing retail fund of
Fund servicing certain fund promoters to elect to hedge funds have also been amended
Since the establishment of the IFSC, establish their funds as unit trusts.” and the minimum subscription
Ireland has attracted highly qualified The Irish Financial Services requirement has been removed.
graduates into the mutual funds arena. Regulatory Authority (IFSRA) has IFSRA is planning to levy a fee of
The basic passport to enter this industry responded to the Dublin funds about £1500 for custodians and
is a certificate or diploma for mutual industry’s comments on rules regarding administrators in Dublin. This action,
funds, created by the Dublin Funds the creation of retail funds-of-funds, according to Wilkinson, is a sign of
Industry Association and the Institute which can invest in hedge funds and
of Bankers. Wright continues “Hiring
staff is not a problem. Considering the Assets under Management for all Funds Domiciled in Dublin (Euro Billion)
growth and complexity of the funds
business it allows staff to develop with US $ billion 1999 2000 2001 2002 2003 2004
these opportunities and continually be
challenged.”
While staff availability may not be Cash/Short- 27.10 49.20 73.20 117.30 150.70 192.90
Term
cause for concern, the number of
providers servicing the business in Equity 37.20 79.90 80.30 82.80 92.00 137.60
Ireland decreasing. The reason for this,
according to Wright, is down to acqui- Bond 23.90 27.40 33.50 41.40 64.90 78.20
sition. “In the next three to five years,
there will be about 10 providers serv- Fund of 3.50 3.50 6.00 10.50 13.80 27.70
Funds
icing the Irish mutual funds business,
Alternative 3.80 2.20 3.10 7.30 11.60 17.30
as opposed to about 25 at present. Investment
This is because clients are looking for
a one-stop-shop. Fund Promoters are Others 13.10 13.90 17.50 30.60 42.40 49.60
seeking service providers that can
service all fund types in multiple TOTAL 108.60 176.10 213.60 289.90 375.40 503.30
European jurisdictions.”
Note: 'Equity' and 'Bond' categories include both actively and passively managed funds
Source: Fitzrovia International, Dublin Fund Encyclopedia 2004/2005
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market maturity. “It points towards the juniors who want to travel or explore fund administration services for global
independence of IFSRA,” he adds. other job opportunities. Thankfully funds. An increasing number of RFPs
Like other administrators in Ireland, we have enough skilled people here in involve funds that are domiciled across
the Bank of Bermuda can attest to the Dublin.” a range of jurisdictions, including
availability of skilled professionals to AIB / BNY administers funds that Dublin.” says Murphy.
service the local funds industry. “The are domiciled in Dublin and in other While Irish funds regulation may be
growth has been so tremendous that centres around the world. “We have strict and pragmatic, there are certain
professionals can attract a premium over $120bn of funds under adminis- flexibilities. “Regulation is a good price
salary by moving from one point of tration at AIB / BNY. A significant to pay for reputation, quality and the
the industry to another,” says number of these funds are domiciled protection of companies and investors'
Wilkinson. “Some fund administrators in Dublin and we are servicing a grow- cash,” says Murphy. “From Dublin's
have created satellite offices in Galway ing number of funds that are domi- point of view, the main impact of reg-
and Cork. Another administrator is ciled in other jurisdictions. Dublin is ulation is cost. In addition to making
setting up a series of offices in the sub- becoming a centre of expertise for a fund more marketable, regulation
urbs of Dublin in order to attract peo- adds to the reputation and quality of
ple from the west side of the City. This The Dublin Who’s Who... the funds.”
initiative will probably work very Our graphs show the professionals Dublin's service providers have
well.” serving Dublin Funds. catered for interest in jurisdictions
The Bank of Bermuda, now part of such as Luxembourg and the Cayman
the HSBC group, is a primary compo- Clockwise from top graph page 18; Islands. “We are present in those
nent of the Irish hedge funds industry. Auditors, Solicitors, jurisdictions because our customers
“While promoters can outsource some Custodians and Administrators. want us to be there,” says Murphy. “But
of the basic processing functions such
as portfolio valuation and corporate Dublin auditors - number of funds served
actions, the added value and the calcu-
lation of complex fees will always stay
in Dublin. The expertise, which have RSM Robson Rhodes - 83
Deloitte & Touche - 184
been built over a number of years, is in
situ in Dublin and it will take time to
build those expertise elsewhere.” PricewaterhouseCoopers - 1468
Ernst & Young - 840
Centre of excellence
According to Denis Murphy, chief
manager of AIB / BNY, the CCF has
enabled the pooling of pension
schemes and the creation of sophisti-
cated skills and technology.
“European pension schemes can now KPMG - 943
invest into assets globally through a
Dublin domiciled CCF pooling vehicle, Source: Fitzrovia International - Dublin Fund Encyclopedia 2004/2005
resulting in lower costs for fund
administration, transactions, audit and
legal services,” he says. “We are work- Dublin fund administrators - value of funds under
ing with customers who want their administration in US $ bn
CCF domiciled and administered in
GAM Fund Management - $38.7 bn
Dublin.”
Hedge funds represent about a tenth State Street International - $127.6 bn
of AIB / BNY's business. “Hedge funds PFPC International - $55.9 bn
are a major growth area and one that
we are very keen on,” says Murphy.
“Dublin has a great reputation for
administering hedge funds, which may
be domiciled here or in other jurisdic-
tions.”
Bank of Ireland (BOISS) - $67.7 bn
On the subject of staff, Murphy has
always noticed a low turnover in sen- AIB/BNY Fund Mgmt - $90.5 bn
ior management positions in Dublin.
“Turnover has always been higher for Source: Fitzrovia International - Dublin Fund Encyclopedia 2004/2005
to a significant extent, most of the diplomas in mutual funds. “A large like to go abroad for a few years but
fund administration work is carried percentage of the Irish population is they always seem to want to come
out in Dublin.” below the age of 25 and includes a lot home. That’s another reason for the
of university graduates,” says Gavigan. high level of financial services expert-
The European choice Investors Bank recruits directly from ise in Dublin.”
As a premier funds domicile, Ireland is the local universities and introduces According to Gavigan, there are fur-
nimble in its acceptance of new prod- new employees to an intensive three ther important factors behind Ireland’s
ucts. “The CCF structure is a major and a half week training program. success. “It is within the EU and pres-
product for Ireland as a jurisdiction. “The availability of skilled labour in ents a timezone advantage,” she says.
The product was initial-
ly created for UK pen-
sion funds, which need-
ed to receive dividends “Regulation is a good price to pay for reputation, quality
gross of US withhold-
ing taxes, and is now
and the protection of companies and investors’ cash”
being promoted to
other jurisdictions,” says Kerys Dublin is excellent,” says Gavigan. “Should an asset mananger choose
Gavigan, marketing director at “Traditionally, many graduates with India, the timezone between the US,
Investors Bank & Trust in Dublin. three or four years of financial experi- India and Europe is substantial. The
As its European centre of excellence, ence have gone abroad to work in manager would be better off using
Investors Bank subscribes to Ireland’s other fund centres. But increasingly, Dublin for its funds administration.
industry-wide training program and they are coming back to senior man- Traditionally, investment managers
endorses the DFIA’s certificates and agement positions in Ireland. People have selected the EU to domicile their
funds, while those who did not want
the added regulatory burden remained
Dublin solicitors - number of funds served
outside. But regulation has become
William Fry - 266
attractive for companies in terms of
selling and distributing funds, since an
increasing number of financial scan-
Dillon Eustace - 761 dals have been reported.”
Matheson Ormsby Prentice - 289
Challenges
“Luxembourg is the largest offshore
market in Europe,” says Gavigan. “But
Arthur Cox - 363 there will always be a role for both
Luxembourg and Dublin. Dublin is
about 35 per cent of the size of
A&L Goodbody - 532 Luxembourg. Having said that, Ireland
Source: Fitzrovia International - Dublin Fund Encyclopedia 2004/2005
has attracted alternative investment
products like hedge funds, which
Luxembourg has fallen slightly behind
on in the last two years. Now
Dublin custodians - value of assets under custody in US $ bn Luxembourg is fighting back and so
are the Channel Islands. The Channel
Islands have introduced new rules to
PFPC Trustee & Custodial - $42.8 bn
attract hedge funds. But they have a
State Street Custodial Services - $117.5 bn restricted labour force. From Dublin’s
perspective, it is important that we do
JP Morgan - $59.5 bn not become complacent and think that
because we have been around for a
while that we are established enough.
The industry needs to continue to
promote Ireland.
“ This is something Investors Bank,
DFIA and IFSRA are all very good at.”
Bank of Ireland (BOISS) - $69.2 bn AIB/BNY Trust Co - $73.9 bn
Green Strengths
One of the core strengths and key drivers of the success
Energy
of Ireland as a funds jurisdiction is the people working in
the industry. Key to this is a willingness to deliver and to
meet and exceed client’s needs and expectations. We have
always sought to embrace industry developments and
ensure the products and expertise available from Ireland is
second to none. Our willingness to deliver and to meet
our client’s needs has seen Ireland’s reputation as a key
location for money market funds, exchange traded funds
and alternative investment funds grow, and with it the
global acceptance of Ireland as a key financial services
jurisdiction. With this background it is not surprising that
from a standing start in 1989
Ireland has developed into a signif-
icant international jurisdiction for
the domicile and administration of
international investment funds and
Declan Cassey is now recognised as one of the
leading international fund jurisdic-
tions with, at the end of July 2004 a
total of 993 Irish registered
Collective Investment Schemes
(funds), (3,619 including sub-
funds). At the end of July 2004 the Net Asset Value of Irish
Collective Investment Schemes was Euro 418 billion with a
further Euro 214 billion being administered in non-Irish
domiciled schemes.
ciled in the Caribbean and marketed to tional classes of shares or feeder funds, tax transparent pension-pooling vehicle,
non-retail investors, however this is like- which increases the complexity of the the Common Contractual Fund (CCF).
ly to change. With the increased demand accounting in the fund. Thus a one-size The CCF structure enables the assets held
by retail investors for these products, fits all approach to providing fund on behalf of pension schemes to be
discussions at the EU for the regulation administration services is not suitable for centralised through a single vehicle,
of alternative investment funds and the hedge funds. Hedge funds require a more which is owned jointly by the trustees or
introduction in a number of countries, tailor-made service from an administra- custodians of the individual pension
including Ireland, of regulatory provi- tor. While technological advances are schemes, in proportion to the assets or
sions to provide for retail funds of hedge necessary in providing the platform for cash subscribed to the CCF structure.
funds, AIF’s are set to move into the delivering a high quality, flexible fund This contract structure will have a partic-
retail sector and the demands for regu- administration service to hedge funds, it ular appeal to multi-national companies,
lated AIF’s are set to increase. is the staff who actually deliver this which operate pension schemes in a
Anticipating these developments, it is service. Hedge fund managers expect the number of different jurisdictions for the
important to ensure that the industry in administrator’s staff to be of a very high benefit of employees in those jurisdic-
Ireland and the regulator, through their calibre and to have an in-depth knowl- tions. The industry is presently at an
knowledge and expertise in this area, has edge of the hedge fund industry. It is advanced stage of discussion with
the necessary structures in place to ben- quite normal for a fund administrator to government agencies to extend the
efit from these existing CCF legis-
developments. lation/regulations
With regulatory “investors are increasingly demanding more to permit the
provisions already
introduced for
frequent, weekly or even daily, ‘indicative’ net asset establishment of a
non-UCITS CCF
retail fund of value calculations from the administrator” structure. In
hedge funds and addition,
conclusion of the consideration by Irish offer other ancillary services, e.g. custodi- discussions are on going to extend the
Financial Services Regulatory Authority al services, banking & FX services, tax opportunities for this product beyond
in relation to related issues i.e. collateral reporting, producing financial state- pensions funds and to create a tax trans-
and prime brokers, imminent, the ments, etc which all help complete the parent asset-pooling vehicle, which is the
framework for enhancing Ireland’s repu- service offering, further assisting the identified goal of the industry.
tation as a domicile for regulated AIF’s is smooth operation of the fund. An exam- Additional legislative refinements,
nearing completion. ple of this is the importance of the role which will promote the growth and
played by the transfer agent in the admin- development of the industry in Ireland
Demands istration of hedge funds. The traditional are scheduled amendments to company
As the hedge fund industry develops role of the transfer agent, that of simply law to provide for the ring fencing of
and matures the requirements of hedge processing investor transactions and issu- liability of sub-funds and to allow for
fund promoters and investors expands ing dealing confirmations, has become cross investment between sub-funds in an
and the demands on hedge fund adminis- more specialised as a result of ever- umbrella structure. These developments,
trators increases. Investors are also expanding compliance and reporting which will enhance and expand the
demanding greater transparency and dis- roles. While in the past the hedge fund industry product range, are at an
closure in an effort to measure and con- manager was looking for an administra- advanced stage of preparedness and
trol risks and, as a result, require more tor, nowadays expectations are far higher. should be introduced in the very near
reporting from the service providers to When selecting an administrator for its future.
the fund. There is understandable reluc- funds a hedge fund manager is looking Together the Irish Government and
tance to rely solely on information for an experienced hedge fund adminis- IFSRA have shown the legislative and reg-
received from the investment manager trator with; a track record of excellence in ulatory foresight necessary to ensure
and as an independent third party, an the provision of the required services, Ireland remains a premier international
increasing degree of reporting is being established links with the prime broker financial jurisdiction. In addition,
requested from the administrator. While community, the required cutting-edge providers themselves have looked inter-
the majority of hedge funds have month- technological capabilities and most nally to enhance offerings and increase
ly dealing net asset value calculations, importantly, knowledge and understand- efficiency to ensure they are well placed
investors are increasingly demanding ing of the managers’ investment strate- to shoulder the increasing demands from
more frequent, weekly or even daily, gies. These qualities and capabilities are promoters, managers and investors. We
‘indicative’ net asset value calculations demonstrated daily in the Dublin funds are confident that the expertise, skills and
from the administrator. Directors are also industry. reputation of Ireland as a prime location
requesting more frequent and detailed for the administration and domicile of
reporting from the administrator, to Pension pooling investment funds will continue to grow
ensure that they are discharging their Another development, which has and develop into the future.
responsibilities to the fund. ensured Ireland is well positioned for the ISJ
There has also been a trend for hedge future, was the introduction in 2003 of
funds to restructure, by adding on addi- legislation to facilitate the creation of a Declan Casey is an executive of the DFIA
The Common
Contractural Fund
T he Irish government is committed
to making its country the leading
domicile for pan-European pensions. This
commendations on how to develop
Ireland as a competitive centre for Pan-
European Pensions.
commitment, according to Sean Langdon, The introduction of the EUIORP will
(CCF) will ensure business development manager at the IDA, force MNCs with a presence in two or
greater returns and will give pensions’ investments the benefit
of double taxation treaties. Each multina-
more EU States to address the Provisions.
The scale of investment in Pan-
better risk management tional pension fund currently invests in European Pensions can be illustrated by
individual funds. “But if they pooled their an analysis carried out by Mercer
for pensions, says the assets, they may get better fees, reduced Investment Consulting prior to the acces-
Irish Development administration costs and a better risk
management arrangement,” says Langdon.
sion countries joining the EU in May
2004. Mercer estimated the total assets of
Agency (IDA). What “By pooling assets, the pension funds get pension funds in Europe at approximate-
will the structure do for better value, more leverage and proper
overall risk management.”
ly Euro 3.7trn. If industry funds were to
grow to 15,000 per capita, which is con-
Ireland? There are a number of vehicles, which sidered very conservative, assets would
can facilitate pension fund pooling, grow to approximately Euro 7trn. If the
including unit trusts, CCFs and limited accession countries are included the fig-
partnerships. Unit trusts are used by the ure could be in excess of Euro 10trn.
Nestle pension fund, which has about According to David Hanna, manager of
$3.8bn of pension assets pooled in the IDA International Financial Services
Dublin. IBM has $1.2bn pooled in fixed Division, the funds industry is the most
income assets. “If a fund is investing in successful segment of the IFSC in terms
equities, they would need a CCF to limit of size. “Back in 1987, the rate of unem-
the withholding tax,” says Langdon. ployment was roughly 18 per cent and a
One Voice
Dublin’s funds industry carries
many different guises. In an
exclusive profile for ISJ, Joan
Moran, chair of the Dublin Joan Moran
Gearing for
the Irish Financial Services Regulatory Authority (IFSRA),
the Irish Revenue and the Irish Stock Exchange in 1999
was not only an outstanding achievement, but it paved the
way for one of the most remarkable success stories in the
ticipants, the local banks, their asset man- schemes insofar as the activities of the
agement arms, or brokers who led the collective investment undertaking are
way. Two innovative Irish Financial subject to regulation by IFSRA. Thus a
Services and Insurance Companies led proposal by a collective investment
the Irish securities lending market since scheme to engage in securities lending
2000, supported by IFSRA, creating a activities, on the assumption that its con-
domestic and global securities lending stitutional documents permit securities
industry beyond recognition. More and lending, does not require separate autho-
more Irish insurance companies, the risation. The Netting of Financial
National Treasury, Superannuation Contracts Act of 1995 provides protec-
Schemes, and a growing number of tion on insolvency for bilateral netting,
Collective Investment Schemes, UCITS set-off, guarantee and collateral arrange-
Variable Capital Companies and Unit ments and subject to certain exceptions
Trusts based in Dublin’s Irish Financial provides that netting agreements in rela-
Services Centre have joined the market. tion to financial contracts are enforceable
UCITS are based in EU legislation and, against a party to the netting agreement.
The EU Finality of
Settlement in
“The highly regulated securities lending product is Payment &
Securities
an integral part of the Irish capital markets” Settlement Systems
Regulations 2000
extend the ambit of
once authorised, may be marketed the Act to sale and repurchase transac-
throughout the EU. tions, and lending and borrowing trans-
actions to encompass such transactions
Regulation relating to equities. Buy and sell back
The provisions governing securities transactions in securities and equities are
lending are captured by a number of reg- now also addressed.
ulations. The Irish Revenue Statement of The securities lending framework for
Practice Note from April 1999 for Irish collective investment schemes are cap-
lenders recognises the substance of the tured in UCITS Notice 11 issued by
transactions involved i.e. a loan of securi- IFSRA in August 2003, dealing specifically
ties notwithstanding that legally a trans- with techniques and instruments for the
fer of title to the loaned securities and purposes of efficient portfolio manage-
collateral takes place. Manufactured pay- ment. Similar provisions for Non-UCITS
ments are exempt from tax in the hands are contained in Notice 16.
of the lender where the receipt of divi-
dends by the lender would not have been Agreements
taxable. The transfer of securities under a Essentially, repurchase agreements, repo
securities loan is exempt from stamp contracts, and securities lending agree-
duties and the loan will not be regarded ments may only be effected in accordance
as a disposal or acquisition for tax pur- with normal market practice. Collateral
poses. Any profit earned as a result of the obtained must be in the form of cash,
loan and return taking place at different government or other public securities,
prices will be treated as a fee and taxable certificates of deposit, bonds/commercial
as income or exempt from taxation if the paper, letters of credit, deliveries-by-
recipient is not a taxable entity. The prac- value, or comparable Central Securities
tice note applies to institutions within the Depositaries Systems instruments, pro-
scope of Irish tax, which are companies, vided that they are subject to a concen-
building societies, pension funds, chari- tration limit, the securities are a con-
ties or collective investment undertakings stituent part of a recognised index, and
and the maximum term of a lending the securities are consistent with the
transaction is six months before stamp investment objectives of the UCITS. Until
duty is applicable. The Investment the expiry of the transaction, collateral
Intermediaries Act of 1995 exempts col- obtained must equal or exceed the value
lective investment schemes and the of the amount invested or securities
depositaries and managers of such loaned, be transferred to the trustee, or
its agent, be held at the credit risk of the provide that a borrower must redeliver lenders who wish to enter into the busi-
counterparty, and be immediately avail- the securities within five business days or ness and earn substantial fee revenue
able to the UCITS, without recourse to other period as market practice dictates. streams on their portfolios in order to
the counterparty, in the event of a reduce custody and asset management
default. Non-cash collateral cannot be The future costs must be demystified further.
sold or pledged, must be marked-to-mar- The highly regulated securities lending Emphasis will shift further toward wealth
ket daily, be issued by an entity inde- product is an integral part of the Irish protection rather than wealth creation.
pendent of the counterparty, and be capital markets and Ireland has joined the This suggests a flow toward capital guar-
diversified such that no more than 10 per ranks of the growing securities lending anteed and downside protected funds.
cent of the collateral may be represented markets around the globe. The dramatic There will be a continued movement into
by the securities of any one issuer. This growth in onshore and offshore lending the hedge fund sector with continued
limit will not apply to government or and borrowing of Irish and foreign secu- flows into Dublin, due its relaxing regula-
other public securities as such limit is rities is serving the financial services tions. European countries have differing
increased to 30 per cent. The credit quali- industry and will create an even more attitudes toward hedge funds and it can-
ty of the non-cash collateral must be con- diversified capital market. The Global not be denied that hedge funds have been
sistent with the investment policies of the Master Securities Lending Agreement the victim of misunderstanding and con-
UCITS. Cash collateral may not be (GMSLA) is now widely used as the mar- fusion among investors. Perception of
invested other this asset class will
than in deposits, change over time.
which are capable “a challenge for the industry will be to continue to We will experience
of being with- a booming
drawn within five widen the forms of collateral used” Exchange Traded
working days, or Funds Industry
such shorter time as may be dictated by ket standard legal document to include after a spectacular 2002. Europe, by far
the repo contract or securities lending netting, force majeure and other precau- the most fragmented of the world’s mar-
agreement. The holding of cash on tionary clauses. The increase in Contracts kets, now has the largest number of prod-
deposit is subject to the provisions of for Differences will result in further bor- ucts even though its assets are smaller
UCITS Notice 9. Cash may not be held rowing demand for Irish equities. than those in Japan and the US. The out-
on deposit with the counterparty or with Securities lending within the funds indus- sourcing of selected business areas such
a related institution. Cash collateral try is still in its infancy with most fund as back-offices, transfer agency and secu-
may be invested in government or other administration companies not even real- rities lending will become a growing
public securities, certificates of deposit, ising the potential fee income that can be trend in Ireland and Europe as a means
letters of credit, repurchase agreements, derived from a lending program. The of reducing operational costs further and
daily dealing money-market funds, which pension funds in Ireland are slowly generating steady revenue streams. As
have and maintain a rating of AAA or an beginning to embrace securities lending European stock markets remain frag-
equivalent. If investment is made in a and the incremental fee revenues that can mented, perspectives and strategies of
linked fund, no subscription or redemp- be earned with such a conservative, low European equity analysts will shift from
tion charge can be made by the underly- risk product. Another trend in securities an emphasis on country-specific factors
ing money-market fund. The UCITS lending in Ireland is a shift from a grow- to industry and company factors in the
instrument may enter into a securities ing number of institutional lenders, valuation of securities further driving
lending program organised by generally UCITS and life companies to secure borrowing demand for securities.
recognised Central Securities exclusive contracts with borrowers to un- It seems safe to conclude that the
Depositaries Systems provided that the bundling their securities lending pro- growth of the securities lending industry
program is subject to a guarantee from grams from their custodians by either in Ireland is an irreversible trend. The
the system operator. The counterparty lending directly through in-house pro- convergence of securities prices and the
must have a minimum credit rating of grams, via other custodian agents or spe- positive impact of Securities Lending in
A2/P2 or equivalent, or must be deemed cialist third-party securities lending Ireland over the past three years suggests
by the UCITS to have an implied rating agents to capture the maximum in fee a powerful on-going process of the mar-
of A2/P2. Alternatively, an un-rated earnings. Given the surge in securities ket’s evolution, credibility and reputation.
counterparty will be acceptable where the lending activities, a challenge for the Whatever challenges and volatility is
UCITS is indemnified against losses suf- industry will be to continue to widen the ahead, one thing is for sure. Securities
fered as a result of a failure by the coun- forms of collateral used to include lending will be a major fee revenue con-
terparty, by an entity, which has and Exchange Traded Funds, introduce alter- tributor in any market condition and the
maintains a rating of A2/P2. A UCITS native forms of equity financing such as most effective shock-absorbing factor for
instrument must have the right to termi- Equity Swaps and Fixed Term Collateral the Lenders and market participants with
nate the agreement at any time and Financing Trades. active securities lending programs - with
demand the return of any or all of the Notwithstanding these positive and virtually no risk.
securities loaned. The agreement must optimistic assessments, securities lending
in Ireland for Irish pension funds and ISJ
its agent, be held at the credit risk of the provide that a borrower must redeliver lenders who wish to enter into the busi-
counterparty, and be immediately avail- the securities within five business days or ness and earn substantial fee revenue
able to the UCITS, without recourse to other period as market practice dictates. streams on their portfolios in order to
the counterparty, in the event of a reduce custody and asset management
default. Non-cash collateral cannot be The future costs must be demystified further.
sold or pledged, must be marked-to-mar- The highly regulated securities lending Emphasis will shift further toward wealth
ket daily, be issued by an entity inde- product is an integral part of the Irish protection rather than wealth creation.
pendent of the counterparty, and be capital markets and Ireland has joined the This suggests a flow toward capital guar-
diversified such that no more than 10 per ranks of the growing securities lending anteed and downside protected funds.
cent of the collateral may be represented markets around the globe. The dramatic There will be a continued movement into
by the securities of any one issuer. This growth in onshore and offshore lending the hedge fund sector with continued
limit will not apply to government or and borrowing of Irish and foreign secu- flows into Dublin, due its relaxing regula-
other public securities as such limit is rities is serving the financial services tions. European countries have differing
increased to 30 per cent. The credit quali- industry and will create an even more attitudes toward hedge funds and it can-
ty of the non-cash collateral must be con- diversified capital market. The Global not be denied that hedge funds have been
sistent with the investment policies of the Master Securities Lending Agreement the victim of misunderstanding and con-
UCITS. Cash collateral may not be (GMSLA) is now widely used as the mar- fusion among investors. Perception of
invested other this asset class will
than in deposits, change over time.
which are capable “a challenge for the industry will be to continue to We will experience
of being with- a booming
drawn within five widen the forms of collateral used” Exchange Traded
working days, or Funds Industry
such shorter time as may be dictated by ket standard legal document to include after a spectacular 2002. Europe, by far
the repo contract or securities lending netting, force majeure and other precau- the most fragmented of the world’s mar-
agreement. The holding of cash on tionary clauses. The increase in Contracts kets, now has the largest number of prod-
deposit is subject to the provisions of for Differences will result in further bor- ucts even though its assets are smaller
UCITS Notice 9. Cash may not be held rowing demand for Irish equities. than those in Japan and the US. The out-
on deposit with the counterparty or with Securities lending within the funds indus- sourcing of selected business areas such
a related institution. Cash collateral try is still in its infancy with most fund as back-offices, transfer agency and secu-
may be invested in government or other administration companies not even real- rities lending will become a growing
public securities, certificates of deposit, ising the potential fee income that can be trend in Ireland and Europe as a means
letters of credit, repurchase agreements, derived from a lending program. The of reducing operational costs further and
daily dealing money-market funds, which pension funds in Ireland are slowly generating steady revenue streams. As
have and maintain a rating of AAA or an beginning to embrace securities lending European stock markets remain frag-
equivalent. If investment is made in a and the incremental fee revenues that can mented, perspectives and strategies of
linked fund, no subscription or redemp- be earned with such a conservative, low European equity analysts will shift from
tion charge can be made by the underly- risk product. Another trend in securities an emphasis on country-specific factors
ing money-market fund. The UCITS lending in Ireland is a shift from a grow- to industry and company factors in the
instrument may enter into a securities ing number of institutional lenders, valuation of securities further driving
lending program organised by generally UCITS and life companies to secure borrowing demand for securities.
recognised Central Securities exclusive contracts with borrowers to un- It seems safe to conclude that the
Depositaries Systems provided that the bundling their securities lending pro- growth of the securities lending industry
program is subject to a guarantee from grams from their custodians by either in Ireland is an irreversible trend. The
the system operator. The counterparty lending directly through in-house pro- convergence of securities prices and the
must have a minimum credit rating of grams, via other custodian agents or spe- positive impact of Securities Lending in
A2/P2 or equivalent, or must be deemed cialist third-party securities lending Ireland over the past three years suggests
by the UCITS to have an implied rating agents to capture the maximum in fee a powerful on-going process of the mar-
of A2/P2. Alternatively, an un-rated earnings. Given the surge in securities ket’s evolution, credibility and reputation.
counterparty will be acceptable where the lending activities, a challenge for the Whatever challenges and volatility is
UCITS is indemnified against losses suf- industry will be to continue to widen the ahead, one thing is for sure. Securities
fered as a result of a failure by the coun- forms of collateral used to include lending will be a major fee revenue con-
terparty, by an entity, which has and Exchange Traded Funds, introduce alter- tributor in any market condition and the
maintains a rating of A2/P2. A UCITS native forms of equity financing such as most effective shock-absorbing factor for
instrument must have the right to termi- Equity Swaps and Fixed Term Collateral the Lenders and market participants with
nate the agreement at any time and Financing Trades. active securities lending programs - with
demand the return of any or all of the Notwithstanding these positive and virtually no risk.
securities loaned. The agreement must optimistic assessments, securities lending
in Ireland for Irish pension funds and ISJ
As Ireland’s premier provider of third party custody and administration services, you can trust us
to deliver outstanding service through our partnership approach. Building on our success achieved
to date, we have extended our services to cover hedge funds (Irish and non-Irish domiciled). Should you
wish to obtain more information on our services
please contact: Liam Butler (Dublin) at +353 1 670 0300.
Email: info.boiss@boi.ie Web: www.boiss.ie
Data - Securities Lending
Cash
Borrowers Balance Against Collateral at 13 Oct 2004
Non-Cash
100%
90%
80%
7. The table showing the borrowers 70%
balance against collateral ranks the 60%
percentage of borrowers’ securities
50%
lending balance against the collateral
paid at 13 October 2004. Bonds and 40%
depository receipts were the most 30%
borrowed stock 20%
10%
0%
Other Equities
Government Bonds
Asian Equities
Depository Receipts
Emerging Market Bonds
Americas Equities
SL
Return
return
Balance vs Revenue to SL
Security Lendable Balance vs Total Utilisation to
non-cash SL Fee (Bp) from lendable Tenure
Type Assets (M) cash (M) balance (M) (%) lendable
(M) SL (%) assets (days)
assets
(Bp)
(%)
All 3,081,184 390,703 389,481 780,184 17.15 22.14 88.8 2.26 2.97 120
Securities
All Bonds 1,770,458 229,286 238,166 467,452 23.1 9.47 67.74 1.62 2.81 128
Corporate 971,832 110,681 46,869 157,550 13.17 14.73 60.73 1.09 2.64 132
Bonds
Government 798,173 118,605 191,282 309,887 35.19 6.8 77.61 2.25 3.02 126
Bonds
All Equities 1,310,726 161,417 151,316 312,733 9.12 41.09 99.45 3.13 3.18 109
Americas 375,405 88,723 22,708 111,431 7.46 34.08 98.65 2.17 2.3 96
Equities
Asian 135,445 15,131 18,121 33,252 10.5 81.15 99.68 7.23 7.3 130
Equities
European 721,632 38,999 106,554 145,553 10.14 33.84 99.84 2.86 2.87 118
Equities
Depository 13,660 8,491 1,091 9,582 12.78 69.6 99.68 11.88 12.04 99
Receipts
Exchange
Traded 14,377 9,217 2,563 11,780 14.16 54.98 99.94 4.84 4.87 51
Funds
Source: Data Explorers
The products and services outlined above are offered by Guild Global Securities Limited™. Guild Global is the brand name for the Institutional Investor Services business offered by Guild Global
in designated EU countries. Guild Global is authorised by the Irish Financial Services Regulatory Authority under the Investment Intermediaries Act, 1995. ©2004 Guild Global Securities Limited.
Securities Lending- Asia
The business seems to be receiving that support.” increasing a lot, especially in Korea, where it launched in
According to Tony Venditti, managing director of 1996,” they say.
Nomura's equity finance business, the Japanese market has Illustrating the general by reference to the particular, the
become more interesting due to large corporate bond team reports that market activity in Korea has increased
issuance and new borrowing demand for hedging require- nearly six times since 2000, and doubled from the end of
ments. “Most global asset managers have been under- the third quarter of 2003 to the end of the third quarter
weight in Japan but with recent strong performance of the 2004. “The government and the marketplace want trade to
NIKKEI they have started to allocate more capital to grow. Portfolio strategy has advanced enormously since
Japenese equities,” he says. “M&A activity has picked up the Asian problems of 1997. SBL increases market
and I expect this trend to continue, especially in the finan- liquidity, and if there is good liquidity in the securities
cial sector. The Japanese market has plenty of liquidity so market, the market is more stable and harmonious. SBL
it is easier to invest large amounts of capital.” also plays an important role in balancing the market.”
The KSD’s internet-based matching system attracts
Expansion players from other markets, and means Korea has more
“As has been the case for some time, Asia is witnessing experience than other markets in the region, says the team.
an expansion in the securities lending industry, across The system is a ‘blind’ system matching counterparties
numerous fronts,” says Simon Lee, vice president, instantly, reducing time, reducing risk, making risk-free
Securities Lending product manager, JPMorgan Investor transactions available. While the KSD is currently set up
Services, Asia principally for local-to-local business,
Pacific. “Hedge it also handles local-to-foreign
fund activity is on“As the industry moves further into demand, and aims to cater for for-
the increase,
which in turn is
the mainstream, regulators look to eign-to-foreign transactions if possi-
ble. “This would require only relative-
driving borrower
demand which
move in a similar direction” ly simple system enhancements.”
process. The plan sponsor or asset owner lending entails as well as what their specific time, there are commonalities in some of
ultimately is responsible for the decisions programmes will support; and for the the issues that institutions face. One of the
made with regard to each vote on securi- sponsor to make the best decision for their main ones is the desire to maximise
ties that they own. They are also respon- beneficiaries based on this.” returns, or find some way to offset the cost
sible for making the best choice as a fidu- “As this cognisance of corporate gover- of the administration of their funds. We
ciary for the beneficiaries of those assets. nance grows and spreads in the region, we are speaking to increasing numbers of
This is a choice that involves securities hope that the various institutions involved institutions of all kinds that feel that lend-
lending. While participating in the gover- will implement governance policies in a ing their global assets is one of the best and
nance of the companies in which they own thoughtful manner, and allow us to work most appropriate ways to do this. We are
stakes provides benefits, so too does partic- in partnership with them where appropri- also seeing that the provision of securities
ipation in a securities lending programme. ate to address any concerns and map out lending is almost a prerequisite to being
So, they need to determine where the most programme parameters that will help them able to provide other types of services.
benefit is to be obtained given their meet their many responsibilities.” These new participants are generally quite
responsibilities, and strike a balance. sophisticated in how they approach securi-
The Weighted Average Fee to Borrow
“The markets have been ties lending, in terms of focusing on per-
formance and risk-adjusted returns. While
Asian Equities Sept 03 to Oct 04 thoughtful in how they some of them have never participated
90
81 81
85 86
B B
90
B
82
approach lending” directly in a lending programme, they are
80 76 74 B B B making an effort to learn as much as they
B B 72 72 73
B Outlook can in order to make the most informed
B B 68
70 B 65
B B In the meantime, Francesco Squillacioti decisions.”
62
60
sums up the current and future major “Another important factor, though, is
50 trends and issues affecting the securities that we are talking about a number of dif-
Fees in
40
basis points
lending industry in Asia in a single word: ferent countries, with different regulatory
30 expansion. “Of course, this is a large and regimes, market practices, etc. This has
20
diverse region, and – as you would imagine implications on the operations side as well
– different areas are subject to varying – while performance is important, the abil-
10
trends and are in differing stages of evolv- ity to be able to handle lending within the
0 ing as far as the development and use of context of how it needs to work in a partic-
Feb 2004
Oct 2004
Nov 2003
Aug 2004
June 2004
Sept 2004
Oct 2003
July 2004
Mar 2004
Sept 2003
May 2004
Jan 2004
April 2004
Dec 2003
securities lending goes, but in general, we ular market, for a particular kind of partic-
see a lot of potential in Asia. ipant, is very important, too. For example,
“There are two aspects to this: one being you have to know how something like sub-
Source: Data Explorers the various institutions in the markets that stitute dividends will work in a market for
“What is the lending agent’s role in the wish to become participants in lending a certain kind of participant, and you need
process? Our role is to make sure that we programmes, i.e., lending clients; the other to ensure that the lending programme you
support our clients in all that they need to is in terms of those markets where the structure for that client is viable. This
do. First of all, we explain to our clients lending of domestic securities is opening requires knowledgeable product develop-
just what can and cannot be done in a up. The countries in the region are of ment, legal, and account management
lending programme. I have read about course unique and distinct, but at the same teams, sophisticated due diligence process-
studies where participants were not aware es, and robust operations capabilities.”
that ownership of the securities passes on Top 10 most expensive equities to borrow “While this is happening on the lending
13 Oct 2004
to the borrower, and so too does the vote. side, we also see various markets looking to
We make sure that our clients know this Japanese Equities Chinese Equities expand participation, or to increase liquid-
up front; it’s clarified in the contracts we MITSUBISHI MOTORS TIANJIN CAPITAL ity, and they have seen that a vibrant lend-
1
sign. Clients also need to know that par- CORP ENVIRON-H ing market is a crucial component of an
ticipation in a lending programme does 2
ALL NIPPON AIRWAYS QIAO XING UNIVERSAL increasingly sophisticated capital market.
not mean that they cannot vote. Proxy CO LTD TELE INC The markets have been thoughtful in how
voting can be supported in a lending pro- 3 KANEBO LTD
JILIN CHEMICAL INDUS they approach the introduction of lending,
CO-H
gramme in a number of ways, such as and we would characterise the progress as
recalling shares prior to a vote. Of course, 4
MAZDA MOTOR ZIJIN MINING GROUP good. The regulators appear to be open to
CORPORATION CO LTD
lending agents need sufficient notice to do the thoughts of the market participants,
this, but it is supported. We often keep HITACHI ZOSEN TINGYI (CAYMAN ISLN) and are looking to introduce changes to
5 CORPORATION HLDG CO
buffer positions – that is, a certain percent- increase viability and efficiency – on a
age of a total holding that will not be lent – 6 SOJITZ HOLDINGS CORP TOM ONLINE INC
timetable that suits their needs. Examples
for our clients. Those ‘buffer’ shares can be 7 MORINAGA & CO LTD QINGLING MOTORS of markets currently developing would be
COMPANY-H
voted at any time. Korea and Taiwan, and other markets will
“So there are ways for lending and corpo- 8 TSINGTAO BREWERY CO surely follow. That is one of the exciting
OKUMA CORP
LTD-H
rate governance responsibilities to coexist. things about the region: that there is still a
DATANG INTL POWER
A lot of it comes down to the plan sponsor 9 TOHO ZINC CO LTD
GEN CO-H
relatively long list of markets to go the
having clear goals and policies in mind; for route of developing lending markets.”
10 KOYO SEIKO TRAVELSKY
the lending agent to have explained what ISJ
Source: Data Explorers
0 50,000 100,000 150,000 200,000 250,000 300,00 4 Source: Risk Management Association
Total on loan in Euro
Bonds (US $ million)
Denominated Sovereign
5,974 537
UK Equities All Other EURO Denominated Sovereign Bonds
2,168
10,657
2003 86
Spanish Sovereign Bonds
12,053 294
Italian Equities 2004
12,002
233
Italian Sovereign Bonds
1,222 2003
14,727
German Equities
16,804 German Sovereign Bonds
704 2004
2,449
24,311 40
French Equities French Sovereign Bonds
31,982 1,324
0 5,000 10,000 15,000 20,000 25,000 30,000 35,00 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000
Source: Risk Management Association
Source: Risk Management Association
Featured items include the total balances on loan in different parts of the world Total on loan as a percentage of lendable assets
as well as the amounts on loan as percentage of lendable assets. Pac-Rim equities at Q2 2004 6
Analysis by Investor intelligence. All Other Pac-Rim Equities 10%
Japanese Equities 12%
1 - Stocks (including equities and bonds) on loan in North America, contrasting the sec-
ond quarter of 2003 with the second quarter of 2004. The amount of US equities on
loan increased from $115.9 bn in Q2, 2003 to $177.9 bn in Q2, 2004. 2 - Equities on
loan in the Pacific-Rim region, contrasting the second quarter of 2003 with the second
Australia 9%
quarter of 2004. Japanese stocks on loan increased significantly, from $14 bn in Q2,
2003 to $22.5 bn in Q2, 2004. 3 - Equities on loan in Europe, contrasting the second Hong Kong Equities 13%
quarter of 2003 with the second quarter of 2004. French equities were most active,
increasing their activity from $24.3 bn in Q2, 2003 to $31.9 bn in Q2, 2004. 4 - Euro
denominated sovereign bonds on loan, contrasting the second quarter of 2003 with the Total on loan as a percentage of lendable assets European
second quarter of 2004. The most notable utilisation was for Eurobonds, which Equities at Q2 2004 7
All Other European Equities 16%
increased from $8.5bn in Q2, 2003 to $15.2 bn in Q2, 2004. 5 - North American bonds
on loan as a percentage of lendable assets. Lenders made the most of US treasuries / French Equities 40%
strips, using 78 per cent of the assets available for lending. 6 - Equities on loan in the Scandinavian Equities 27%
Pacific-Rim region as a percentage of lendable assets. Lenders used 13 per cent of avail-
able Hong Kong equities . 7 - Equities on loan in Europe as a percentage of lendable
UK Equities 4%
assets. Lenders used 42 per cent of the available Italian equities. 8 - Bonds on loan in
Europe as a percentage of lendable assets. Lenders used 9 per cent of the available German Equities 29%
Italian and French sovereign bonds.
Italian Equities 42%
Source: Risk Management Association
“Comment on the provision of securities lending technology “How soon do technology vendors believe that full
to the front office. Are pension funds and lenders becoming automation of the securities lending transaction process
more automated or is there still a long way to go?” will be achieved, given that the European marketplace
is not as 'homogenous' as the US?”
Answered by Pauline Parker, a director of Global One Answered by Malcolm Clark, director at Anvil Software
at SunGard Securities Finance
The agent lenders we have spoken to would say they are definitely To deal with the end of the question first: the range of European
becoming more automated, but would agree that they have a long securities lending platforms is a strength, not a weakness.
way to go to catch up with the broker community. Competition encourages better systems to evolve over time. The
The drive towards electronic trading and straight through process- use of different systems by securities lending participants is not
ing (STP) is clearly strong in some quarters and the systems are a barrier to efficient and effective trading. All you need is a pro-
tantalisingly close. However, one lender confided that a primary tocol for communication between them. FIX protocol and XML
reason for the general lack of trading efficiency within the lender messaging can solve the inter-system communication problems
community is lack of investment in technology developments. that have been a constraint in times past. Let’s look at the
Multiple funds and portfolios, managed via multiple custodi- process securities lending players need to go through to initiate
ans and settlement systems, are challenges faced by the lender. a trade: - they need to understand their positions, current trans-
This complexity, together with increasing trading volumes at low actions and collateral, and identify borrowing and lending
margins means that the option of moving towards automation is requirements and opportunities; - they need to locate matching
gaining focus. requirements and opportunities with their bilateral counterparts;
Sophisticated securities lending systems have the ability to - they need to agree a fee or rate with the counterpart per stock;
seamlessly integrate diverse systems and automate the composite - they need clean and efficient execution
trade flows. This has particular resonance, notably for the Our trader’s securities lending system should handle the first
automation of general collateral reinvestments, for example, step. Using Anvil ARTS will help the trader maximise trading
interfaces to escrow agency collateral management service and efficient collateral usage. The second step is often tediously
providers result in providing a fully automated booking and set- manual in today’s European market, involving communication
tlement facility for receipts and returns. via e-mails, faxes and phone calls between bi-lateral counter-
There are many existing areas of automation that help achieve parts. Fees are agreed, again via phone, e-mail or fax, and
trading efficiency. These include the automation of settlements each participant books a trade – with luck, they will match.
through interfaces to industry standard electronic settlement This second step, sourcing a counterpart with whom you can
systems and the access to interfaces that allow a lender to take execute a trade, is where modern technology can provide the
feeds from brokers, counterparts, clients and custodians. greatest assistance. Secfinex offers a centralised solution: par-
General collateral trading through automated borrowing systems ticipants send their requirements in and see matches and other
as well as electronic trading systems relieve pressure on low players’ orders on Secfinex’s centralised “market”. But with
value volume trading. modern internet communications and an open messaging stan-
A high profile client driven demand for the lender is the delivery dard, market players can simply communicate their orders
of personalised reporting; the ability to automate reports and directly with each other in an automated fashion. In addition to
deliver them by email is now considered to be the norm. the systems for securities finance trading, vendors offer order
These, plus many other initiatives, allow the trader to concen- matching engines.
trate on profitable quality business, for example tax trading or This eliminates much of the manual effort involved in the last
exploiting market quirks. three steps of trade initiation described above. Securities lend-
There is a fear that the highly developed broker will favour the ing is fundamentally a bi-lateral trading environment; all the
lender who can link to their systems electronically. This market more important for an open-source communication protocol to
force will clearly drive the lenders to seek more automation – and be established. The technology is available now: we simply need
why shouldn’t they take the challenge to increase their margins? the securities lending community to embrace it!
“Do existing system patches and upgrades hinder the “Is there enough transparency among securities lending
business objective and the technology solutions, which auction platforms?”
brokers operate on today?”
Answered by Mike Cosgrave, senior manager of
Answered by David Boyle, operations director at securities lending and product development at the
4sight Financial Software Bank of Ireland Securities Services
The necessary patching and upgrading of technology solutions is There is no doubt that for certain participants in the securities
driven largely by the business itself. For many firms a strong IT lending market the preferred mechanism for lending and
capability has long been a competitive necessity. As the business borrowing is via an auctioning process. The auctioning process
has evolved, IT has helped create revenue opportunities, improved is very “deal oriented”, suiting those lenders who wish to extract
efficiency and reduced costs by automating many processes that maximum value out of their loan portfolios, perhaps secure a
were once manual. The advances in STP and the associated cost guaranteed fee, or possibly a combination of both; it suits those
savings have been especially important to us all in recent years. borrowers who for the most part will gain exclusive access to
The pace of change can be daunting, but I have to agree with a portfolios and therefore secure guaranteed supply.
leading firms’ spokesperson, who said that “only those who are At present there is no one centralised auctioning platform for
committed to technology improvements will remain at the forefront the market as a whole, but a collection of platforms that market
of the industry”. participants can choose from. These platforms co-exist with and
The goal that we, and your firms’ IT department, are faced with compliment the traditional telephone, e-mail, screen-based
is ensuring you (the broker) do not undertake an upgrade need- process that has served the market well for many years and
lessly and for little or no benefit. We take the view that clients continues to do so.
should upgrade the system at least once per year and the upgrade There are pros and cons to auction platforms. On the one
should have a clear value to the business. We understand that hand they offer efficiency and aid price discovery, but on the
your goal is to grow your business, and not to waste time manag- other they do not necessarily offer the best basis on which to
ing changes to your IT systems. build a long-term mutually beneficial relationship between
One of the key responsibilities of any successful software solu- counterparties.
tion is to ensure that upgrades keep pace with the changes in the While there is an element of transparency provided by the
market and are in line with client’s expectations and requirements. many auctioning platforms that exist, the level of that trans-
We ensure that functionality of our system, 4Sight Securities parency is naturally subjective given the proprietorial nature of
Finance, is of value to our client’s businesses by maintaining a the platforms and the fact that they are not owned by the
roadmap of the functionality that we will be delivering to them and market collectively, or another market “neutral” body. Until such
when. This roadmap not only tells you what you are getting but time as there is a centralised auctioning platform available to
when you will get it, and allows you to plan your upgrade strategy all market participants (something akin to the foreign
and minimise the disruption to your business. exchange market perhaps) full and complete transparency will
As I mentioned, we have to ensure our upgrades match the remain a goal.
client’s expectations and requirements. Our User Group plays a key How far away is the market from achieving that goal? Maybe
role in achieving this. The Group provides a forum for the clients to not as far away as one might think. There have been significant
discuss new functionalities and agree amongst themselves the technology developments within the market even within the past
relative priorities of these functionalities. We then work with the five years alone and it would be wrong to think that the market
clients to define the functional requirements and to ensure the will not continue to develop through technology.
software delivered does indeed meet their needs. At the end of the day it's people that drive the business and
The securities finance business will continue to evolve, systems human nature being what it is demands order, efficiency and
will change accordingly; firms’ ability to gain or maintain competi- control - full transparency will come, it's just a matter of time.
tive edge technology solutions will continue to play a pivotal role.
“Comment on the value of lending your portfolios, the “Comment on the future of triparty securities lending
potential risks involved and how the industry has evolved to and its use in collateral management?”
the extent that some of those risks have diminished.”
Answered by Olivier Grimonpont, director and head of
Answered by Dan Kiefer, portfolio manager at collateral services at Euroclear Bank
CalPERS (US pension fund)
Triparty collateral management is still fairly new and growing in
Since February 2000, when the CalPERS Investment Board Europe. Market professionals often use triparty service providers for
approved a new strategy for our securities lending program, repo transactions. But over the past two years, we have seen our
CalPERS has benefited from a more efficient risk-return profile. business double in triparty securities lending (TSL).
Through the success of the auction process that CalPERS There is a distinct trend in the market for more systematic usage of
co-developed with eSecLending, we have consistently delivered collateral particularly as volumes continue to increase. Broker-deal-
premium returns to our beneficiaries and efficiently matched ers and certain banks are heavily involved in proprietary trading or
our assets with multiple providers. prime brokerage, resulting in the need to collateralise more expo-
The auction process enables us to move out on the efficient sures. This trend has and will continue to put pressure on borrowers
frontier. It increases market efficiency by presenting our assets to find ways of optimising their entire inventory as collateral for those
transactions. At the same time, lenders are looking for extra revenues
directly to the borrowers, enabling CalPERS and its members to
from their portfolios to compensate for low market yields and/or
retain a larger share of the revenues associated with the spread reductions. We also see much larger diversification in the
lending process. We have consistently experienced excellent, types of securities being used as collateral. Consequently, many new
dependable returns via the auction model even in down markets lenders and borrowers are using triparty services.
without extending CalPERS’ conservative risk profile. The predominant use of securities over cash in Europe is likely to
In the most recent fiscal year (July 2003 – June 2004), continue, as it provides both lenders and borrowers with greater effi-
CalPERS earned approximately $103 million in securities ciencies and lower reinvestment risks.
lending revenues net of fees, which is more than a 9 basis The current environment of high volumes, low margins and diversi-
points return on lendable assets. fication (in term of lenders/borrowers and security types) supports a
The intrinsic value or loan fees contributed to approximately a compelling business case to outsource collateral management to a
quarter of the earnings, while the remaining portion came from triparty agent. This can maximise the use of small or low-rated
reinvestment income. We achieved these returns by dealing assets in the lender’s portfolio, while borrowers are able to control
with only the highest rated counterparties and by managing the their collateral exposures by stipulating concentration limits and eli-
cash collateral. gibility criteria.
reinvestment program with a conservative strategy that Over the past few years, lenders and borrowers have been willing to
remains consistent with industry best practice. move beyond highly rated government bonds towards lower rated
Securities lending serves as a low-risk investment strategy securities, corporate bonds and equities as acceptable collateral,
when properly managed under conservative guidelines. We which has created even more demand for expert collateral manage-
maintain a very close watch over all aspects of our multiple ment agents. The potential is huge, we estimate that only a small
provider programs to ensure that CalPERS appropriately portion of lending activity goes through a triparty agent today.
We also believe that the TSL market will be favourably influenced
addresses and mitigates all realised and potential risks.
by the continued growth in triparty repos. As more triparty repo
CalPERS embraces industry best practice and remains highly clients outsource their securities lending transactions to third-party
influential within the industry to ensure our program continues agents, they will increase efficiency and collateral optimisation by
to successfully operate, while maximising total potential return using a single pool of collateral to cover exposures arising in both
and minimising our risk profile. types of transactions. Accordingly, we are convinced that the securi-
ties lending market will continue to grow, and that TSL will surpass
bilateral securities lending volumes within the next five years.
“Should securities lending clients outsource their “How will the securities lending market be structured in
technology or implement vendor technology inhouse?” five years time?”
Answered by Felix Oegerli, CEO of International Answered by Reza Lilipaly, director of securities
Financial Business Solutions lending at ING
The question is rather open and could either refer to the The securities lending industry is facing a period of turbulence.
decision to “make” or “buy” technology, outsourcing processes Although the consequences of Basel II-regulation are not yet clear,
to a distribution partner or a transaction bank or outsourcing all we are already seeing some interesting changes in the market.
of the IT to a typical IT-service provider. Because the second and These changes will certainly have a clear impact on our business.
third options involve are corporate IT issues, we will focus on The market is witnessing a change in the way lenders position
the issue of whether it is more beneficial to buy a software themselves towards borrowers. The role of the custodian-lending
package or to build an in-house application. agent is under the stress of change, for good and bad.
In the past the answer was typically dependent on the Beneficial owners, the participants of custodian-lending pro-
flexibility of the business model, processes of the financial grams, are reconsidering the methods of their lending activities.
institution and the flexibility of the vendor to provide partially Beneficial owners with relatively smaller portfolios, who were once
tailor made software to a client. A software package is always active lenders themselves, have given their mandates back to the
less expensive and there is less project risk involved than custodian agent. To counter this trend, a big investor is currently
building an application from scratch. However, vendors can sel- approaching the market directly via an auction platform.
dom offer the full flexibility to build client specific versions due Depending on the return on investment, beneficial owners will
to the costly maintenance of the solution. This is also because decide on whether they should outsource (to a third party for
the securities finance business is slowly moving away from a example) or not. Basel II may have a large impact on this
product centric view to a global position view. approach. It is possible that the role of the custodian agent lender
The reality is that smaller and medium sized industry players will be re-established after Basel II because of the costs involved.
are happy with standard software components. Large players Over the years, lenders who manage portfolios containing equities,
may use costly in-house solutions or a standard package for the government debt paper or corporate bonds have seen a shift of
books and records. In-house functional add-ons or additional their outstanding balances from equities towards fixed-income
data collections for consolidated position viewings and transac- papers, leading to more involvement in money market and cash
tions are often developed to at least partially fulfil the business management related activities. This shift in activities has been
stimulated by European tax-harmonisation (decrease in dividend
requirements. Consequently, a large number of heterogeneous
related trading). Furthermore, fixed income related lending has
systems and interfaces must be supported and reconciled, lead-
become a more stable source of income. It can be said that the
ing to enormous maintenance costs and the risk of poor data
use of the securities lending product as a cash generating and
quality. Another knock-on effect is that, due to the complexity
funding instrument has assumed a more prominent role.
and the high testing effort required, functional enhancements Perhaps it is now time to ask the following question: should the
are delivered at a slow pace. traditional securities lending product be incorporated with other
As the IT-structure typically mirrors the business structure, activities such as fixed income repo or STIR-activities and in com-
multiple departments have to be coordinated, which again is a bination with derivatives trading? Combining these functionalities
slow and costly process. So the answer is to buy a software will benefit all parties involved, in terms of demand and supply.
package and have it modified to meet specific requirements at a It is difficult to predict where the securities lending market will
relatively moderate additional cost. The precondition of such an be in five years from now. Are more interesting cash-generating
ideal situation is that a solution must have a modern and products going to be developed in five years time? One thing is for
flexible IT architecture. sure, these are certainly interesting times for the industry!
Tired of waiting in the queue? You have alternatives. lending revenue over their traditional programs,
eSecLending takes an active approach to securities because eSecLending introduces objective
lending by managing customized programs for competition via an auction process. Rather than
institutional investors. Unlike the traditional agency the traditional “best efforts” approach, our clients
approach, where many lenders’ portfolios are can count on their lending revenue because borrowers
grouped together and their securities wait in line pay guaranteed fees in exchange for exclusive borrowing
to be borrowed, eSecLending markets each client’s rights. eSecLending clients achieve all this while
portfolio individually and awards lending rights maintaining conservative risk parameters and close
to the optimal bidders. Our clients receive more control over their lending programs.
eSecLending provides services only to institutional investors and other persons who have professional investment experience. Neither the services offered by eSecLending nor this adver-
tisement are directed at persons not possessing such experience. Old Mutual (US) Trust Company, an eSecLending company, performs all regulated business activities. Past performance
is no guarantee of future results. Our services may not be suitable for all lenders.
INVESTOR FROM THE BACK OFFICE
S ERVICES TO THE BOTTOM LINE
JOURNAL
S ERVICES
JOURNAL
V O L U M E 1 - J U LY / A U G U S T 2 0 0 4
INSECURITY LENDING?
SECURITIES FINANCING INDUSTRY REVIEW
Gone are the days when all a up to 20 percent of bond and foreign
exchange markets.
hedge fund needed from its
Superior sophistication
prime broker was the satisfaction The traditional offerings of a prime
of basic back office functions. As broker include custody, settlement,
reporting, securities lending, cash lend-
the hedge fund industry comes ing, execution, leverage and pricing. Now
though, hedge funds are being wooed
of age, prime brokers need to with more sophisticated products and
keep up with increasingly services. Technology has become a key
element in the competition for clients,
sophisticated demands from while hedge funds increasingly choose
their prime broker based on value-adds
their clients. So how are they such as capital introduction, leverage
faring? Helen Yates investigates. solutions, start-up services, STP and
sophisticated risk management.
The fact that prime brokers only really
earn their revenue from cash lending (to
support leverage) and stock lending (to
facilitate short selling) is no longer the
primary concern. Prime brokers now
need to offer a more sophisticated pack-
need to ensure competitive terms from all centred around benefiting the client.’ Lehman Brothers and Dresdner have all
prime brokers. Multi-strategy funds use developed online systems. According to
prime brokers based on their specific Get efficient Bisesi, Lehman’s electronic securities
strengths; and some would choose prime Prime brokers have understood and lending platform eBorrow was an
brokers to benefit from different capital managed the risk of the hedge fund important investment in ramping up its
introduction teams.” industry for years and an effective prime business in Europe by providing opera-
broker understands the risk of its client’s tional efficiency.
Competition strategy and knows how to manage its For Bohart, technology spend is only a
In Europe, with the rapid growth of own exposure. Risk management however key concern for those prime brokers
the prime brokerage industry, the compe- generally means the management of eco- intent on offering a full-service product
tition to service European hedge funds is nomic risks, such as market or credit risk, across asset-classes. But in the short run,
fierce. Those US-based firms with a small and many hedge funds have remained he does not see smaller players losing
or non-existent international prime bro- concerned that not enough due diligence out on business because they are not
kerage platform have been quick to catch STP compliant. “If you want to be sec-
up. For old timers like Morgan Stanley, ond or third prime broker to a major
the first to set up a prime brokerage plat- “The ultimate worry is fund and provide some financing on
form in London back in 1989, it is reap- selected positions then you can do that
ing the benefits. Although it still ranks that a lack of without the technology spend that say
within the top tier of league tables as
favoured prime broker, Goldman Sachs is
operational control and Goldman or Morgan Stanley would have
to pursue in order to be the lead prime
now hot on its tail. Stuart Bohart, manag- repeated manual errors broker and deal with the more complex
ing director and head of international positions,” he says.
prime brokerage, Morgan Stanley says could damage a fund’s One worry for prime brokers surely
although there is a big difference between
the top tier, full service prime brokers
reputation irreparably” must be competition from technology
vendors. Any move to remove the role of
and those trying to get to that level, it the prime broker as intermediary will be
hasn’t made competition any less aggres- has been paid to operational risk. This is cause for concern, as it will have a clear
sive. “Has competition increased? Yes where technology and STP has an impor- impact upon revenue. Electronic securi-
absolutely, it’s increased,” he says. “It’s not tant role for the future of the business, as ties lending systems is an area of huge
just a Morgan Stanley show anymore. the only way to manage operational risk growth and platforms such as EquiLend,
Goldman has come after our business is to improve operational efficiency. The SecFinex and eSecLending are designed
and come hard, UBS comes after our key attribute of both operational risk and to cut out the middlemen by connecting
business, but that’s what we expect as the operational efficiency is the number of all parties and increasing price visibility.
industry grows. It makes us work even times a trade is manually input into a sys- And its not just securities lending.
harder.” tem - which ideally should only be once. Hedge funds that formerly relied on their
Keeping up with the competition Despite the huge investment from many prime broker for complete technology
means keeping up with the alternative prime brokers in technology, operational packages are increasingly requesting to
investment industry. Hedge funds are no efficiency is still quoted as a key concern use only their prime broker’s core tech-
longer the investment vehicles they were for the hedge fund industry. A recent nology infrastructure. Instead, they are
four years ago when fund managers tend- roundtable debate, hosted by Omgeo, the acquiring technology from third-party
ed to adopt just one strategy and were a post-trade, pre-settlement services vendors or developing more sophisticated
lot smaller in size than the quasi-institu- provider, and including leading partici- internal financing desks. Lambert views
tional funds of today. Multi-strategy pants from the hedge fund industry, this as a natural step when funds evolve
funds require a multi-strategy prime bro- found that operational efficiency and risk in growth and size. “Some hedge funds
kerage solution. “Hedge funds don’t like control are hampering a funds’ ability to
silos,” explains Bisesi. “The big funds attract institutional investment. If prime
trade multi asset class and get very frus- brokers cannot satisfy their clients’
trated when they have to deal with a demands for accurate reporting they will
firm’s fixed income division for the fixed fail to maximise the commercial opportu-
portfolios and the equity division for the nities. Of course the ultimate worry is
equity component. They want a better that a lack of operational control and
model. So what’s happening - certainly at repeated manual errors could damage a
Lehman Brothers - is that prime brokers fund’s reputation irreparably.
are working hard at bringing all of these
services under one roof. This means one Automate or asphyxiate?
set of reports, multiple financing mecha- Despite industry concerns, most
nisms (eg. stock loan, swaps, repo), cross prime brokers have invested in technol-
margining, listed and OTC derives, one ogy with the intention of providing a Brian Bisesi & Matthew Pinnock
service team, etc - a true holistic service more efficient service. Barclays Capital, of Lehman Brothers
Investments and services in the United States are offered through Morgan Stanley & Co. Incorporated, member SIPC. © 2004 Morgan Stanley
Prime Brokerage
have indeed reached such a size that they unregulated, opaque investment
Global Prime Brokers
try to ‘unbundle’ the service of the vehicles and the memories of Value of Assets Served
prime broker,” he explains. “We are not Long Term Capital
worried as such about it, as we retain a Management are beginning to Morgan Stanley 300
very strong relationship with all those evaporate as alternative invest-
groups, and we think it is a trend that ments become mainstream. It’s
can only be developed by the very large not happening yet, but one day Merrill Lynch 100
hedge fund ground which can afford to soon institutional investors
develop the infrastructure to support it.” could feel comfortable without
an intermediary, investing Lehman Brothers 50
most part embraced” the trend. The bigger hedge in the mid-1990s and while it became independent
in 2000, Lehman retained a 20 per cent share. “It is
funds will grow the fastest
If technology is an important success because they can absorb that clear to us that the bigger guys are becoming more
factor for prime brokers, the positioning and can develop the infrastruc- institutional,” says Matthew Pinnock, Bisesi’s col-
of prime brokerage within an institution ture that creates credibility. The league and co-head of equity finance sales. “For
is also crucial. While Morgan Stanley’s other thing I think will happen example, the top 25 managers in Europe manage
prime brokerage business remains is that traditional asset man- almost half of the industry’s assets. This is where we
behind the Chinese wall of custody and agers will start adopting some focus and will continue to focus.”
separate from proprietary and trading hedge fund styles and hedge
flows to ensure confidentiality, Lehman’s funds will begin offering tradi- What services can the typical prime broker offer?
sits between the equities and fixed tional long-only products with
income to ensure a more multi-strategy an incentive fee structure.”
Skandinaviski
approach. As Bohart explains: “The loca- Largely ignoring start-ups Services Barclays Lehman Morgan
Fimat
a Enskilda
Merrill Lynch (Société
tion of the prime brokerage business Lehman’s focus is on the more Offered Capital Brothers Stanley
Générale)
Banken AB
(SEB)
within a financial firm is important and established funds. Bisesi
Morgan Stanley is at the extreme end of explains: ‘Whereas some other
protecting client confidentiality. Some prime brokers focus on market
other players take a less stringent view share, Lehman has always Custody Y Y Y Y Y Y
and are more likely to mix the prime focused on the world’s largest Clearing and
Y Y Y Y Y Y
brokerage business with their sales and and most sophisticated hedge Settlement
As with all financial sectors, regulators with plugging a customer into Derivatives
Y Y Y Y Y Y
have kept a keen eye on the hedge fund as many areas of the firm as Support
industry, but reform has arguably been possible. These funds then Collateral
Y Y Y Y Y Y
Margin Loans
more tenacious in the US than Europe. In become very meaningful to
the US, the Patriot Act and its require- Lehman and by the nature of Swaps Y Y Y Y Y Y
ments for greater disclosure has impacted this relationship allow Lehman Structured
Y Y Y Y Y Y
upon hedge funds and those who service to become more meaningful to Products
them. In Europe however, Bohart believes them.” Futures Y Y Y Y Y Y
regulators have achieved a healthy bal- The idea of hedge funds as
ance between “creating a stable environ- institutions in their own right is Foreign
Y Y Y Y Y Y
ment without hindering the ability of not so far fetched. At the time Exchange
hedge funds to innovate and find new of writing Lehman Brothers was Cash
sources of performance in the market. Y Y Y Y Y Y
still in talks to buy one of Management
The European environment is more regu- Europe’s largest hedge funds, Structured
Y Y Y Y Y Y
lated and that regulation is for the most London-based GLG Partners - Notes
investors. The distrust of these formerly bankers originally set up GLG Source: ISJ
Prime
Capabilities
Scotia Capital has long been dedicated to adding value to hedge fund and alternative asset managers through a
full-service equity finance operation encompassing prime brokerage, securities lending, and synthetic financing solutions.
Our experienced and dedicated professionals are committed to providing comprehensive transaction expertise, timely
research and innovative ideas. Most of all, we are committed to building long-lasting client relationships.
www.scotiaprimebrokerage.com
*
Trademark of The Bank of Nova Scotia. The Scotia Capital trademark represents the corporate and investment banking businesses of The Bank of Nova Scotia,
Scotiabank Europe plc, Scotia Capital Inc. and Scotia Capital (USA) Inc. – all members of the Scotiabank Group and authorized users of the mark. Scotia Capital
Inc. is a member of CIPF. The Bank of Nova Scotia is incorporated in Canada with limited liability. Scotia Capital (USA) Inc. is a U.S.-registered broker-dealer, an
indirect wholly owned subsidiary of The Bank of Nova Scotia (BNS), acting as agent for BNS for various financial products in the U.S. The Bank of Nova Scotia,
Scotiabank Europe plc and Scotia Capital Inc. are each authorized and regulated by the Financial Services Authority (FSA).
Dublin - International Financial Services Centre
Game On or Off
most out of emerging and existing domiciles, we have
elected to develop lines of business, which are serviced by
best-of-breed technology. Rather than restrict ourselves to
proprietary technology or more old-fashioned solutions to
service hedge funds, we have licensed best-of-breed soft-
ware from a range of vendors to service each of those
business lines, including investor services, middle-office
and trade support, NAV production and custody. That is
how promoters are better placed to create, sell and pro-
mote funds in either offshore or onshore domiciles. In
contrast to the manager, promoter or investor, we are not
as sensitive to the tax or regulatory implications of the
domicile. Our policy is to take advantage of best-of-breed
software.”
The primary consideration for the promoter, according
to Sommerville, is self-defining. “It boils down to how
much they can promote a fund based on where it is domi-
ciled. Anything that opens up a particular market to a
greater number of investors is an advantage. We expect
promoters to encourage managers to domicile funds in a
location that is most investor-friendly.”
Tax
The tax treatment of a domicile has a significant bearing
on promoters because it facilitates the attraction of capital
in a location, which is a good match for the investors’
needs. “As an administrator, we will be geared up to serve
all investors and enable promoters to devise a strategy for
the registration of a particular product,” says Somerville.
Offshore funds researcher Fitzrovia publishes six-
monthly figures on the worldwide funds industry, includ-
ing information on about 44 fund service providers in
Dublin. Its latest research values the Dublin funds industry
at $503.3bn. This figure, according to Somerville, says a lot
about the health of the fund industry and the financial
services market in Dublin. “On the one hand it says that
the market is buoyant and is growing,” he says. “Based on
the tax advantages of the domicile, there are a large number
of firms who are developing or who have the expertise to
take advantage of the market. The promoter is at a distinct
advantage, having access to a number of companies who For multinational fund manager Schroders, the most
have provided fund services for a number of years. Service important consideration for hedge fund domiciliation is
distinction is also made easier in that providers have a tax, rather than regulation.
demonstrable track record. A revised tax law also carries “Investment management is usually carried out onshore,
benefits for the manager, the promoter, the fund and the but hedge funds may be based offshore (e.g. Bermuda ),”
investor. All of those areas are positively affected by legisla- says Jason Gardiner, director of compliance at Schroders.
tion, which promotes growth in the funds industry. There
is a distinction between the larger funds who service insti- “We expect promoters to encourage
tutional clients and the administrators who serve the bou-
tique businesses. The service offering is tailored differently managers to domicile funds in a
in order to match the needs of those funds.” location that is most investor-friendly”
Location, location, location “We are happy to fall under the regulation of the Financial
Taking perspectives on the funds industry, where a large Services Authority in the UK and we are also regulated by
number of funds were traditionally domiciled in the the Securities and Exchange Commission in the US.”
Cayman Islands, Luxembourg, Dublin and Bermuda, a Gardiner points out that increased regulation may be a
handful of emerging domiciles have appeared on the more complex issue for the smaller fund managers to deal
radar. Malta is currently promoting itself and the market with. But he adds that the SEC's efforts to regulate hedge
for fund administration looks promising. The Maltese fund managers should not be a show-stopper for estab-
authorities are encouraging promoters to domicile their lished managers. “Any extra costs are obviously unpopu-
funds in Malta and house their support services other lar, but we generally welcome regulation and we are happy
jurisdictions. “That can be a good selling point,” says to operate in a regulated jurisdiction,” he says. Schroders
Somerville. “Malta is promoting itself very strongly at currently operates in about 12 jurisdictions. “If someone
present and the jurisdiction is one to watch.” wanted to go offshore to avoid regulation one would
Hedge Fund Administration
immediately have to ask why,” says Gardiner. “Thankfully Islands and Bermuda. “Promoters want to take advantage
we have got to a significant size where we can cope with of the US investor base and are setting up master feeder
regulatory requirements. We don't see the SEC as too great structures or parallel funds,” says Schultz. “An onshore US
a burden, but the smaller fund managers might.” fund normally has a Delaware partnership. This forces
administrators to be present in the US and offshore. It’s
Burden not about a shift of funds from offshore to onshore, it's
SW1 fund manager Dawnay Day, Olympia, takes a about a shift towards properly consolidated services. Our
slightly different approach to regulation. Despite a offshore investor services are carried out in Bermuda and
favourable approach towards the regulation of commodity in the US while the accounting and valuation work is done
trading advisors (CTAS) by the Commodity Futures in New York. We work closely with our offices in Bermuda
Trading Commission (CFTC), managing director Ian and Dublin in order to serve the client properly.”
Morley says that the subsequent intervention by the SEC, According to Schultz, smaller fund promoters and man-
which is proposing the registration of hedge fund man- agers might be struggling to comply with evolving regula-
agers, may be to the disadvantage of the hedge fund tion for hedge funds. “In the US, and probably in Europe
industry. “Rather than learn from the experience of the over time, a fully fledged compliance department to deal
CFTC, the SEC appears to be reinventing the wheel by with KYC and AML requirements will be a necessity,” he
proposing the registration of fund managers,” says Morley. says. “Some managers may want to outsource those func-
tions to an administrator. The smaller administrators
“If regulation is forced by the SEC the drive need to beef up their compliance capabilities. It will
to bring funds onshore will not work” become very difficult for them to stay in the business.
To comply with the AML requirements you have to
“The SEC tends to be reactive, rather than proactive. The ensure that the money going into a fund comes from a
main threat facing the hedge fund industry is that regula- proper source. The smaller administrators have a problem
tion could become too bureaucratic for institutions and with this because they are not big enough to put these infra-
high net worth individuals, who want to avoid overly structures in place. After all, having a compliance depart-
intrusive regulation as they rightly feel they can take care ment does not really add to your bottom line! It is more of a
of themselves. If regulation is forced by the SEC the drive cost than an added benefit, unless you outsource that func-
to bring funds onshore will not work. The FSA has taken tion. The manager is responsible for compliance. He can
a more pragmatic approach but as of yet without the full outsource certain compliance-related functions but it is still
support of the Treasury.” his responsibility. He may rely on the administrator to a
At this rate, it is unlikely that offshore jurisdictions are certain extent but the liability still resides with the manager.”
losing sleep over the threat posed by onshore jurisdictions,
according to Morley. “Onshore managers are subject to the Impact on fees
rules of the regulator, whereas the funds are based offshore Like many administrators, the Bank of Bermuda believes
and are not subject to the same rules,” he says. “The costs that increased regulation will impact on fee structures.
of complying with the FSA's regulations have definitely “The fees in the alternative business have declined over the
increased, particularly in the area of indemnification.” last couple of years,” says Schultz. “As people become more
efficient, the systems are working better and they can cope
Dual approach with complex strategies. But fees will start to creep up
Regulation has become a lot stricter, says Robert Schultz, again because there is an added layer of responsibility,
head of Bank of Bermuda GFS. “The SEC is making a lot which administrators can provide. We wont be able to
of noise about regulating the so-called unregulated hedge provide single fees for each client and will have to charge a
fund industry,” he adds. “The off- premium for our services. Fees will go up over the next
shore jurisdictions of Luxembourg, couple of years because of the added responsibility and the
Dublin, Cayman Islands and manager's willingness to outsource more functions. We are
Bermuda have always regulated moving into a world of true outsourcing of front middle
their fund industries through vari- and back office through administrators. More of the fund
ous bodies. As an offshore admin- servicing is being done in locations where administrators
istrator, our processes are based can attract the proper talent. Servicing functions are being
upon the highest standards. We moved from the Caribbean to the US or Dublin because
have always implemented the nec- they can attract a higher calibre of staff. The Caribbean
essary anti-money laundering can only hire up to a certain extent before they experience
requirements and KYC documen- visa complications. Most of the accounting valuation for
Robert Schultz tation. When the US Patriot Act was our new funds is done through New York while Bermuda
enforced, some of the smaller conducts most of the investor services.” As regulation
administrators were trying to figure out what it meant, but intensifies, so too does the rift between promoters who are
it was not new to us.” great and those who are small. The same can be said for
About 70 per cent of the funds that Schultz and his team administrators and only those with the critical mass will
deal with in North America are domiciled in the Cayman be able to keep up. ISJ
SEC votes on Hedge Funds tion designed for advisers providing advice only to a
small number of clients. The rule also contains special
The Securities and Exchange Commission (SEC) has provisions for advisers located outside the United States
voted to adopt new Rule 203(b)(3)-2 that will require designed to limit the extraterritorial application of the
hedge fund advisers to register with the Commission Advisers Act to offshore advisers to offshore funds that
under the Investment Advisers Act of 1940 by February 1 have U.S. investors.
2006. The rule is the culmination of an initiative to The Alternative Investment Management Association
study hedge funds and their advisers that commenced (AIMA) filed a submission in September on behalf of its
over two years ago. Registration under the new rule will non-US members with regard to the SEC’s proposed
permit the Commission to - new rule. In response to the Commission’s most recent
* collect important information about the operations decision, AIMA said it understood the new rules "will be
of hedge fund advisers, which represent a significant in substantially the same form as the draft rules pub-
and growing component of the US financial system. lished in July, however, the final text of the rules will be
* conduct examinations of hedge fund advisers. published within the next two weeks." AIMA will review
* require all hedge fund advisers to adopt basic com the text of these rules and advise its members of the
pliance controls to prevent violation of the federal implications.
securities laws. The Association will continue to work with the newly
* improve disclosures made to prospective and established SEC task force to ensure that the status of
current hedge fund investors. non-US managers already registered in their own juris-
* prevent felons or individuals with other serious dictions is taken into account. AIMA said it would strive
disciplinary records from managing hedge funds. to avoid the difficulties inherent in separate and possibly
duplicative regulatory examination and enforcement
The new rule will eliminate the ability of hedge fund regimes and requirements.
advisers to rely on an exemption from adviser registra- ISJ
Custom House, who prides itself on its personal service, will create a tailor-made specialist fund, designed to suit a client’s particular specific objective,
taking care of all the documentation, legal and statutory matters. Custom House will also liase with the payment and custodian banks, brokers and
other service providers, including the auditor, to ensure that the creation and ongoing operation of the fund is carried out smoothly and efficiently
and
“The Custom House Fund Administration Service”
Once organised, Custom House will then provide a full administration service and oversee all aspects of the day to day operations, except for
the actual investment of the fund’s assets.
Custom House will maintain all of the fund’s books and records, carry out the valuations, calculate the NAV and handle all subscriptions and
redemptions, as well as overseeing payment of the fund’s expenses. Custom House will also be responsible for all investor (and potential investor) com-
munications and for the publication of the fund’s share price and performance data to investors, as well as the media services, directly, or on the Web,
through its CHARIOT (“Custom House Accessible Reporting In Open Technology”) secure web reporting platform for managers and investors.
_______________________________________________________
For further detailed information on Custom House and the services we provide, please visit our Website:
Custom House Administration & Corporate Services Limited is authorised by the IFSRA under the Investment Intermediaries Act, 1995
Pension Fund Pooling
Sink or Swim
A closer look
So what are look through and look at
vehicles? Look through vehicles are where
regulators do not see the pooled struc-
ture, instead they directly see the institu-
tional investors and their regional origin.
In these structures there is no withhold-
ing tax. In look at vehicles regulators see
Pension fund pooling structures
can be divided into two categories: on
the one hand are the traditional ‘look at’
the pooled structure and not the
investors; as a result there is a withhold-
ing tax. In effect look through vehicles are
vehicles including Irish Unit Trusts and more tax efficient.
worldwide quoted and non-quoted KAS Bank head of sales and acquisi-
investment funds. On the other hand are tions Ben Kramer says: “Look through
the relatively recent ‘look through’ vehi- vehicles are the future. You can pinpoint
cles, comprising the Ireland-based to each of the tax authorities what your
Common Contractual Fund (CCF) and holding in different stock is, thus
the Luxembourg-based Fondscommun enabling you to efficiently reclaim tax as
De Placement (FCP). an institutional investor. You cannot do
But, first, we need to take a look at the that in look at vehicles.”
basics. Pooled pension fund structures Northern Trust vice president, product
have historically been part of pension manager Kathy Dugan says we are on the
fund investment strategies. In essence, brink of the CCF and the FCP starting to
pooling is where investment houses compete for business. She adds:
group together assets from domestic or “Northern Trust is implementing two
global institutional investors into a single multinational clients in look through
pension fund vehicle. pension fund pooling; one in the CCF,
The benefits of these structures are the other through the FCP. And I think
clear: worldwide spread on the equity we are the only company that currently
markets which in turn reduces invest- can support both.” The custodians’ role in
ment risk, lowers custody and manage- this is core. They must be able to support,
ment fees and provides easier entrance to in an automated and integrated manner,
more exclusive markets such emerging the granularity of reporting required by
market debt and high yield structures. the underlying pension fund investors. In
The latter is particularly true for smaller addition, there is the challenge of dealing
funds. with technical tax and accounting issues
that result from multiple withholding tax says: “We have bought the best software Added value
rates. State Street vice president Gavin available for performance measurement But performance measurement is not
Nangle says: “Both of these tasks require and we extract all the data from our cus- the only service that global custodians are
significant commitment from the custo- tody mainframe well placed to provide. They are also,
dian, and an effective partnership with and provide some say, uniquely placed and qualified
their client, to ensure they collectively reports to the to consolidate multinational pension
stay responsive to changes in any jurisdic- underlying clients. fund assets.
tional environment.” It is the best selling White adds: “One of the most impor-
Northern Trust's Dugan agrees and says tool for custodi- tant objectives is to be able to deliver
the fundamental tax work is complex. She ans.” access to specialist mandates and global
says: “The custodian needs to have systems ABN AMRO asset class allocation that otherwise is
in place that will recognise how much Mellon’s White unavailable to smaller funds. Smaller cus-
income each investor is receiving; what is agrees. She says: todians simply do not have the global
the appropriate tax rate on that dividend “To calculate the reach to support this unless they partner
income and capital gains tax each investor most accurate with a global custodian for the foreign
has to pay. Those two things require new Ben Kramer GIPS and AIMR assets held by the pool.
systems if you are going to track that in a compliant returns, one really must track “In terms of providing a full suite of
pooled fund.” Northern Trust has devel- each and every transaction and cash flow products to the multinational plan spon-
oped such a system. sor, I do think the smaller custodians will
ABN AMRO Mellon head of multina-
tional product development Kerry Ann
“One of the most be somewhat marginalised. In terms of
the future for smaller custodians, this is
White says: “Tax withholding and recla- important objectives is just another nail in the coffin.”
mation is certainly not a glamorous busi-
ness, but it is most definitely important
to be able to deliver BNP Paribas Securities Services’
Biermann adds: “It is tough for the small-
to ensuring that pension schemes receive access to specialist er custodians; they can only provide serv-
every euro that they have earned.” ices to local pension funds with local
mandates and global needs.” Those providers, though, will not
Taxing tasks
Importantly, the goal for pension funds
asset class allocation” necessarily be limited to small pension
funds, small custodians will still be able
is not tax avoidance but rather to receive that occurs in the pension fund. to compete for larger pension funds but
the same tax treatment that would be Custodians are already recording these increasingly only those, which operate in
realised through direct equity investment. transactions on a daily basis, so in domestic markets.
This complexity requires custodians to certain instances plan sponsors may find State Street’s Nangle says that while
have fairly advanced and robust systems themselves paying a third party vendor scale will inevitably assist in the more
in place. Both Northern Trust and State excessive fees in order to replicate these complex pooling arrangements, that is
Street are currently developing systems. transactions.” not to say there is no place for the smaller
The workload, then, for custodians is And BNP or niche player. He says: “The customised
increasing. In addition to tax reclamation Paribas Securities services of a smaller custodian, when
and other core custodial functions – such Services says that appropriately matched with the require-
as fund accounting, proxy voting, corpo- its performance ments of their client, can prove to be a
rate actions and net asset value calcula- measurement tool successful combination. The challenge
tions – custodians are required to offer is an integral will be for those structures, once estab-
performance measurement, risk analysis, ingredient to its lished, to deal with any growth require-
defined contribution administration, success in the ments beyond their comfort zones, which
transition management, commission German market. may again bring this business back within
recapture and securities lending. Performance the sights of the larger players.”
In Germany BNP Paribas Securities measurement KAS Bank agrees. Kramer says: “We are
Services says this master custody style company seen as a smaller custodian. But if you
brief is starting to become the norm. Bella Jasani Russell/Mellon look at the bigger custodians and deduct
Business manager, global fund services agrees. Marketing US assets you will see a different playing
Dietmar Roessler says: “Our pension fund manager Bella Jasani says: “Global custo- field. We are number one in the
clients increasingly ask us for daily per- dians have access to all the data to pro- Netherlands, the fourth largest institu-
formance measurement data. They like to vide performance measurement services tional market. We also compete in the
know what impact market moves have on to their clients, both at an individual UK, where we have landed 14 new clients
their portfolio and we are able to provide portfolio level as well as the total fund. in the last two years.”
this to our clients on a daily ad hoc basis They already have the technology or The market, then, is indeed on the
via internet web-based platforms.” resources to build the necessary platforms brink of change. One thing that is certain
Performance measurement is an essen- but performance measurement is more is that global custodians are well
tial part of custodians’ suite of services. than simply numbers; presentation, inter- equipped to respond to that change and
And, according to KAS Bank, they are the pretation and reconciliation with asset adapt to an evolving market.
best placed to offer the service. Kramer managers are as important.” ISJ
Ready for
monitoring and, the portfolio construction process.
Relationships
Alternatives
For a fund to function properly it needs to establish
various relationships e.g. with an investment manager,
prime broker, fund administrator(s) and custodian(s),
each of which will have clearly defined operational pro-
cedures. A fund’s infrastructure can be one of the criti-
cal factors in its success or significantly contribute to its
failure.
With the pressure on and too few decent hedge fund
managers around there is an increased risk that shortcuts
will be taken by investors as they accelerate their
appointment of managers and/or FOHF managers to get
their investment strategies in place. Historically most
investors have barely thought about the quality of under-
lying FOHF custodians or fund accounting, transfer or
valuation agents (suppliers). This is now changing. In the
Simon Thomas European arena large institutional investors coming into
the alternative investments for the first time want, and
should, conduct extensive evaluations and due diligence
on suppliers.
However, it does not follow that because you are a good
traditional custodian bank that you are automatically a
good supplier to the alternatives investment industry.
Many custodians in the traditional world realised that
In recent financial market offering their services to the hedge fund community went
beyond their expertise. Consequently, they began their
history no other asset class has support for the industry by entering into arrangements
been as popular as hedge funds. with third party suppliers and some have more recently
been acquiring these specialist suppliers.
Suppliers
Simon Thomas of Thomas Having assessed many of these suppliers for major
Murray provides insight into FOHF managers and large institutional clients Thomas
Murray would rate most suppliers as less than satisfacto-
how institutions should ry and lacking the operational knowledge to adequately
control most forms of alternative investment. Thomas
approach this form of Murray has been staggered by the weaknesses in controls
investment and procedures within some suppliers to the alternative
investment industry. Equally worrying is not cope when the price of a security
the huge skills gap between the specialist and the number of units traded is
expertise within operational staff of unknown.
some major FOHF managers and their The choice of a service provider is
counterparts within some suppliers. often not considered to be as important
Since institutional clients do not gener- as the right investment strategy. While
ally have the available operational skills most investment advisers would spend
necessary to evaluate and monitor hedge weeks or months conducting extensive
funds, FOHF managers or their respec- due diligence on managers they wish to
tive suppliers, it is a concern where they place their money with, in an extreme
look to their suppliers to monitor situation they might select a supplier
arrangements as this skills gap potential- within an hour conducting only basic
ly exposes them. However, quite apart checks or just taking up client references.
from the skills gaps and weaknesses
referred to above, there is at times a lack
of adequate independence and separa- The choice of service
tion of responsibilities between man-
agers, custody, fund accounting, transfer provider is often not
agency and valuations.
We would argue that the construction
considered to be as
of many hedge fund contracts, service important as the right
level agreements and FOHF arrange-
ments, blending offshore and onshore investment strategy
entities, is so obscure to most investors
that they will more than likely not prop- Progress?
erly understand what they are getting Considering the pace at which the
involved in. Necessarily the alternatives hedge fund industry has become popular
industry managers have sought to keep it is no wonder that neither the financial
their multi-layered reward system pretty authorities nor participants have been
opaque. For instance, try understanding able to put in place adequate regulations,
the different levels of performance fee to procedures and controls in order to cre-
which managers are entitled to via their ate a sufficiently safe environment for
mixers and offshore entities - add an the investors. However, bit by bit
FOHF manager and you have a double progress is being made and one such
layer of fees, which maybe justified, but area which is seeing significant change is
needs to be understood and monitored. in the evaluation, selection and monitor-
The evaluation, appointment and ing of service providers where service
monitoring of suppliers to the alterna- providers are having to staff up to cope
tive investment industry is, outside a few with the increasing number (and
groups, at best poorly done or is “in the variety) of RFPs being issued. The
too difficult to deal with” box. The con- industry is witnessing a move to more
trols and procedures necessary to secure structured approaches being applied to
best terms and monitor performance are the selection service providers.
often poorly understood and expose an The old approaches of either leave it to
institutional investor to significant risk. your prime broker and investment advis-
Much of the processing is manual in the er, or talking to one or two service
alternatives industry as every arrange- providers you know is fast disappearing. Thomas Murray Alternative Investment Services
ment is different. The ability to offload Now-a-days many investors conduct
responsibility to custodians is limited as comprehensive due diligence on the TMAIS offers investors / investment managers free
they generally act as agents and hence do service providers recommended to them access to its e-RFP platform and alternative invest-
not take much responsibility for what, in the investment process in order to ment evaluation and selection questionnaires to sup-
for example, administrators of hedge ensure that they work together with port the evaluation of custodians, fund accountants
funds tell them. Monitoring invest- reputable and creditable organisations and transfer agents, with a supporting supplier serv-
ments, tracking trading, compliance, which can satisfy their service require- ice matrix to assist groups in considering how to
equalisation, pricing and NAV, transfers, ments. Due diligence can be conducted include in a RFP mandate.
corporate actions (including collapsing either by the interested party directly or For further details of the e-RFP Tool or if you wish
series) and reconciliations are all areas, through a specialised consulting practice to learn more about TMAIS services please contact
which may be poorly controlled. Often which provides independent assessment Simon Thomas on +44 (0)207 830 8300 or by email
pending trades are not recorded on the of the service providers based on the on sthomas@thomasmurray.com or Roger Fishwick
main securities movement and control in-depth knowledge of the industry and on +44 (0)207 830 8300 or by email on
systems on the grounds that these can- experience. ISJ rfishwick@thomasmurray.com
On Trust? - the choices available and time spent by trustees. Breakdown of services obtained under
soft commission arrangements
Others (including proxy voting services) 0%
Investment-related seminar fees/publications 1%
Advice on dealing in, or on the value of, any designated investment 1%
Custodian services 2%
Computer hardware & software, dedicated phone lines 3%
Valuation % performance measurement services 11%
Research, analysis and advisory services 25%
Market price services, electronic trade, confirmation services 57%
What are the most important tasks trustees perform for the pension fund? (2004 findings)
Other 1%
Trustees’ compliance with Myners 6%
Administration of scheme and/or supervising administrators 9%
Deciding Scheme Allocation strategy 30%
DON’T GO THERE…
T: +44 (0) 870 056 55 55
F: +44 (0) 870 056 55 56
WWW.eyenetwork.CO.UK E: info@eyenetwork.co.uk
Hedge Fund Performance
The $41.7 bn Distressed HFRI Regulation D 5,2 6,6 5,37 2,01 4,98 1,16 -2,69
Securities category notched HFRI Relative Value Arbitrage 2,45 2,87 1,27 2,8 2,21 -0,41 1,56
another strong performance
with a 1.9 per cent return in HFRI Sector (Total) 0,85 13,18 5,21 6,52 4,74 -1,61 0,06
Q3. Year-to-date, the category is HFRI Short Selling 2,71 -12,38 -5,08 -8,43 -2,55 2,44 3,04
up 10.3 per cent, leading all HFRI Fund Weighted 0,82 7,74 4,36 5,47 3,71 -1,01 0,88
other non-sector categories. Composite
Investment funds
Spain has adopted the UCITS directive in order to boost
its share of the mutual funds industry. According to the
Directive, foreign and locally registered mutual funds can
now operate in Spain. Spanish funds can also be commer-
cialised outside of the country. The text of the UCITS
directive has been reviewed and the law itself will be
passed by the end of the year.
The structure of the Spanish SICAV will be very similar
to the structures in France, Luxembourg and other
European countries. The UCITS directive will
allow for the creation of hedge funds, with cer- “With the new law, the asset management
tain limitations, in Spain. Individuals will be
able to access hedge funds by investing in a
companies could create specific hedge funds in
mutual fund, which invests in hedge funds. Spain, which was not possible in the past”
Provisions for this activity will be ratified into
law at the end of this year. The new law for mutual funds
and SICAVs allows these institutions to participate in
securities lending programs, and in the creation of hedge
funds. “With the new law, the asset management compa-
nies could create specific hedge funds in Spain, which was
not possible in the past,” says Macpherson. “There could
be investment limitations to this development, where only
institutional investors would be allowed to invest in
Spanish or foreign hedge funds.”
Hedge funds
With the implementation of the UCITS directive pend-
ing, the Spanish market has embraced the idea of hedge
funds investment. “The most active asset managers are
waiting for this possibility,” says Macpherson. “They have
reported a demand for hedge funds among their clients. In
markets that are very flat, alternative investments or hedge
funds generate incentives for the investors.”
CDC Urquijo is a depository for more than 350 mutual
General index of the Madrid Stock Exchange
funds and SICAVs. This figure constitutes 20 asset man-
900
agement companies. “Some of these companies could Index
800
eventually create hedge funds and we could provide
depository, custody and settlement services for these 700
funds,” says Macpherson. “Asset managers will probably 600
create the facility for hedge funds in Spain. But they are 500
awaiting more precise regulation for mutual funds. It is 400
unlikely that asset managers will become interested if the 300
investment limitation is too restrictive. But the final text of 200
the legislation is still unclear. From our point of view, we
100
are unsure of the limitations, but it is expected that asset
0
managers will definitely contemplate hedge funds activity.
10-10-03
10-12-03
10-03-04
10-08-04
11-10-04
10-02-04
08-04-04
10-05-04
09-07-04
10-11-03
09-01-04
10-06-04
10-09-04
Consolidated infrastructure
Spain has streamlined its securities settlement infra-
structure by merging the central securities depositories
(CSDs) for fixed income and for equities. The final prod-
uct will have links with the relevant CSDs in Europe. In
the last year, the Bank of Spain, which operated the CADE
platform for the settlement of fixed income instruments,
was integrated with Iberclear, the platform for all other
securities. Commenting on the change, MacPherson says:
“The consolidation of the CSDs is a positive step.
Nowadays, investors can trade on major stock exchanges
with very few limitations. The real barrier to consolidation
in Europe is the clearing and settlement infrastructure.
The infrastructure is plagued by the lack of a common for-
50,000,000
60,000,000
10,000,000
40,000,000
70,000,000
There is a saying that goes ‘if the assets, and were only funded by payroll
deduction. By the time the company
incentives are right, everything realised the problem they had created,
about 2000 company retirement pro-
else will fall in line’. grams were already in existence.
The consequences, although gradual at
first, were compounded in no time.
In an exclusive case study for The number of accounts within the
ISJ, Hubbard Garber, partner at transfer agency system was significant.
By 2004, over 200,000 accounts each had
Barrington Partners, presents less than $500. As a result, the average
account balance for the fund complex
the tale of a US-based mutual fell dramatically. Transfer agency system
fund complex that made some costs increased, making the funds less
profitable and less competitive in the
grave record-keeping mistakes marketplace. The mutual fund board
became concerned and began to ask for
and the steps taken to resolve explanations.
the problem
“Basis points provide
incentives for
growing assets”
Issues to be addressed
There are a number of key issues, which
The past few years have seen a other high margin services like securities lending.”
As outsourcing picks up speed and custodians look to
rapid rise in the number of increase their market share, one segment of the market
that seems to be getting adversely affected is technology
business process outsourcing vendors of asset management solutions. “There are two
(BPO) deals among investment key trends, the consolidation of back office technology
systems by asset managers themselves and back office
management firms. Rekha outsourcing to custodians,” states Lessner, explaining that
both these trends were shrinking the market for
Menon reports. technology vendors.
For those asset management firms that have outsourced
thus far in the hope to gain greater efficiency and cost
advantages, there are no official figures yet about the bene-
fits that they have achieved. Calling asset management
outsourcing in Europe a very
young industry, Datamonitor’s
Lessner says: “Right now only one
or two custodians are actually into
developing IT infrastructure plans,
StateStreet, Mellon, BNP and JP Morgan, all use our fund Lessner believes that while it is questionable whether tra-
accounting software. For our existing clients, it means that ditional BPO providers can catch up with the develop-
it is easy to move to a custodian who is using our solution ments of the past one to three years and enter the market
for they both would be using the same software,” explains with stand-alone offerings, there is a viable case to be
Holloway. In addition, DSTi is focusing very strongly on made for partnerships between these traditional BPO
front office products in the areas of decision support and providers and custodians or banks. Citing the example of
compliance where the demand is very high. “For those IFDS, which is a partnership between State Street and DST
vendors that are focused only on the back office, the future Systems to offer transfer agency services, Lessner says that
looks scary,” says Holloway. in the long term, such relationships could potentially be
very successful..
For or against?
Holloway however adds that not all asset managers are FUNDsoft -launches funds administration
outsourcing saying that some of DSTi’s clients have evalu- IT on demand
ated outsourcing but decided against it. Lessner says, Since its inception in 2004, FUNDsoft has fought
“Some large asset managers against the trend of outsourcing to keep its inherited
might think that it gives them a client base. “In our experience most companies want to
greater competitive edge to man- outsource a degree of their fund administration,”
age their back office operations explains Mark Culham, client and partner manager at
internally because they then get FUNDsoft. “Some of them may not want to fully out-
the benefits of efficiency much source, but would rather find a halfway house. The new
quicker than earlier. Also, in COBAS Bureau service from Fundsoft is that halfway
some instances, outsourcing is a house.”
culturally sensitive issue such as As an extension of COBAS, FUNDsoft's fund adminis-
in Italy because such deals usual- tration platform, the Bureau service was conceived after
ly include a people element.” dealing with a particular client who needed more flexibil-
Notwithstanding such examples, ity in their back office. By using the COBAS Bureau serv-
Kim Holloway Lessner believes that outsourcing ice, the client can administer their own funds as well as
will continue. “The growth rate is very high. Every deal control compliance and regulatory functions without any
will increase the market and custodians are very aggres- IT burden.
sive,” he says. “With COBAS Bureau, clients don't have any imple-
It is surprising that in a market that offers such high mentation costs and neither do they have to buy hard-
growth potential, thus far only custodians have made a ware or software,” says Culham. “They simply pay a sin-
mark, while traditional non-bank BPO players such as gle annual fee based upon their level of business that
IBM, EDS and Accenture have remained rather quiet. incorporates everything they need to run their funds
Industry experts suggest that the primary reason is the administration. This effectively gives them the Bureau
tremendous equity that custodians have built over the service 'on demand', while retaining as many in-house
years with the asset management community. In addition, people as they want in order to access COBAS over the
some of them like State Street also have an experience of web. Every function they ever had with an in house prod-
handling their own asset management business. The key uct can remain the same with the Bureau service.”
ingredient missing in the traditional vendors is credibility FUNDsoft is in the process of launching its first client
in the investment management operations space. DSTi’s onto the Bureau service in order to quickly achieve
Holloway states that in this market, it is important for the economies of scale. Culham explains: “In partnership
service provider to offer more than merely manage the with ITEX in the Channel Islands we are placing a signif-
back office operations and custodians fulfil this criterion icant investment into infrastructure and we are guaran-
by offering custody, BPO and several other services. “My teeing the service will be accessible 24 hours a day.
personal view is that you need to be adding significant Getting that first client is always the biggest hurdle to
value than just fund accounting,” she says. overcome but even this has now been solved with the
“Traditional BPO players are not as desperate as the cus- first scheduled to go live in Q1 2005.”
todians. They have stood and watched this market devel- Traditionally targeted towards the large corporate,
op. In addition, custodians have deep pockets. They are COBAS is now pitched at the SME market through the
currently looking for market share and will later focus on creation of the Bureau service. “We wanted to start off
profitability and efficiency, which is not a route adopted by going after boutique fund managers who are used to
by the traditional BPO players, who focus on low cost and common IT platforms such as Microsoft or IBM,” says
efficiency from the very beginning,” states Lessner. Culham. By the end of the first quarter of 2005
Despite their inaction in this arena, traditional BPO FUNDsoft hopes to expand the Bureau service to
players are keeping a close watch and are beginning to get include other solutions such as workflow, analysis tools
their act together. “Not only custodians, but consulting and document management and imaging. “We will still
companies like IBM and exchanges too are looking at this look to offer our traditional solutions on a licence pur-
outsourcing space and we are working with them,” states chase basis but the way forward for FUNDsoft is giving
Trema’s Leconte, refusing to divulge the name of the player clients the most cost effective solutions within a model
they are working with. that suits them and us,” says Culham.
Challenges Services in
Europe, Middle
East, Africa and
Simon Pilkington Asia, says: “We
have had to
effectively the quality of reporting may fail to meet the sourcing, which will continue. The regulatory aspect just
appropriate reporting standards. Quality data is also cru- adds to the list of decision criteria and adds another ele-
cial to the reporting process. ment to the mix”. Although asset managers and pension
Pilkington says: “Good technology provides the client funds are outsourcing compliance to custodians, an FSA
with a controlled environment in which to operate in”. In regulated company cannot outsource its underlying regu-
this new, technology-aware environment, the onus is on latory responsibility. Meanwhile, although custodians
the service provider to provide the client with proven tech- sometimes invest in compliance systems such as those pro-
nology solutions that minimise and mitigate risks. vided by the likes of Latent Zero, they are less likely to out-
Pilkington adds: “The challenge for us is to create a con- source compliance to third parties.
trolled environment in which clients can carry out their
responsibilities”. The wider implications
Recent regulatory activity has led to concern among
The global challenge asset managers that the industry is becoming over regulat-
For the majority of custodians, keeping up with the ed and that, in the long-run, it could prove to be anti-
sheer volume of new regulation is a challenge in itself. One competitive by limiting the creation of new industry play-
custodian, who wished to remain anonymous, said: “We ers and products. It is felt that some of the recent regula-
are drowning in EU directives and FSA consultation tion is too broad for such a niche market and that, by try-
papers and are suffering from indigestion”. ing to be everything to everyone, the regulator is being
But, in an increasingly global market where firms seek a counter-productive.
single mantra by which to run their business, the major
difficulty lies in the implementation of regulation, both on
a local and cross-border level. Saunders comments: “The “Good technology provides
real challenge lies not in coping with the volume of regula-
tion but in implementing the regulation throughout a
the client with a controlled
number of different jurisdictions”. He adds, “For global environment in within
companies such as ours it is critical to develop local com-
pliance systems to protect clients in the individual juris- which to operate.”
dictions”.
Legislation such as the European Savings Directive seeks
Interpreting regulation to protect both the average retail investor and large-scale
Increasing regulation is not likely, per se, to drive further sophisticated institutional investors. But many custodians
outsourcing deals as an avalanche of issues come into play question whether this kind of legislation is necessary in
when an asset manager considers doing something as the UK where the institutional investor market is well
momentous as outsourcing part of its operations. developed and relatively sophisticated compared with its
Pilkington adds: “We are seeing a trend towards out- European counterpart.
Talking Technology Directive, in particular, forces anyone sell- themselves. Vendors can bring various
It is not only the service providers who ing financial products to create a robust ingredients to this equation and imple-
are feeling the heat of regulation. audit trail. This impacts directly on IT sys- ment best of breed technology. Customers
Technology vendors have offered their tems. “Europe is moving towards a UK no longer want vanilla products because
services to institutions, which have fretted and US style of regulation whereby it feels this will not help them to remain competi-
over the costs of complying with evolving that transparency can enable investors to tive. We work with the customer in a part-
regulation. According to Mike Foley, man- make proper decisions on how to invest. nership and can implement solutions at
aging director of Peter Evans, compliance They want to ensure that regulation is in various levels, from the front, middle to
has become a major concern. “The place to ensure that investors are advised back office.”
financial services sector has been exposed correctly. This corresponds with best prac- While custodians continue to create a
to a host of new laws,” he says. “Our cus- tice guidelines in the UK and the US.” stir by announcing a host of lift out deals
tomers are approaching us, concerned While outsourcing remains a key discus- with prominent financial institutions, ven-
that there are about 43 pieces of legisla- sion point, Foley argues that institutions dors believe there will always be a demand
tion which they have to implement by the have different opinions on why they for best of breed solutions. “The days
end of this year! But it is not just our sec- should outsource. “It depends on market when core services were enough to sell are
tor that is affected, the regulators are also conditions,” he says. “When volumes are gone,” says Foley. “Custodians don’t have
addressing the laws for the insurance and down, the financial institution is more all the answers to all the questions. Best
mortgage industries.” likely to outsource. When markets are up of breed is the better approach and we
According to Foley, new European regu- the institution will look to bring some intend to tailor our approach to the cus-
lations have proved difficult to understand operational functions back inhouse. But tomer’s needs, whether this means keep-
and to absorb. “They are very complicat- institutions will hold on to standardised ing the IT inhouse or integrating elements
ed,” says Foley. “The Investment Services functions, which they need to support of our software.”
Mark Faulkner and Bill Cuthbert have been hosting, attending and
participating in securities lending events for over a decade. Like you,
we understand what works and what doesn’t, what’s appropriate
and what isn’t. We have a track record of delivering innovative and
creative programs. Our goal is to deliver an informative event that
will have lasting relevance.
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Infrastructure - Fund Automation
Lifeline
By combining the cost efficiencies through Vestima+ and
with currently available domestic services, Clearstream
claims that a French bank with an investment fund portfo-
lio of Euro 1 bn within an overall asset portfolio of Euro
10 bn would currently face an average price for custody of
the funds of 0.70 of a basis point. By using Vestima+, the
French bank would benefit from a reduction to an average
Consolidation
Despite the variety of funds in Europe, increased pro-
cessing and settlement charges will force the consolidation
of assets within those funds. “The effect of regulation such
as UCITS III has presented many challenges for the funds
industry,” says Thomas Zeeb, Clearstream's director of
relationship management for UK, Scandinavia and the US.
“There is a need to delivery efficiency into both the off-
shore and onshore markets in different parts of Europe.”
For several years, securities service providers have sup-
ported the funds industry by enabling players to concen-
trate on their core business of managing assets. Vestima+
is no different in this respect. The product's creators sup-
port the consolidation of assets in order to cope with the
increase of retail funds. They have also found that fund
The European funds industry is managers prefer to use a common settlement and process-
being overcharged. ing platform but one that meets their differing needs in
differing markets.
Challenges
The sheer variety of individual One of the driving forces behind Vestima+ is the need to
funds means that excessive deliver STP processing efficiency and the anticipation of
further consolidation in the European funds industry.
administrative charges are “Collective investment fund pooling ultimately requires a
levied. ISJ reveals some of these European domicile of choice,” says Zeeb.
Vestima+ expects new customers to go live in the com-
charges and solutions. ing months, while it continues to promote greater efficien-
cies in the cross border funds industry. “Gathering cross
border assets is a difficult task, especially for pension
schemes,” admits national services offered by Clearstream date, Vestima+ has already signed a num-
Bruno Zutterling, and other international central securities ber of new clients. IXIS, a subsidiary of
director of invest- depositories (ICSDs) or even global cus- Caisse d'Epargne Group, has committed
ment funds serv- todians. Customers can select wherever to the service, which will be implemented
ices at they wish to settle and whether to use or to receive fund orders coming from
Clearstream not Clearstream's settlement and custody Clearstream's customers that wish to gain
Banking. “There services. In addition to its traditional cus- access to French domestic funds. IXIS is
are several differ- tomer base of banking institutions, part of the AA-rated Caisse d'Epargne
ent countries and Clearstream is offering this service to Group, a major French universal bank
each of them has insurance companies and asset manage- with a leading position in the French
their own form of ment firms. retail market. IXIS Asset Management,
regulation. The the third-party asset management entity
Bruno Zutterling political issues are Testing of Caisse d'Epargne Group's investment
compounded by The testing phase of the new service banking arm, manages Euro 339.5 bn in
the fact that regulators do not like the will start on 22 November 2004 with cur- assets. Through the Vestima+ service, any
idea of moving assets to other countries.” rent customers. The new pricing concept distributor using a Clearstream account
Regulators in individual European mar- will be implemented with the launch of will be able to settle through a delivery-
kets may not like the idea of fund pool- versus-payment (DVP) process in a fully
ing, but Vestima+ can help overcome the “The European fund automated way with French funds cen-
different regulatory approaches and
encourages promoters to move their industry is desperately tralised by IXIS in Paris. Vestima+ will
communicate with IXIS using SWIFT
funds onto a common platform.
The creation of Vestima+ was spurred
lacking automation for messages and utilise the specific template
issued by the French Fund Market
by the evolution of the fund industry's fund transactions” Practice Group (FFPMG).
clients. “The funds industry was asking Jean-Marc Eyssautier, head of opera-
for help to deliver greater efficiency,” says the new Vestima+ service on 22 January tions for custody and banking services at
Zutterling. “This industry constitutes 2005. Commenting on the possibility of IXIS in Paris stated: “The European Fund
about 50 per cent of Europe's financial cost reduction with Vestima, Zutterling Industry is desperately lacking automa-
savings so efficiency is a must.” says: “When this cost efficiency benefit is tion for fund transactions in the areas of
coupled with STP efficiency improve- both order processing and secured settle-
Pricing ments close to 100 per cent and the wider ment. By combining the Vestima+ service
Clearstream recently announced a new possibility of accessing more markets, the with SWIFT communication standards
modular pricing policy for Vestima+, business logic for adopting Vestima+ and a true DVP process, IXIS will provide
aimed at bringing costs reductions to becomes compelling.” our customers with a very secure way of
market participants. Customers can com- distributing their funds outside of France.
bine domestic services from local central Mandates Clearstream's new initiative to deliver a
securities depositories (CSDs) with inter- With three months to go before launch fully automated process for cross-border
distribution is combining security of the
Flowchart showing Clearstream’s approach to fund automation: French domestic infrastructure with high
flexibility of the new Vestima+ service.”
Bruno Zutterling added, “This agree-
ment from another major player in the
French market recognises the efforts done
by IXIS to enhance automation rates in
the fund industry. By complying with
French market practices, Clearstream
enables fund distributors to access
domestic markets as transparently as
international ones. This highlights the
value added by Vestima+ as an order pro-
cessing hub adopting a multi-domestic
approach.”
Vestima+ will also connect to BNP
Paribas Securities Services as centralising
agent for their mandated French funds
for the delivery of processing efficiency
and higher levels of straight-through
processing (STP). ISJ
participating markets with technology solu- due to increased collateralisation require- - In order to exist in the context of thin-
tions. However, there are no components in ments and conformity is not encouraged as ning margins and still be able to invest,
the NOREX set-up to encourage local blue many issues are left to national discretion. implies that leverage on volumes is key.
chips to change primary listings to any of Similar effects can be expected from other Those volumes cannot emanate from only
the larger participating exchanges. regulatory initiatives like the pending clear- one market.
Therefore, liquidity is not “stolen”’ from ing and settlement Framework Directive - To run a regional operation successfully,
smaller participating exchanges. This is a and the Hague Convention. one regional system is necessary. If this is
unique situation for Europe’s consolidated In the meantime, work continues to not in place, the phasing out of old sys
stock exchanges. change this approach and it is at least assur- tems and the implementation of new
ing to see the Nordics and Baltics develop ones will be prove very costly.
CSDs into a model that is completely in line with - Full connectivity to all local infrastruc-
Another important part of the financial our ideal model. Hopefully it can work as a tures is key, as is the necessity to have
market infrastructure is the Central model for Europe! local competence in all centres to address
Securities Depositories (CSDs). A consoli- local risks and local exposure.
dated CSD would be a step forward in cre- “the Nordics are - To address risk and exposure, it is impor-
ating further efficiency in the Nordic
region.
characterised by fierce tant to know your counterpart.
Contractual arrangements will become
A giant step towards consolidation has been competition and a increasingly important.
affected, with plans to merge the VPC CSD
in Sweden with the APK CSD in Finland. A
number of players.” Regionalisation is happening now, which
means that efforts to build a regional prod-
consolidated CSD would be of great advan- Custody and clearing services uct have probably started too late. The flow
tage to market participants as a large num- For the moment, the Nordics are charac- of business from local to regional compa-
ber of banks and broker dealers are active terised by fierce competition and a number nies has already begun. Investment banks
in all Nordic markets. Connections to four of players compete for business. Regional lead the way in this development, followed
different CSDs adds extra costs and makes players such as SEB and Nordea, and to by universal banks and global custodians.
the Nordic marketplace less efficient. some extent SHB, compete across the The surviving regional providers will be
Denmark has reacted positively towards the Nordics. Local players are active in all four challenged by two-types of animals: one is
creation of a Nordic CSD while the Nordic markets. Some local players such as the infrastructure itself that will compete
Norwegian infrastructure and its political Danske Bank, Hansa Bank and DnB NOR for the low-complexity clearing business. It
and commercial voices are either outspo- have a fairly strong hold in their markets will still take time before the CSDs can
kenly negative or at best silent on the issue. while a few smaller players play a relatively compete for the top business but it will
No decision has been taken on the intro- insignificant role in the sub-custody field. happen. The other animal is the European
duction of a central counterparty in the The international client base perceives the regional provider. This institution needs to
Nordics/Baltics region. The issue of the Nordic market as “one”. The markets them- build a Nordic competence and assimilate
CCP is a very complicated one and the pros selves are consolidating. Increased demands their organisations to present short-term
and cons can be derived from the areas of from regulators will increase complexity threats to the regional providers. This is
risk, cost, timing versus consolidation and and investment needs. The international tax where competition becomes fiercer.
international versus local agendas. and legal situation is becoming increasingly Competition will continue to prevail in the
more complex. Consolidation offers cross far northern corner of Europe.
The regulatory picture border clients the possibility of’ a “one con-
Like all other markets in Europe, the tract, one balance sheet = one risk’’ scenario Conclusion
Nordics will be heavily impacted by the with one regional provider, thereby easing Consolidation is inevitable in the long term
implementation of the ESCB/CESR the administrative and compliance burden. and a single Nordic market place is a strong
Standards. SEB has placed strong emphasis There are threats of disintermediation, possibility. One European market is still
on a balanced regulatory practice that sup- which in combination with the new regula- many years away. One Nordic market place
ports the need for European financial mar- tory roadmap for Europe poses a true is worth working for and would place the
ket consolidation and a credit risk free threat to the agent bank community. whole region in front of further consolida-
infrastructure serving a fiercely competing Margins will continue to thin out, following tion in Europe.
intermediary section. The current status of increased service demands and price re- There are great opportunities for the
the Standards is not encouraging and some negotiations. The possibility to charge for Nordic region in creating a consolidated
very serious effects will be evident if the value added services becomes smaller as market place. It is important that each
Standards are implemented ‘as is’. In traditional value added services become market and individual participants in each
essence, our concerns arise from the fact commodities. The ability to find differen- country look into the future with the inter-
that there are not many distinctions made tiators will be the key. est of the Nordic markets in focus or face
between infrastructures and intermediaries the risk of losing business and becoming
- True regional players will continue to win
and that the implementation of the marginalised. The question really is one of
business and local players will meet inc-
Standards would increase the financial and survival.
reasing difficulties in defending positions.
systemic risk in a currently risk free CSD-
- The decision to continuing with massive
environment. In addition, the competitive Goran Fors is head of investor services, global
investments to cope with client and regu
picture might become blurred, additional clients at SEB and colleague Ulf Noren is head of
latory demands or not will be a difficult
costs will be introduced, liquidity will suffer client relations.
one to make.
Costs
Despite the level of progress
affected by financial institutions,
unit costs are increasing. “As
trades become smaller, costs
increase,” says Tony Freeman,
director of industry relations at
Tony Freeman Omgeo EMEA.
From massive industry initia- For Omgeo, the biggest STP
tives to customer-specific solu- challenge lies within manually oriented firms. Central
to this challenge is the shift away from large-scale out-
tions, Omgeo has learned a lot sourcing. Freeman explains: “Investment managers and
from the failure of GSTPA and custodians thought that fund manager outsourcing was
a good thing for the industry. They felt that outsourcers
the decibel shift of T+1 from a had the budget to invest in technology and to become
roar to a murmur more automated. But there are different approaches to
technology outsourcing, depending on the type of
client.”
Reading the signs, Freeman predicts a tidal wave of
indirect outsourcing. “Thanks to the Spitzer report in the
US, the regulator does not fully trust the investment
industry,” he says. “Global custodians have therefore
become our biggest clients. These outsourcers are challenged with Key challenges for financial institutions:
consolidation in that their operations have to merge into unified
platforms. They also have to make a margin and secure their costs.” By and large there was widespread agreement on
the key challenges facing the industry in terms of
increasing efficiency, as revealed by The Tabb
“People are still scarred by the failure Group / Omgeo research.
of GSTPA and don't want another · Firms from all segments of the industry
believe that the greatest industry-wide efficiency
big industry initiative” challenges lie in the areas of reference data and
connectivity.
Central trade matching
Omgeo continues to attract more clients to its Omgeo Central · Brokers and custodians see the need to
Trade Manager (Omgeo CTM) product. About 37 clients are live, generate industry-wide priority and critical mass
around automation as the single greatest point
with more than 100 signed up. "People often say 'if you build it of pain in their drive to improve efficiency.
(a solution), they will come," says Tabb. "This is not always true.
People are still scarred by the failure of GSTPA and don't wont · Owing to the lack of incentives to join indus-
another big industry initiative. Adding new functionalities to try-wide initiatives, investment managers saw
existing trade matching models makes more sense." managing their own external STP and
Omgeo and Tabb noted the enormous potential for same day connectivity as the greatest challenge.
trade affirmation in the US. Highlighting the reasons for Omgeo
CTM adoption, Kim Davies, marketing manager says that many · In the realm of custodial communications,
custodians, brokers, and investment managers
financial institutions are responding to increased regulation. "The unanimously agreed that the biggest problem
European Union Framework Directive is due for implementation was custodians being last on the information
in 2005," she says. "We will support our clients through this piece chain. Firms in both the US and Europe agreed
of legislation." that this was the major barrier to efficient
custodial communications.
Major Pain Points: The diagrams show investment managers’ and
custodians’ main efficiency pain points. Managing external straight
through processing and connectivity were the main problems for the Key findings of The Tabb Group / Omgeo research
bulk of investment managers. Generating industry priority, critical mass
and incenting automation were the main pain points for the custodian. · Despite firms' implementation of exception
management, there are still a significant
Investment Manager number of failed trades, particularly in fixed
income, where 7.2 per cent of cross-border
Other 13% trades and 6.4 per cent of domestic trades fail
to settle on time.
Data Management / Standards / Corporate Actions 18%
· With the SEC considering mandatory same-day
affirmation, industry SDA rates require further
Managing Technology Upgrades and Infrastructure 21%
improvement. Surveyed firms indicated that
only 44 per cent of their trades are affirmed on
Managing Fixed Income / Derivatives & Product Complexity 21% trade date.
Managing External STP & Connectivity 26% · FIX allocation and confirmation adoption has
been slow to develop; only 3 per cent firms
0% 5% 10% 15% 20% 25% surveyed of domestic equity allocations and
confirmations were sent using FIX and only 21
Custodian per cent of US firms and 37 per cent of
European have adopted the standard.
Internet 8%
F. Income 8%
· In lieu of costly, industry-wide initiatives, firms
now prefer to focus on internal efficiency
Reporting and Customisation 15% challenges, and look to larger industry vendors
to solve external efficiency initiatives.
Managing Tech Upgrades & Infrastructure 15%
· While progress has been sporadic to date,
Data Management / Corporate Actions 23% central matching is being considered for
adoption by 50 per cent of European firms and
Generating Priority, Critcal Mass, Autom. 31% 27 per cent of U.S. firms surveyed.
0% 5% 10% 15% 20% 25% 30%
industry, the state of hedge funds received a lot of attention day-to-day basis. “How can institutional investors be sure
at the IMN conference. There are currently about 8000 hedge they are getting a good price?” he asked. Thompson volun-
funds, which collectively are worth about $1 trillion of assets teered a response, saying providers should present risks and
under management. But the industry is not growing, given rewards and address the inefficiencies of the industry. “There
the impact of poor performance of these funds. is no holy grail for measuring returns,” he said “You have to
Zimmerhansl predicted a move of money from hedge funds put them in the context of the value proposition.”
to better performing funds. “Hedge fund strategies are hav-
ing an impact on how investment banks are structured,” he Third parties
said. “There is an increasing demand for integration of equi- The existence of third party agent lenders was met with
ty and fixed income product offerings.” mixed response from custodians who were present at custody
Ed O’Brien, divisional head of securities finance at State agents panel discussion. “Third parties expect custodians to
Street, has noted significant growth of hedge funds globally, take on incremental risk,” said Wilson. “The third party
with fixed income playing a major part. “Fixed income arbi- makes a good offer but he wants the custodian to look after
trage is a key growth area,” he said. the corporate actions and other grind work. Third parties
The panel concluded the roundtable by commenting on should also provide the same service as the custodian and
the outlook for securities lending in the UK and Europe. take on some of the risks.”
Paul Cutts, on the other hand, said custodians should seek
Global custody agents to develop agreements with third party lenders. “Best prac-
Securities lending is available in many different forms, tice and benchmarking is an important consideration when
including agency lending and third party lending. But how working with a third party,” he said.
integral is the product to the overall custody package? This
was one of the questions asked during a panel discussion on
global custody agents and securities lending. As a custody “Your lending agent should
agent, Paul Wilson, senior vice president at JPMorgan, insist-
ed that the product is just one of the criteria of a keenly con- look out for your long-term
tested custody mandate. “I have yet to see a mandate being
awarded to a custodian just because he is good at securities best interests”
lending,” he said. In contrast to this statement, BBH's Patricia
Fallon argued that securities lending is an indication of excel- Benchmarking
lence from the investor services provider. “Excellence in the Considering the array of clients, securities lending
securities lending product is an indication of how committed providers said benchmarking is difficult to achieve. “All pen-
a custodian is to the investor services business line, as it takes sion funds have a different philosophy to risk,” said Wilson.
significant investment in technology and risk management to “I am not convinced that an industry benchmark is the best
offer an industry leading program,” she said. approach. Fail trades, income collection and proxy voting
For a growth industry, the size of securities lending is diffi- should be included in the service level agreement because
cult to quantify to would-be clients. “I would hope that any each custodian and each client is different.”
RFP has parameters on which to base calculations,” says
Richard Thompson, head of agency securities lending at Client support
BNP Paribas Securities Services. To further support his comments made at the panel discus-
According to Paul Cutts, senior vice president at sion, Cutts emphasised the importance of a support mecha-
Northern Trust, securities lending is an important part of nism between the lender and the client. “From an opera-
the overall custody package. “The vast majority of ques- tional perspective, appropriate service level agreements
tionnaires we receive include questions about securities should be in place,” he said.
lending. But we don’t see it as our right to participate in Ed Oliver, director of securities lending product manage-
securities lending just because we’re custodians. Each serv- ment at Northern Trust, added that corporate governance
ice should be considered on its own merit.” should be considered in conjunction with the benefits of
Like other elements of securities services, securities lend- securities lending. “It’s difficult to quantify the financial ben-
ing is about trust and relationship building. “Your lending efits of corporate governance,” he said. “The balance between
agent should be looking out for your long term best inter- corporate governance and securities lending is an industry-
ests,” says Fallon. “This means lending within your specific wide concern.”
objectives and risk/return profile.” ISLA will continue to work with the industry on this issue
The role of securities lending consultants came under and key discussions will take place over the next 6 to12
the spotlight at the IMN conference. “It should be incum- months.” According to Cutts, lending agreements should bal-
bent on consultants to set out what they want from us as ance returns with the ability to recall stocks on contentious
custodians in the RFP process,” says Wilson. “Although we governance issues.
use a benchmark portfolio for securities lending, we have Oliver concluded that proxy voting vendors could work
made it difficult for beneficial owners as they do not know with the beneficial owner and offer advice on which meet-
what to ask for.” ings they should be voting at. “Vendors can help the benefi-
In defence of consultants, Ross Whitehill, chief operating cial owner work out an appropriate voting policy that com-
officer at Thomas Murray and chair of the panel, said there is plements their securities lending activity,” he said
no way of working out the price of securities lending on a ISJ
Migration
SWIFT is closing the final lap of the SWIFTNet migra-
tion. To date, 95 per cent of all customers and 85 per cent
of all FIN traffic has migrated to SWIFT's new IP-based
messaging platform, SWIFTNet.
Reflections The focus on successful migration was a key feature at this
As I look back on Sibos 2004, I am impressed not only by the breadth of year's Sibos event and service providers were extremely
discussions and business that took place, but also by the high levels at vocal in their concerns about STP and standardisation. In
which the SWIFT community interacted. fact, the SWIFT standards forum was oversubscribed with
All of us were challenged at Sibos. We had serious discussions about
how, now that the migration to SWIFTNet is drawing to a close, financial delegates who assembled to discuss options for the conver-
institutions will leverage the investments they have made in SWIFTNet. gence of financial messaging standards. A fund managers’
We showed how the range of SWIFTSolutions across payments, securities, forum was also held to convey the benefits of SWIFTNet
treasury and trade are being implemented by institutions and how the MTs migration.
will continue to support FIN and members’ legacy applications, while new
XML-based SWIFTSolutions (MXs) are being developed to meet today’s
business needs. Landmarks
We agreed that now is the time to simplify cross-border payments. STP According to Leonard H. Schrank, CEO of SWIFT, 2004
is not dead – we heard the call to bring it to the securities industry. And has been a good year for his organisation. The number of
the debate over corporates intensified, as we looked at how to welcome
corporates into our community. payments increased by 13 per cent from last year. Financial
These are significant challenges, and we saw many responses from all trade messaging increased by 8 per cent from last year and
constituents in Atlanta. We certainly agreed that in working together as a overall growth increased by 12.7 per cent. Since 2001,
global financial community, we can address and solve these challenges SWIFT has managed to cut its costs by 26 per cent. Costs
together.
SWIFT is already working on ensuring that next year’s Sibos in Copenhagen for SWIFT messages have decreased by 35 per cent.
from 5-9 September, will again provide a forum for thoughtful leadership Commenting on the reductions, Schrank said that SWIFT
in the global financial community. If you have any ideas or suggestions, is committed to price reduction and investing for the
don’t hesitate to contact me at patrik.neutjens@swift.com. future.
Patrik Neutjens - Director of Sibos, SWIFT Jaap Kamp, Chairman of the SWIFT board, admitted it
has been a struggle to get the buy side to adopt SWIFTNet.
“In the meantime, we continue to support the success of
corporate institutions and the intermedi- tial questions”, based on banks' position at Is STP dead?
ary role of banks in setting up a corporate the core of the transaction services indus- In addition to Miller’s memorable plenary,
structure.” he said. “We have to work out try. The first, “Why do we make things so delegates assembled on day two of the con-
how to standardise the arrangements complicated for our clients?”, criticised the ference to question the existence of STP.
between corporates and banks. The mar- length of time (days or even a week) According to Mary Fenoglio of Citigroup, a
ket has to develop for the benefit of every- required to execute a cross-border pay- lot of work is still required in order to
one, but it takes time.” ment. “If we cannot figure out how to achieve STP efficiencies for cross-border
make these problems go away - to make transactions. “We should be thinking about
Challenges life easier, faster and more transparent for collective solutions,” she said. According to
Kamp's sentiments can be widely our clients - we are not properly serving Mark Alexander of Merrill Lynch, STP is
applied across the securities lending them, and that is not good business,” says about efficiency and reducing industry costs.
industry. “We have survived 30 years of Miller. The second question, “How can we “The biggest opportunity for STP lies in
success and complacency,” says Schrank. help our customers become more efficient Europe, where cost competition could
“Our biggest competition is our members. and productive, when our own back impact market growth,” he said. “The securi-
If they are not satisfied, they could leave offices are so expensive, fragmented, out- ties industry in Europe would be best served
and set up their own groups. The telecom- dated and 'non-interoperable?”, cited the by one CCP and one CSD.”
munications companies could pose a inefficiencies and complication of banking Alexander estimated that total CSD and
threat in this area but we can compete. We infrastructures. “As an industry, we sup- CCP revenues in Europe amount to about
believe that only the paranoid survive - we port far too many redundant infrastruc- $2.5bn per year. “Total revenues in the US
are paranoid!” are only about $700m.
Going global
“We believe that only On behalf of fund managers, Alan
Crutchett of DWS admitted that his com-
SWIFT is in the process of extending its the paranoid survive munity was lagging behind in STP invest-
reach to China and India and is working ment. “T+1 got a lot of hype but the airplay
with its partners in each region. “SWIFT is - we are paranoid!" was brief,’ he said. “Fund managers are try-
planning to change its governance to cre- ing to find common practices and are look-
ate more affordable access for smaller tures and networks, too many proprietary ing for best of breed solutions. They are
users,” says Kamp. To further its commit- standards, too many middle-ware plat- making significant investments.”
ment to the Far East, SWIFT will appoint forms, too many legacy systems and too Fenoglio agreed that fund managers had
a senior manager to work with the local many products that should probably have tactical issues to address. “Selective out-
authorities and improve payment systems. been swept into the dustbin two years sourcing helps the fund manager to move
ago,” said Miller. Her third question, “If we back office functions elsewhere in order to
Out front? truly aspire to be leaders in the payments leverage the capabilities of a provider with
Compared to previous years, SWIFT has and securities industry, why is it that so scale,” she said. “We have seen a handful of
managed to attract more fund managers many innovations in this business are pio- outsourcing successes but they depend on
to Sibos. “We have structural issues to neered by non-banks?”, suggests that banks bank’s ability to create replicable solutions.”
address and have to convince fund man- allow themselves to be disintermediated by At a US securities session, Taylor
agers of the benefits of migration,” says people who build a payment solution bet- Bodman, partner at BBH suggested custo-
Schrank. SWIFTNet FIN, which is the core ter than those offered by the banks. dians are experiencing further commoditi-
product, constitutes about 10 to 15 per- While praising SWIFT for its ability to sation, consolidation and convergence.
cent of revenue. The company expects the provide value around messaging, Miller “Some players will succeed with market
volumes to multiply in the next five years. presented her fourth and final question to changes, but they must realise that out-
the messaging organisation: “If we can sourcing has become a boring term. The
One voice send a secure message to any company way asset managers do things is different
Speaking on behalf of the securities over the internet, why should we pay and does not fit perfectly with our indus-
industry at Sibos 2004, Heidi Miller, chief SWIFT to do it for us? “What is the real try. The sector will begin to invite non-
executive officer of JPMorgan Chase & value SWIFT will provide the payments custodians such as TATA and TIBco. Now
Co's Treasury & Securities Services deliv- and securities business?,” she asked. “How is the time to put a premium on (SWIFT)
ered a no-holds-barred interpretation of can you help our slow-moving industry to connectivity and standardisation. SWIFT
the theme's event, a “Time for Growth”. move faster to take full advantage of all will enable an era of unprecedented com-
Originating from they buy side of the the new possibilities? That's the challenge.” munication.”
securities industry, Miller revealed her In some ways, Miller said the problem Donald Kittel of the SIA called on the
amazement at the complexity of the IT might be that the payments and securities securities industry to re-examine the con-
and operational aspects of transactions services industry is too customer-centric flicts of interest in the business, adding
processing. But more importantly, she and unwilling to enforce more standardis- that the case for investing in IT infrastruc-
vented her bewilderment at the lack of ation around business rules, formats and ture is strong. “Industry CEOs have to be
standardisation across countries and processes. She called on the securities comfortable that regulatory reform has
across market infrastructures. “Despite industry to set its individual differences stabilised,” he said. “We need to learn how
efforts to digitise transactions and auto- aside figure, to figure out how it can work to better implement technological change
mate processes, these businesses are highly together, to deliver more value to cus- and free market business networks.
people- and paper-intensive,” she said. tomers, to make the back offices more effi- Markets are recovering and public trust
“As an industry, we are a very long way cient and to get into the market place with and confidence is improving.”
from “STP”. Miller delivered four “existen- innovations. ISJ
Visit www.clearstream.com
or call +352-243-0
Sibos 2004 - Bonding at the Bash
WORK
PLAY
This page...
- Top left: Frankly Scarlett…Rhett and his love, together again
- Centre: Team BNP Paribas – Vive la Difference!
- Right: Two vendors walk into a bar…Dan Barnes (The Banker) and Karen Shrubb
(ADP)
- Lower Centre: Winding down after a hard days’ work…
- Lower Left: Xciting times for Brendan Fraser
- Centre Left: Oh, what a night! Sibos sing-a-long
letters continued from page 4 and making it available when needed. As a custody provider, Standard
Tactical solutions that only deal with Bank is committed to this process and
Fax Off (continued) single business functions or processes has been a driving force in ensuring
(From Mark Austin, head of strategy for are being replaced with an enterprise- that the client needs are taken into
JPMorgan Investor Services in Europe) wide strategy that ensures data is treat- account. The recommended changes
End buyers.. should know what ed as a corporate asset and the root to will further enable the South African
they're paying for and be told the cost improved efficiencies. corporate actions market to move
of implementing regulation, particularly, Companies implementing EDM begin towards Global Best Practice. These
as Dermot points out, that regulation not by consolidating their enterprise data are exciting times in an exciting market
written for their benefit. into a repository representing the – watch this space!
"Single Source of Truth." This Golden David Price, Director of Financial Asset
“We are not immune as Source provides companies with key Services, Corporate and Investment
advantages and business intelligence Banking Division, The Standard Bank of
an industry from the including the ability to effectively South Africa
type of competitive understand customer behaviour and
buying trends with the corresponding Passing Trade
pressure that has ability to match pertinent products and No two transition managers are
services. Other operational benefits are created equal. In the past few years,
carpeted inefficient and gained from sharing consistent data the market has witnessed a surge in
expensive airlines.” across all business units and from
improved decision support tools.
the number of investment managers,
global custodians and broker/dealers
We are not immune as an industry Adding real-time intelligence across an offering to act as transition manager.
from the type of competitive pressure enterprise reduces process cycle times, More providers means more innovation
that has carpeted inefficient and helps automate costly information flows but may also lead to more confusion
expensive airlines. We need to deal between organisations and supports on the part of pension schemes when
with this issue or the ultimate buyers the re-allocation of IT staff to higher evaluating different methodologies.
will deal with it for us by voting with value priorities. Different approaches to portfolio
their feet. Bob Wolfert, EVP Corporate Strategy, restructurings may have vastly different
Mark Austin, head of strategy for Financial Technologies International (FTI) implications with respect to portfolio
JPMorgan Investor Services in Europe trading and portfolio risk management.
South African Corporate Actions In the wake of several recent
An Enterprise Perspective The introduction of a dematerialised episodes, an important issue surround-
Regulatory pressures, customer sat- equities market through the South
isfaction and profitability are driving
financial services firms to reassess the
African CSD STRATE in September
1999 has brought about major
“Pre-hedging ... to
way data is managed and used across improvements within the South African trade in advance of an
the enterprise as the first step in the securities industry. As such, most of
process of automation. The need to the international rating agencies rate order from a client.”
measure return on investments is mak- the South African market settlement
ing firms conscious that poor quality risk as one of the lowest in the world, ing trading practices has emerged-
data directly impacts profitability mostly due to the efficiencies brought pre-hedging. In some cases, a broker
on by STRATE. However, corporate has the ability (presumably with explicit
“Tactical solutions that actions processing has not seen the full
extent of these benefits as yet.
disclosure to, and consent from, the
client), to trade in advance of an order
only deal with single The first enhancement to the from a client, in such a manner as to
business functions or STRATE Corporate Actions module is
under discussion and will incorporate
hedge its trading book when the broker
is acting as principal in the execution
processes are being the new SWIFT qualifiers, which have of the client’s portfolio. In doing so, the
evaded the market since 1999. This provider is effectively taking a position
replaced with an enter- initiative will further enhance automa- in the opposite side of the trade for that
prise-wide strategy.” tion between STRATE, its members
and members’ underlying clients. The
client’s portfolio. The provider has
become a counterparty, and in the zero
through missed opportunities, cus- use of additional qualifiers in SWIFT sum game of principal trading, is now
tomer attrition and higher costs. In messaging will further improve the an adversary rather than an advocate.
tackling these challenges, firms are quality of the messaging to the central The broker can only win when the pen-
adopting Enterprise Data Management securities depository participant, allow- sion scheme loses. If the market
(EDM), the process of standardising ing for a greater rate of STP on our declines when the client is selling
and sharing data across the enterprise clients’ side. stock, the broker benefits.
Similarly, if the market is increas- the end of this year. We are excited Nordic market, infrastructure, legal
ing when the client is purchasing and confident about the opportunity matters, market rules and regulations
stock for a target portfolio, again, the before us to significantly advance the as well as currencies in the Nordic
broker benefits. processing of institutional trades within countries are still and will continue to
The pricing mechanism by which these Canadian capital markets. be very different and fragmented for a
providers quantify the cost of a transi- Gerry O'Mahoney, chair, Canadian number of years. There is still a con-
tion only takes into consideration the Capital Markets Association siderable amount of ground to cover
risk carried by the broker – not the before true harmonisation can be
scheme. The gains and/or losses Visualising More realised.
occurring in this strategy are not esti- The financial asset management In order to meet the challenge to
mated before, nor are they measured community has not seen a lot of offer a Nordic product in advance of
after, the trade. This results in a lack of change in information interfaces since such harmonisation, DnB NOR in
transparency when it comes to the full the arrival of computers. Columns of Norway, Swedbank in Sweden,
cost of the transition, and, especially, data on a black background are still OKOBank in Finland and
the manner by which the provider is Amagerbanken in Denmark have
motivated – and compensated – for the “In many cases, entered into a product alliance cover-
quality of execution on the trade.
Pension schemes and their consultants
the information value ing all aspects of Nordic sub-custody,
exchange and OTC clearing with relat-
should investigate the manner by of data increases ed products. The service spectrum will
which a transition manager is being encompass international financial insti-
remunerated in a transition, and with time.”
demand a full cost report and hold the
provider accountable for performance.
widely seen. Simultaneously, data vol-
umes are growing.
“There is still a
Avoiding to do so could result in poten- Data is not information, and informa- considerable amount
tial costs or losses to the plan that may tion is not knowledge. Data means
ultimately be carried by the Scheme nothing if taken out of context. of ground to cover
and not quantified by the provider –
who was hired in the first place to
However, by presenting data in the right
context it becomes intelligible informa-
before true
manage exactly that risk. tion that can become knowledge. We harmonisation can be
Julie Dickson, Director, Transition
Management Services Europe, Mellon
often say we "act upon information",
while in fact we act when we have
realised.”
Global Investments gained knowledge - from information. tutions as well as the domestic client
In many cases, the information value segment in each of the four countries.
Competitiveness through of data increases with time. That is, The Nordic Alliance has been creat-
Institutional Trade Matching with more time to consider the data, ed in order to provifit from a long time
At an October 28, 2004 industry more information can be created from relationship with other participants in
information session, the Canadian it. However, in situations where time is the market and thus have the neces-
Capital Markets Association (CCMA) fixed, as is often the case in the finan- sary contacts and influence with impor-
Board presented its unanimous cial markets, greater importance is tant local organizations.
decision to realign the CCMA's priority placed on context or structure. The clients will benefit from timely
to focus on phasing-in the matching Improving how data is presented is market access, quality products, cost
(agreeing to trade details) of the only way we can speed up the leap reductions and credibility.
institutional trades on trade date. from data to information to information Bente Hoem, First Vice President,
Recent research, commissioned by to knowledge. Academic scholars have head of global relations and business
the CCMA and conducted by the lead the way in the research and devel- development, DnBNOR
Capital Markets Company, found that opment of information visualisation
while Canada's preparedness to technology. This change is exactly what
implement straight-through processing is going on right now in the world's ISJ welcomes your letters on any
(STP) is ahead of the U.S. in areas financial markets. It is a major shift, aspect of the global securities
such as payments and dematerialisa- where more data will increasingly also services industry. For inclusion
tion, it potentially lags the U.S. in the mean more knowledge.
within the next edition, letters
area of institutional trade. Willem De Geer, CEO of Panopticon
Until recently, the CCMA has worked Software should be sent to:-
to create STP awareness among the Janet.DuChenne@ISJForum.com
industry; however, the Board's decision The Nordic Alliance by Friday 17 December.
will direct efforts and resources to the Despite the fact that steps have Thank you.
area thinstitutional trade matching by recently been taken to consolidate the
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Bennett, who is appointed deputy sales Richard Godfrey is joining HSBC she was the regional sales manager for
director. Bennet joined GL TRADE Securities Services in December 2004. First Call.
London in November 2003, following Godfrey will report to Mike Martin, co-
the acquisition of MSTS by GL TRADE. Head of HSBC Securities Services, Deutsche Börse AG has appointed
The Bank of New York has also appoint- Europe and have responsibility for new Jeffrey Tessler, an executive vice presi-
ed Jim McAuliffe as managing director major asset manager/insurance out- dent at the Bank of New York, to its
with responsibility for European sales of sourcing deals and will be a key mem- executive board. From October 6,
foreign exchange and derivatives. ber of the European management team. Tessler will be responsible for the
McAuliffe, who will manage a European Godfrey has extensive experience in the Banking and Custody Area within
team of 16 foreign exchange and deriva- outsourcing field and in implementing Customers/Markets at the Borse. On
tives salesmen, has worked at BNY and managing large operational December 10 he
since 1987, most recently for 10 years as processes. He joins HSBC after five will also become
vice president, corporate derivatives years with Mellon Financial Corporation. chief executive
sales manager. Based in London, Since 2001 Godfrey was managing officer of
McAuliffe will report to Stephen Lawler, director of Mellon European Fund Clearstream
senior vice president, derivative sales Services, the investment administration International S.A.
and Jorge Rodriguez, senior vice presi- arm of Mellon in Europe. In this role, he Tessler (50) joins
dent, foreign exchange sales, both of was responsible for leading Mellon into Deutsche Börse
whom are based in New York. Angus the European outsourcing market, from Group following
Cameron has been appointed as chief solution to implementation, as well as a 25-year career
financial officer for the Bank of New for growing its traditional fund account- with BNY, where
York’s operations in Europe. ing and transfer agency businesses. Jeffrey Tessler he held a number
Reporting to Tom Mastro, the Bank of Prior to that, Godfrey spent 12 years of key manage-
New York Comptroller, and Tim Keaney, with Fleming Asset Management, ment positions. Most recently, he
head of Europe, he will be responsible including managing large operations served as EVP of BNY Securities Group,
for the management of all European teams supporting the insurance and the company's global agency brokerage,
Finance Department functions. investment businesses. clearing and financial services outsourc-
Cameron has had significant experience ing business. The current CEO of
in both the private and public account- DST International (DSTi) – business Clearstream International André
ing industries, having worked as global solutions provider for the investment Roelants will become the company's
CFO for property/casualty underwriters management industry has further chairman as of December 10. In an
CNA, deputy finance director at Scottish expanded its Asian team with the expanded role, he will focus on client
Widows, and finance director of appointments of Ian Baldwyn and Fran development, strategic marketing, and
Barclays Stockbrokers Ltd. Thompson. Ian Baldwyn joins DSTi as financial industry relationships and
general manager for South Asia. developments. Robert Douglass, who has
BNP Paribas Securities Services has Though based in served as chairman of Clearstream
appointed Scott Dickinson as a senior Singapore, his International and its predecessor compa-
global relation- responsibilities ny, Cedel International, since May 1994
ship manager for will also include will become Chairman Emeritus and sen-
institutional Malaysia, ior advisor to Clearstream International.
investor clients. Indonesia, India,
Dickinson is Sri Lanka and The Bank of New York has made two
based in London Brunei. He additions to its global transition manage-
and reports to comes from ment team in London. The company has
Margaret Bloomberg, appointed Clare Few as vice president,
Harwood-Jones, where he was the product manager and Jane Burnell as
head of global Ian Baldwyn regional sales vice president, transition manager. Few
sales and rela- manger based in will be responsible for client relationship
Scott Dickinson tionship manage- Singapore. Before that Baldwyn was the management and sales and joins from
ment, project director for Odyssey Asset JPMorgan Chase where she worked as
Institutional Investors. He joins BNP Management Systems. Fran Thompson transition management product manag-
Paribas Securities Services from joins DSTi as business development er. Burnell is responsible for client com-
Rabobank, where he was responsible for manager for Asia. Thompson comes munications and strategic implementa-
sales and marketing of the bank’s from Thomson Asia, where she was the tion of transitions and joins from G-Port,
Group Treasury Products since 2000. product director for the Investment the global equity portfolio trading divi-
Prior to that he was managing director Management group. Prior to that she sion of BNY, where she was head of sales
of Global Institutional Services at was the general manager of Thomson trading. Few and Burnell will report to
Deutsche Bank / Bankers Trust. Financial First Call Asia and before that Alex Johnstone, European product head.
Credit Agricole Investor Services specializes in fund administration, T: +352 4 767 2306
custody/depositary/trustee as well as corporate trust activities. The Group aims to Contact: Olivier Storme
expand its service offering through local synergies in the areas of commercial E: info@
growth and IT infrastructure. eu.ca-investorservices.com
Assets under Custody: EURO434 bn
No of funds: 4,228
ING Securities Services in The Netherlands, Belgium, Germany, France and Central & T: +31 20 797 9436
Eastern Europe are working successfully under the single name and a single market- Contact: Ingrid Reichmann
ing strategy. ING Securities Services offers an extensive range of securities-related E: ingrid.reichmann-
services to its wholesale clients. ING offers custody services, integrated derivatives kops@mail.ing.nl
and cash-clearing in the various domestic markets in Europe. W:
www.ingsecuritiesservices.com
Nordea is one of the leading financial services group in the Nordic and Baltic Sea T: +47 22 48 4544
region and operates through three business areas: Retail Banking, Corporate and Contact: Ms. Oda M. Myklebust
Institutional Banking and Asset Management & Life. The largest financial services Head of Client Relations
group in the region with approximately EUR 262 billion in total assets. A world-lead-
ing Internet banking and e-commerce operation with 3.8 million customers. oda.m.myklebust@nordea.com
Assets under Custody:EURO 360 billion W: www.nordea.com
SG GSSI offers a complete range of value added securities services for all institutional
T: +33 1 53 05 45 09 investors: clearing, custody and trustee, fund administration, transfer agent and registrar
Contact: Mathieu Maurier, services. Societe Generale ranks 4th securities custodian in Europe and 10th worldwide
Vincent Ginet with USD 1,350 billion in assets held. SG GSSI provides custody & trustee services to
E:Mathieu.maurier@socgen.com, 2,300 funds and its subsidiary Euro-VL provides valuations for over 3,300 funds repre-
vincent.ginet@socgen.com senting assets of USD 300 bn. The quality of these services is acclaimed by the world’s
W: www.sggssi.com leading agencies: - Trustee and custody – Paris: Aa2 (MQ) (Moody’s) - Global custody –
Paris: aa (Fitch Ratings), Trustee Paris: aa+ (Fitch Ratings)
Fund Administration
T: +353 1 6700 300 Bank of Ireland Securities Services (BoISS) is a provider of administration, custody,
F: +353 1 8290 144 transfer agency/ shareholder services and trustee services.
Contact: Liam Manahan /
Liam Butler Assets under Custody:USD$160.8 billion
E: liam.butler@boiss.boi.ie
W: http://www.boiss.ie/ No. of funds: 155 funds (July 2004) including assurance linked funds, exchange
traded funds, umbrella funds, unit trusts, variable capital companies, etc.
Address: New Century House,
Mayor Street Lower, IFSC,
Dublin 1
T: +1 (441) 295-1111 Butterfield Fund Services (Bahamas) Limited boasts a team of experienced profes-
Contact: Andrew Collins sionals dedicated exclusively to serving investment managers. Fund administration is
E: contact@bntb.com Butterfield Fund Services’ sole business, allowing us to demonstrate our commit-
W: www.bntb.bm ment to fund administration.
T: +1 732.563.0030 Derivatives Portfolio Management provides onshore and offshore alternative asset fund
F: +1 732.563.1193 administration, back and middle office outsourcing, portfolio valuation, daily NAVs, risk
administration and portfolio transparency solutions for fund managers, asset allocators,
Contact: Lisa Cohen institutional investors and proprietary traders. DPM’s services are designed to solve com-
W: www.dpmllc.com plex administrative needs and improve operational efficiency. DPM has the systems,
infrastructure and experience to handle your toughest administrative challenges. DPM
Address: Two Worlds Fair Drive, has a world-wide staff of 200 employees. DPM’s HQ is in Somerset, New Jersey with
offices in London, the Bahamas, and the Cayman Islands.
Somerset, New Jersey,
NJ08873, USA
T: +33 1 53 05 45 09 SG GSSI offers a complete range of value added securities services for all institutional
Contact: Mathieu Maurier, investors: clearing, custody and trustee, fund administration, transfer agent and registrar
Vincent Ginet services. Societe Generale ranks 4th securities custodian in Europe and 10th worldwide
E: with USD 1,350 billion in assets held. SG GSSI provides custody & trustee services to
Mathieu.maurier@socgen.com, 2,300 funds and its subsidiary Euro-VL provides valuations for over 3,300 funds repre-
vincent.ginet@socgen.com senting assets of USD 300 bn. The quality of these services is acclaimed by the world’s
W: www.sggssi.com leading agencies: - Trustee and custody – Paris: Aa2 (MQ) (Moody’s) - Global custody –
Paris: aa (Fitch Ratings), Trustee Paris: aa+ (Fitch Ratings)
eSecLending is a global securities lending manager designing, implementing and T: +44 (0)207 002 6700
administering customized securities lending programs for major institutional F: +44 (0)207 002 6700
investors worldwide. The firm provides comprehensive securities lending manage- E: ukinfo@eseclending.com
ment services. From developing the program, to setting up and conducting the Website: www.eseclending.com
auction, to handling all daily administration, eSecLending supports clients at Address: Old Mutual Place, 2
every point in their securities lending activities. eSecLending is an Old Mutual
Lambeth Hill, London EC4V
plc group company.
4GG, UK
Technology
T: +41 (0)44 218 14 14
F: +41 (0)44 218 14 18
IFBS offers the financial industry a wide range of consulting services as well as
E: info@ifbs.com
individual and standard software solutions. The firm supports clients along the entire Website: www.ifbs.com
security value chain - from business modelling to change management processes. Address: IFBS AG,
IFBS’s IT solutions range from FINACE®, a Securities Finance and Collateral Buckhauserstrasse 11,
Management Platform, to the development of tailor-made IT applications. CH-8048 Zurich, Switzerland
FUNDsoft: With offices in London, Glasgow, Jersey and Luxembourg; FUNDsoft For more information visit
provides one of the most technically advanced Fund Administration platforms www.fundsoft.co.uk or call
available. The COBAS range of solutions are designed exclusively for Fund and 08702000443
F: 020 7959 3030
Investment Managers, BPO providers and TPA’s. Various acquisition models are
Mob: 07980912649
offered covering the following areas; Contacts: Mark Culham,
Address: 288 Bishopsgate,
European Unit Trusts; Offshore Funds; PEP, ISA, OEIC & SIPP's; Pooled Pensions; London, EC2M 4QP
Property Funds; Fund of Funds; Multi Manager Funds; Wrappers; Fiduciary portal;
Funds Automation; Funds Supermarkets; Reporting ; Hedge Funds; Investment E: mark@fundsoft.co.uk
Trusts. Web: www.fundsoft.co.uk
Stock Exchanges
T. 1.345.945.6060
The Cayman Islands Stock Exchange has completed seven years of operation since
F. 1.345.945.6061
its launch in 1997. It is now established as the offshore leader in hedge fund list- Contacts: Valia Theodoraki –
ings with substantial growth in this area over the past two years. The Exchange is a CEO, Richard Crawshaw – Head
“recognised stock exchange” under the UK Inland Revenue Income and Corporation of Listings, Monique Melis –
Taxes Act 1988. The CSX is an affiliate member of IOSCO and the Intermarket Head of Business Development.
Surveillance Group. The Exchange operates a true offshore market. The listing and W: www.csx.com.ky
membership rules have been designed to meet international standards as well as the Address: Cayman Islands Stock
needs of our specialist products. To date more than 800 securities have listed on Exchange, 4th Floor Elizabethan
Square, PO Box 2408GT, Grand
the Exchange, primarily mutual and hedge funds as well as specialist debt securities
Cayman, Cayman Islands
and derivative warrants.
For further information please contact: Head of Securities Services: Mikael Björknert,
mikael.bjorknert@seb.se. Investor Services Global Clients: Göran Fors, goran.fors@seb.se.
Global Client Relations: Ulf Norén, ulf.noren@seb.se. Global Securities Lending: Kristian
Stångberg, kristian.stangberg@seb.se
Nomura International plc is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange.