WWW.ISJFORUM.

COM

INVESTOR
S ERVICES
JOURNAL
VOLUME 2 No. 8 - Sept/Oct. 2005

PRIME
B
MOVES
H F R
ROKERS ON THE EDGE UND ISE

CENTRE STRENGTH - CUSTODY PLUS:

HERE COMES THE SUN - PRIME BROKERAGE STP & AUTOMATION - CORPORATE ACTIONS
ASIAN ALPHA? - HEDGE FUNDS TA TECHNOLOGY - BEYOND BORDERS
ON CORE - OUTSOURCING PENSIONS - DEFYING DEFICIT
A MEETING OF MINDS - SECURITIES LENDING SPECIAL REPORT - FUND FORUM 2005

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL

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hedge fund administration services, UBS can give you the confidence you need to focus on your
core business. Our experienced team of professionals, with access to state of the art technology, deliver
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 Editorial

INVESTOR Core Concerns Hedge funds have also kept administrators on

S ERVICES Despite their varied returns over the last six
months, hedge funds and other alternative invest-
JOURNAL ments are here to stay. This point is aptly defended
by the hedge fund administrators & prime brokers.
VOL 2 No.08 - Sep/Oct 2005 The latter group of service providers is rallying
around the hedge fund cause, particularly those
that are owned by large financial groups. These
groups can offer administration and custody in
WWW.ISJFORUM.CO highly competitive service arrangements. One such
INVESTOR group spoke to ISJ about the importance of scale
S ERVICES
JOURNAL
VOLUME 2 No. 8 - Sept/Oct. 2005
when serving the increasingly complex require-
ments of hedge funds. Providers who are unable to
bring this scale to bare on hedge funds are being
forced to reconsider their presence in this industry
or to consolidate with other providers in order to
acquire the necessary scale.
PRIME
B
MOVES
H F R
ROKERS ON THE EDGE UND ISE
Apart from the core functions such as clearing
and order execution, the large prime brokers now
CENTRE STRENGTH - CUSTODY
HERE COMES THE SUN - PRIME BROKERAGE
PLUS:
STP & AUTOMATION - CORPORATE ACTIONS
provide core custody services and capital introduc-
ASIAN ALPHA? - HEDGE FUNDS
ON CORE - OUTSOURCING
A MEETING OF MINDS - SECURITIES LENDING
TA TECHNOLOGY - BEYOND BORDERS
PENSIONS - DEFYING DEFICIT
SPECIAL REPORT - FUND FORUM 2005
tion for hedge fund managers.
Prime brokers are under pressure from the regu-
lator to show they achieved best execution in a
trade, and to a certain extent, oversee the activities
of the hedge fund, previously the domain of the
fund administrator. The US Securities and
Exchange Commission (SEC) requires that hedge
fund managers should register with the
Commission by January 2006, further increasing
the administrative burden on these fund managers
to be compliant. The long-term impacts of such
legislation could be severe, particularly when con-
sidering that its sister Sarbanes Oxley has forced
certain companies to de-list from the New York
Stock Exchange, in response to the costs and capi-
tal required to be compliant with such legislation.
Considering that most of these hedge fund man-
agers’ perception of technological advancement is
based on fax and phone, the resources implied by
WWW.ISJFORUM.COM SEC registration could trigger further outsourcing.
their toes. These providers have delivered services
such as reporting and monthly and daily net asset
value calculations. Having explored hedge fund
opportunities in the developed markets of the
West, including North America, the Caribbean and
Continental Europe, administrators and other
fund service providers are turning their attention
to Asia, as a potential domicile for hedge funds.
While hedge fund growth in Asia is far from
spectacular, the opportunities in this emerging
market, as well as those in Eastern Europe, will
deliver long term yields.
Securities services providers are also hopeful that
the hedge funds industry will also cast its magic
wand over Europe and shine on centres like
Luxembourg, the Netherlands and Belgium.
Meanwhile, these providers have enough opportu-
nities in Europe’s pensions market to keep them
busy.
Pensions and other institutional investors have
provided outsourcing opportunities, particularly in
the way of component bundling. Providers, who
initially entered relationships with these investors
on a pure custody basis, have earned additional
functions such as performance measurement and
securities lending.
Technology vendors who provide algorithmic
trading solutions, data warehousing and liquidity
management services are being sought by prime
brokers and hedge fund managers to provide
sophisticated technology, which enables these
clients to monitor their trade positions and even
determine the outcome of a trade relative to a
benchmark or volume weighted average price.
With so many buyside firms in search of back,
middle and front office solutions in order to focus
on their core competencies, the opportunities for
providers who operate within these areas are des-
tined for stardom...and revenue.
Janet Du Chenne - Editor

ANNOUNCEMENT
TOMORROW’S PEOPLE, THE ISJ STUDENT ESSAY COMPETITION 2006
It’s time again for students to test their skills and for today’s industry leaders
to scout the available talent in ISJ’s second Annual Essay Competition.
Students at over 400 business schools and universities will be invited to enter the competition, by writing an essay on the
topics listed alongside (specific questions will be set by an Academic Advisory Panel and announced on
WWW.ISJFORUM.COM along with details of Prizes, Sponsors and Venue in September 2005).
Essay Categories: · Compliance / Regulation · Hedge Funds · Outsourcing · Institutional Investment
· Risk Management · Technology in Financial Services · Prime Brokerage
Dates to diarise are; Essay Deadline - 21 March 2006 & Essay Awards Evening 22 June 2006
The Essay Awards Evening will take place at a prestigious London venue and will be attended by the winners of the essay
competition and professionals from the securities services industry. Professionals interestedin involvement in this event,
please contact ISJ on +44 (0) 207 493 9966. WWW.ISJFORUM.COM.
 INVESTOR
S ERVICES
JOURNAL
Contents
6 World News The latest securities services news

HEDGE FUNDS
14 Prime Time CSFB’s Philip Vasan on hedge funds and client demands
16 Here comes the Sun Hedge funds have caused a sea change in the prime brokerage industry
22 Asian Alpha Service providers turn their thoughts to Asia, reports Alison Ebbage
28 Analyse this...Hedge Funds Hedge fund experts anwer a range of questions about their industry
32 Looking Up The latest hedge fund performance results from HFR

CUSTODY
34 Centre Strength Service providers in the Benelux region embrace the changes in Europe

OUTSOURCING
40 On Core What do recent changes in outsourcing say about the securities industry?

SECURITIES LENDING
46 On Loan Performance results and analysis from Data Explorers
48 A Meeting of Minds Carol McGinn analyses of value of securities lending networking events
50 RMA Analysis The latest performance results from the Risk Managment Association

PENSIONS
51 Defying Deficit Pension fund deficits have forced custodians to deliver creative solutions
52 Home Brew The Pensions Interview - Ray Martin of Scottish & Newcastle

CORPORATE ACTIONS
54 Automatic for the People Is CA automation within reach by Rekha Menon
56 Time for Action Roundtable the key challenges for corporate actions

TECHNOLOGY & STP

67 Beyond Borders David White analyses the demands on the technology that supports
cross border distribution

REGULARS
70 Mandates
74 Movers and Shakers
76 Directory of Services
Pensions funds consolidate asset services with single providers
Who has moved to where...
Custody, Fund Administration, Securities Lending, Technology, Prime
Brokerage, Training & Education

WWW.ISJFORUM.COM

2 INVESTOR SERVICES JOURNAL

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the FSA for investment business in the U.K. JPMorgan is a marketing name for Worldwide Services businesses of JPMorgan Chase & Co. and its subsidiaries worldwide.
© 2005 JPMorgan Chase & Co. All rights reserved.
Letters to the Editor

INVESTOR Write to Janet.DuChenne@ISJforum.com produce investment research by removing

Time to comply the regulatory distinction between research
S ERVICES The Markets in Financial Instruments services provided by brokers along with exe-
cution services...and research services pro-
Directive (MiFID) with which EU Financial
JOURNAL vided by third-parties”.
Institutions will need to comply starting April
The Bank of New York has been at the fore-
2007, will provide increased investor protec-
Janet Du Chenne tion plus market front of the debate since its inception in
Editor harmonisation and transparency across 2001, campaigning continuously for
Janet.DuChenne@ISJFORUM.COM increased transparency in the relationship
Europe. Although MiFID is not yet finalised,
between brokers and fund managers.
it is clear that institutions must enhance
Julia Svetlichnaja The UK has made ground-breaking progress
their IT architecture to achieve compliance
News Editor with, and competitive advantage from, to get this far. The debate doesn’t end here.
Press@ISJFORUM.COM MiFID. The Bank of New York has always believed
that ‘independent research commissions’
Design more accurately reflect the sum paid for the
NatterJack Design “Although MiFID is not yet acquisition of third party research services –
Design@ISJFORUM.COM finalised, it is clear that institu- whether they are from independent sources
Contributors tions must enhance their IT or third party brokers.
Brian Bollen, Alison Ebbage, “We are encouraged that the
Rekha Menon, James Wallace,
architecture to achieve compli-
Christine Senior ance with, and FSA has moved away from
competitive advantage” the negative connotations
Justin Lawson
Publishing Director TIBCO Systems believes the major tech-
implied by the phrase ‘soft
Justin.Lawson@ISJFORUM.COM nology impact is in five areas, under MiFID: commissions’
Institutions must publish and follow proce-
Kenny Thomas dures to correctly classify their clients; We are encouraged that the FSA has
Account Manager Institutions must ensure that all investment moved away from the negative connotations
Kenny.Thomas@ISJFORUM.COM advice and transactions are suitable for the implied by the phrase ‘soft commissions’.
client at the time of execution; Institutions These final rules underscore the
Stephen O’Sullivan progress that the UK has made in respond-
Account Manager must ensure that client orders are routed
and executed in the most favourable way ing to the FSA's original call for market-
Stephen.OSullivan@ISJFORUM.COM led transparency.
for the client, considering factors other than
Heba Hassanatou just price;Banks operating as "systematic We are hopeful that the rules will be
Subscriptions internalisers" (internal exchanges), instructive to the Securities Exchange
Heba@ISJFORUM.COM exchanges and alternative trading venues Commission as they deliberate on this
must publish firm quotes and report trades; critical issue.
Sabz Munawar and, Records must be retained for 5 years Gareth Jones, Managing Director, The Bank
Directory Sales the complete history of every event and of New York
Sabz.MunawarISJFORUM.COM transaction must be recorded so that it can
be “reconstituted.” BPM First
Mark Latham Organisations that have implemented an (From Andrew Bailey)
Managing Editor Event Driven or Real Time Architecture It is an inherent feature of the investment
Mark.Latham@ISJFORUM.com across their enterprise, integrated with industry that processes cut across many
Business Process Management Tools will be departments and silos within financial
Tasha Fryer best positioned to achieve MiFID compliance institutions. Demanding business, economic
Operations Manager and competitive advantage.
Tasha.Fryer@ISJFORUM.com
“Demanding business, economic
David Darby, CTO for Financial Services for
EMEA, TIBCO Systems Incorporated and regulatory pressures are
INVESTOR SERVICES JOURNAL
37-38 MARGARET STREET
forcing financial services compa-
LONDON W1G 0JF, UK Over to the SEC
nies to evaluate every facet of
T: +44 (0) 20 7493 9966 The FSA published Policy Statement 05/9 their business and operations”
F: +44 (0) 20 7493 3366 (PS05/9) on Friday July 22. PS05/9 repre-
sents the final rules on bundled brokerage and regulatory pressures are forcing
© 2005 Investor Intelligence and soft commission arrangements, the cul- financial services companies to evaluate
Limited. All rights reserved. every facet of their business and operations.
No part of this publication may be mination of the process started in 2003 with
CP176. Executives are constantly searching for
reproduced, in whole or in part,
without prior written permission from The FSA stated that its final rules will opportunities to reduce cost structures
the publisher. ISSN 1744-151X “…promote competition between those who and increase profitability
Printed in the UK by Pensord Press. (Continued on page 73)
WWW.ISJFORUM.COM

4 INVESTOR SERVICES JOURNAL

 Wherever you settle should feel like

home

Demands for a single European

capital market have set
harmonisation in motion.

We are convinced of the benefits

of harmonised financial markets
in Europe and are committed to
removing barriers to cross-border
securities settlement.

DELIVERING A DOMESTIC
MARKET FOR EUROPE
News - Europe Middle East Africa
Custody & Outsourcing
London - Institutional investors and
custodians are missing out on class
action settlement payments amounting
to $8,28bn, according to research by
class action recovery specialist Magenta
One. Of the 71 settled cases examined
by the specialist, settlement has already
been agreed and the funds deposited in
an escrow account awaiting a proof of
claim. There are 117 cases that have
passed the proof of claim deadline
where the funds are awaiting distribu-
tion by the court appointed claims
administrators. CEO David Monks
acknowledged that while some cases
are dismissed by court judges due to
lack of evidence or are without merit,
some are under appeal. There are 33
lead plaintiff opportunities, anyone
wishing to be a lead plaintiff will need
to apply within a 60 day window. There
are also 1070 class member cases,
including those where a lead plaintiff
has been appointed and the case is
going forward.
London - The owner of Citco Group
Limited, The Sandoz Family Foundation,
has handed a controlling interest in the
company to an investor group, which
includes the Smeets Family Trust, Citco
managers, and friends of the firm.
Terms of the transaction with were not
disclosed. The Sandoz Family
Foundation, which had made a substan-
tial equity investment in Citco in 1995,
will retain a minority ownership posi-
tion and a seat on the Citco Board.
6 INVESTOR SERVICES JOURNAL
Funds & Administration
Brussels - The European Commission
has published a Green Paper on the
enhancement of the EU framework for
investment funds. The Paper invites
consideration and comment on a range
of proposals aimed at boosting the
efficiency of the single market for
investment funds. An efficient European
investment fund market - where some
¤5 trillion of funds are currently under
management - is of key importance in
the context of enhancing investment
and in contributing to better provision-
ing for old age. Stakeholders are invited
to comment by 15 November 2005 on
the Green Paper.
Market Infrastructure
London - The Competition Commission
(CC) in the UK has provisionally con-
cluded that the proposed acquisition of
London Stock Exchange plc (LSE) by
Deutsche Börse AG (DBAG) or
Euronext NV (Euronext) would substan-
tially lessen competition. The CC found
that either merger would make it more
difficult for other exchanges to compete
with LSE in trading UK equities because
of both bidders’ ownership or control
over the future provision of clearing
services to LSE. The CC found that the
removal of DBAG or Euronext alone, as
a result of either merger, would not be
expected to result in a substantial
lessening of competition in the
provision of on-exchange trading
services because of the competition
provided by other exchanges in Europe
and the USA.
London - OMX Securities Limited, a
provider of transaction technology, pro-
cessing and outsourcing solutions for
the financial markets, has continued its
expansion in the UK by adding all of the
Lawshare Limited business to its
existing client base. Lawshare is a
provider of securities dealing and
support services for investment man-
agers. Lawshare’s clients include fund
management companies, accountants,
private banks, independent financial
advisers, stockbrokers, trust companies
and pension funds.
STP & Technology
New York - The Depository Trust &
Clearing Corporation (DTCC) has
adopted the ISO 15022 international
messaging standard for its Global
Corporate Action (GCA) Validation
Service to meet global interest in the
service. In
addition, several corporate action solu-
tions providers have certified their
interoperability with ISO 15022 GCA
Validation Service output. These include
Checkfree, Information Mosaic,
Mondas, N Tier, Vermeg, and Xcitek.
The GCA Validation Service provides a
centralised source of “scrubbed”
information about corporate actions,
including tender offers, conversions,
stock splits, and nearly 100 other types
of events for equities and fixed-income
instruments traded in Europe, Asia-
Pacific and the Americas. The service
delivers comprehensive, accurate and
timely information, helping to reduce
operational losses and optimise
front-office trading.
Johannesburg - Old Mutual and
Nedbank have signed one of South
Africa’s biggest information and
communications technology (ICT) deals
ever, which will enable both companies
to collectively achieve cost savings of
more than R1 billion in the next five
years. The outsourcing agreement,
worth approximately R1.8 billion, will
see Old Mutual and Nedbank establish
a shared IT network managed and
operated by Telkom and Computer
Sciences Corporation (CSC) and will
encompass a complete overhaul of all
voice and data communications
technology components with no capital
expenditure to Old Mutual or Nedbank.
The shared network is expected to
significantly drive down network and
telecommunication costs, improve
business functionality and increase
service levels. Old Mutual MD Roddy
Sparks says: “This joint initiative is
good news for our shareholders and
demonstrates the commitment of the
various businesses in the group to
finding synergies that will cut costs and
propel growth.
Old Mutual expects to save more than
R300 million over the life of the
contract with savings expected to be
around R30 million for 2005. Old
Mutual and Nedbank will achieve
savings broadly in line with each com-
pany’s transaction volumes.
NEWS DAILY AT
WWW.ISJFORUM.COM
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News - Americas
Custody & Outsourcing
Boston - State Street Corporation
announced a revenues of $1.36 bn for
the second quarter of 2005, an increase
of 6 per cent from the second quarter of
2004. Second-quarter earnings per
share was $0.66, up 2 per cent from
$0.65 in last year’s second quarter,
which included $0.03 per share for
merger and integration costs associated
with the acquisition of a substantial
portion of Deutsche Bank’s Global
Securities Services (GSS) business.
Total expenses in the second quarter of
2005 of $1.03 bn are up 8 per cent, or
$75 million, which includes $26 million
for a previously announced subleasing
agreement, compared to $953 million in
the year-ago quarter. Net income is
$220 million, the same as in the
year-ago quarter.
For the second quarter of 2005, return
on stockholders’ equity is 14.4 per cent
compared to 14.9 per cent in the
second quarter of 2004. Ronald E.
Logue, State Street's chairman and
chief executive officer, said, “We are
pleased with the results of the quarter,
which were driven by continued strong
fee revenue growth in investment
servicing and management. Excluding
the impact of the sub-lease agreement,
we achieved sequential-quarter positive
operating leverage again this quarter,
helped by our strong focus on expense
control. We are also pleased with our
progress in creating opportunities to
more actively manage our balance sheet
in the face of a challenging interest-rate
environment.”
8 INVESTOR SERVICES JOURNAL
Funds & Administration
Washington - The Managed Funds
Association (MFA) has published MFA’s
2005 Sound Practices for Hedge Fund
Managers, the culmination of a six-
month effort by MFA to update the
previously issued 2003 Sound Practices.
Over the past two years, the hedge fund
industry has nearly doubled in size to
become a $1 trillion industry with a wide
range of new financial innovations,
strategies, markets and products. MFA
updated and re-published its Sound
Practices at this time, expanding
coverage on key topics such as internal
trading controls, responsibilities to
investors, valuation, and risk controls,
to ensure that hedge fund managers
continue to have useful guidance on
issues critical to the evolution of the
industry and the integrity of the
marketplace. MFA, headquartered in
Washington, DC, is a trade association
representing professionals who
specialize in alternative investment
strategies, including representatives
from the majority of the worldÕs largest
hedge funds.
MFA’s 2005 Sound Practices for Hedge
Fund Managers contains
recommendations that are intended to
promote sound business practices for
hedge fund managers and, in doing so,
enhance investor protection while con-
tributing to market soundness.
Transactional Practices is a new section,
broken out from regulatory controls.
Securities Lending
Salem - SunGard has launched a new
Web-based Agency Lending Disclosure
of Principal communications hub and
management service for processing
principal lender and counterparty
information between agent lenders and
broker/dealer borrowers, as part of an
industry-wide initiative to help increase
transparency in agency securities
lending. Available to all industry
participants, SunGard's new Securities
Finance Disclosure (SFD) offerings were
designed to meet and exceed Agency
Lending Disclosure Task Force guide-
lines for enabling borrowers to approve
the principal lenders used through
agency lenders. "SunGard's new Web-
based service for this important
disclosure initiative provides integration
with any industry participant's existing
infrastructure, helps to reduce
development and technical overhead
costs, and facilitates enhanced
processing efficiencies for SunGard cus-
tomers using Global One, Loanet and
WorldLend," said Brian Traquair,
president, securities finance, SunGard.
STP & Technology
New York - Correctnet, the solutions
provider for alternative investment
funds, has achieved several significant
milestones for its infiPointTM data con-
solidation and publishing platform. The
company’s web-based reporting
capabilities are aimed at the
high-impact vertical segment of the
asset management arena — hedge fund
administration. Over the last 24
months, Correctnet has become a key
reporting system for more than $400
billion in assets spanning 4,000 funds,
providing critical product and
performance data to more than
300,000 investors and supporting more
than 800 white-label enterprise portals.
Steve Meyer, Head of Investment
Manager Services at SEI Investments, a
leading global provider of asset man-
agement and investment technology
solutions, said: “Correctnet is a valuable
partner and one of the key elements in
helping us deliver satisfaction to our
clients. Their platform has helped us
deliver custom-branded reporting solu-
tions and business portals to our clients
quickly, reliably, and with all the
business functionality they need.”
New York - Branch Banking & Trust Co.
(BB&T) has selected Xcitek’s XSP™
software solution for Corporate Actions
processing. Xcitek is a lprovider of
market data, corporate actions software,
and staffing solutions, XSP features
comprehensive data scrubbing tools,
robust workflow management modules,
web and ISO messaging for client
notification and response capture, and
complete entitlement processing.
Utilising its rules-based, data-scrubbing
engine with built-in exception handling
capabilities, XSP captures and sanitizes
data from multiple vendor sources and
custodian data. XSP also offers the
ability to track event notifications
through its web-based module,
eTRAN™, by generating notifications to
intermediaries for desired elections.
Instructions are automatically updated
to the back-end system for reconcilia-
tion and entitlement processing.
WWW.ISJFORUM.COM
News - Asia Pacific
Funds & Administration
Beijing - The Principal Financial Group
has entered into a joint venture agree-
ment with China Construction Bank
(CCB) to market mutual funds in the
People's Republic of China. CCB-
Principal Asset Management Company,
Ltd. will be 65 percent owned by China
Construction Bank, 25 percent owned by
The Principal and 10 percent owned by
China Huadian Group. The company will
be headquartered in Beijing. The appli-
cation for CCB-Principal Asset
Management Company, Ltd. is subject
to approval by the China Securities
Regulatory Commission (CSRC). "We
are very pleased to partner with China
Construction Bank," said J. Barry
Griswell, chairman and chief executive
officer, Principal Financial Group. "This
landmark agreement lays an important
milestone for The Principal, after our 10-
year presence in China with two
Representative Offices. With CCB's
strong brand name and extensive distri-
bution network of nearly 15,000 branch-
es, the bank controls approximately 15
percent of mutual fund distribution in
China, which will be invaluable to our
joint venture as we seek to deliver mutu-
al funds and potentially other financial
services to the Chinese public."
10 INVESTOR SERVICES JOURNAL
Prime Brokerage
Shanghai - Financial services provider
Wachovia has opened a branch in
Shanghai, China. The Wachovia branch
will facilitate customers’ global trade by
allowing companies and correspondent
banks outside of China to direct trade
transactions involving Chinese trading
partners through the new branch.The
Shanghai launch marks the opening of
the fifth Wachovia branch in Asia.
“China has become a critical link in a
growing number of our customers’ sup-
ply chains. It is increasingly important
that we provide our clients and their
trading partners with efficient services to
facilitate the cross-border movement of
goods and services,” said Michael
Heavener, head of Wachovia’s
International Division. The Shanghai
branch represents Wachovia's ever-
expanding presence in Greater China.
With branches in Hong Kong, Taipei,
and now Shanghai, Wachovia has posi-
tioned itself as a significant financial
institution in Greater China. Additionally,
offices in Beijing and Shanghai perform
liaison functions between Wachovia’s
offices in the United States and cus-
tomers. The Shanghai branch was offi-
cially opened July 1, 2005.
Market Infrastructure
Sydney - The Macquarie Group in
Australia has confirmed it is considering
a possible formal approach for the
London Stock Exchange.
The Group has noted recent press
speculation surrounding a potential
bid for the LSE, added it is ”consider-
ing a number of potential acquisition
opportunities”.
Macquarie said its deliberations are at
the most preliminary of stages and,
therefore, there is no guarantee that any
such deliberations will lead to a formal
approach and/or offer being made for
the London Stock Exchange Plc.
If any bid were made, it would be as
part of a consortium and if any such
offer is made it is likely to be solely in
cash.
It is estimated that the Australian bank
could lift the bid price for the 300-year
old Exchange to above 600p. The
Deutshe Borse’s £1.3bn indicative offer
was rejected late last year, while
Euronext has yet to make an offer.
STP & Technology
Hong Kong - The Bank of New York has
been selected by Xinhua Finance as
depositary for its American depositary
receipt (ADR) program. One Xinhua
Finance ADR represents 1/300 of an
ordinary share of the company. The
ADRs trade on the over-the-counter
market under the symbol "XHFNY," and
the ordinary shares are listed on the
Mothers Section of the Tokyo Stock
Exchange. Fredy Bush, chief executive
officer of Xinhua Finance, said, "We
chose The Bank of New York because we
were impressed with their across-the-
board strength and leadership in the
ADR market, as well as their renowned
service culture and professionalism."
Chris Sturdy, managing director of The
Bank of New York's Depositary Receipts
division, said, "Xinhua Finance provides
proprietary China-focused financial infor-
mation products and represents an
important new sector in China-related
ADRs. We look forward to helping them
raise their investment profile internation-
ally at a time when an increasing num-
ber of Chinese companies are choosing
the ADR program route to expand their
investor bases." Based in Hong Kong,
Xinhua Finance is a provider of financial
information products focused on
China's financial markets.
California - Oracle will buy a majority
interest in India's largest applications
software company, i-flex solutions.
Software products from i-flex support cor-
porate banking, consumer banking,
investment banking, Internet banking,
asset management, and investor services.
i-flex has provided software and services
to 575 banks in 115 countries. "i-flex is the
hottest software company in the banking
industry, signing more new
customers than any other banking soft-
ware company in each of the last three
years," said Oracle CEO, Larry Ellison.
"Banking is a strategic industry for Oracle
with 9 out of the top 10 banks already
running Oracle ERP applications. Oracle's
overall application strategy is to go
beyond ERP and offer customers richer
industry-specific functionality. i-flex gets
us there in banking." The current i-flex
management team will continue to run
the company and will align product devel-
opment, sales, marketing, and services
activities with Oracle 2006," said Lund.
Domicile News ISJ’s industry correspondents in the fund centres of
Dublin, Jersey and Luxembourg provide a snapshot of the
latest developments...
Dublin
Gary Palmer
New milestones, new legislation and a new
EU framework are the current topics of
conversation in the Irish industry. Industry
statistics, yet to be released, from the
Financial Regulator, IFSRA, will highlight
that during June 2005 the Net Asset Value
of Irish registered collective investment
schemes has passed the 500 billion mark.
Coupled with the approx 350 billion of
non-Irish funds being serviced by the Irish
industry, there is a strong sense that a
further milestone will be reached in the
very near future.
On the 30th June, the final day the Irish
Government sat before the summer recess,
The Investment Funds, Companies and
Miscellaneous Provisions Act 2005 was
enacted. The Act includes a number of very
important provisions: firstly, it provides the
general legal framework for the dedicated
asset pooling structure the Common
Contractual Fund (CCF) providing for a
new investment vehicle - the non-UCITS
CCF; secondly, it introduces segregated lia-
bility at sub fund level for investment com-
panies and it also provides for the cross
investment between sub-funds of invest-
ment companies, both of these provisions
will enhance and increase the product
development opportunities for Irish funds.
Finally, on the 13th July the EU
Commission published it’s Green Paper on
the enhancement of the EU framework for
investment funds. It is widely accepted and
agreed that the UCITS product was and is
merely a first step. Given that approxi-
mately 90% of the UCITS funds distrib-
uted in multiple jurisdictions (Europe and
beyond) are domiciled in Dublin or
Luxembourg, one of the strongest messages
that the UCITS experience highlights is the
efficiencies, economies and benefits that the
division and specialisation of fund func-
tions can provide.
Gary Palmer, Chief Executive, DFIA.
12 INVESTOR SERVICES JOURNAL
Jersey
Graeme McArthur
Assets in the Specialist Fund sector
administered in Jersey, have seen an 83%
increase in the year to 31st March 2005
as Jersey’s funds industry continues its
renaissance.
The specialist sector, which includes
Hedge, Property, Private Equity and Fund
of Funds now represents 47% of all assets
administered in the island.
An important factor in this growth has
been the launch of the Jersey Expert
Fund guide in early 2004.
It was designed to attract Professional
Investor Funds through a streamlined
regulatory process.
Promoters are attracted by Jersey’s
acknowledged reputation, appropriate
level of regulation, sound corporate gov-
ernance and a range of servicing options.
The number of Property Funds, a
traditional speciality in Jersey, continues
to grow, with many new structures being
established, often as Expert Funds.
Historically these Funds focussed on
UK investment, but there is now a second
trend with promoters coming from fur-
ther afield and casting their net wider for
investment opportunities.
Hedge Funds are attracted to the Island
as an alternative to the Caribbean
locations, particularly where there is a
significant UK or European element.
Subsequent Jersey initiatives, including
the launch of the Non Domicile Fund
Guide and more recently, the campaign
to attract Hedge Fund Managers and
Family Offices to re-locate to the Island,
is giving further impetus to the revival.
Graeme McArthur, representative of the
Jersey Funds Association and Managing
Director of Northern Trust in Jersey
Luxembourg
Jean-Jacques Picard
Since the beginning of 2004, the
Luxembourg legislator has laid the
foundations for several significant product
innovations in the investment fund
industry. A law on securitisations passed in
March 2004 provides for specific
securitisation vehicles that can be set up as
fund structures, among other options.
Furthermore, such vehicles represent a new
investment class for other undertakings for
collective investment.
The law on SICARs (investment
companies in risk capital) that was enacted
in June 2004 opens up new opportunities
for fund promoters with the introduction
of an innovative vehicle that is flexible
while at the same time benefiting from
regulatory approval. The new SICAR law
has introduced the regime of “qualifying
investor”, a concept that may well be
extended to other product areas in the
future.
In May, the Grand Duchy has reduced to
nil the annual subscription tax on pension
pooling vehicles. These vehicles are
investment funds which are exclusively
destined to pool assets invested in the
various national supplementary pension
schemes of a same multinational group.
This pooling may achieve cost savings for
the associated pension schemes through
economies of scale (e.g. reduction in
management fees, administration costs,
etc), better risk diversification and tax
efficiency. A dedicated ALFI working group
is currently investigating ways to offer a
specific tax environment to socially
responsible funds.
Jean-Jacques Picard, Director Public
Relations Association of the Luxembourg
Fund Industry - ALFI
Prime Broker Focus - Credit Suisse First Boston

The growth of the hedge funds industry has given

prime brokers many reasons to cheer.
ISJ speaks to Philip Vasan about an industry that makes
prime brokerage a good business to be involved in

Like birds of a feather, the hedge funds and prime bro-

Prime Time kerage industries have become mutually dependent on

each other for further growth.
The development of the former industry has led to an
evolution among prime brokers, which have expanded
their traditional service arrangements to offer the hedge
fund community a range of value added extras.
Credit Suisse First Boston is a fine example of such a
prime broker, and, with a career at the company spanning
13 years, Head of Global Prime Services Philip Vasan is
well versed to comment on the milestones of this industry
and maintains some interesting predictions for the future.

“A few will emerge as ‘super’

prime brokers, each likely with a
unique identity, operating on a
full-service global scale”
Vasan first entered Credit Suisse First Boston in 1992 to
establish a global foreign exchange derivatives business.
Following this successful mission, he was then appointed
to the post of Head of Global Foreign Exchange.
The multi-asset class experience Vasan acquired in Fixed
Income and in subsequently running Global Equity
Derivatives made him an ideal candidate to steer CSFB’s
prime services effort from the beginning of 2003.
Vasan’s earlier experiences also included running the
Institutional e-commerce division at CSFB, giving him
exposure across the front and back office.

Trends
In a rapidly evolving industry, Vasan has noted a host of
developments that have affected prime brokers in the last
year.
“The continued flow of capital into alternative
investments has made it more challenging to maintain
performance,” he says.
“This has been temporarily compounded by cyclical
trading conditions. As the dust from that settles, we’re
seeing hedge funds continuing to explore ways to
outperform, ranging from employing new financial
instruments to diversifying strategies.”
This proliferation of hedge funds strategies has placed a
new set of demands on the prime brokerage industry to
deliver a more complete suite of capabilities to hedge
Philip Vasan funds, whose activities have broadened and become more
complex.
To meet hedge fund demand, prime brokers have

14 INVESTOR SERVICES JOURNAL

 Prime Broker Focus - Credit Suisse First Boston
continued to invest in capacity.
Vasan explains, “CSFB’s approach has been to deliver the
complete core capability demanded of all prime brokers
and to then differentiate ourselves with a fully-integrated
offering across asset classes combined with access to
resources across Credit Suisse. This includes coming up
with innovative ways to help hedge funds as their
strategies or even their business models evolve.”
Competition
In the last five years, an overlap “We expect an increased focus on the credit quality of
has occurred between the services the counterparty in a trade in addition to the collateral”
provided by prime brokers, custodi-
ans and fund administrators.
As the hedge fund industry continues to develop, some
prime brokers have taken the step to offer custody and
clearing.
Vasan says: “Some prime brokers have looked to bundle
custody or administration services with their prime
brokerage offering.
“As an alternative we have offered an open-architecture
approach toward these services, giving our hedge fund
clients transparency and access to the best of what's out
there, whether from us or externally.
“In addition some hedge funds as well as investors prefer
a degree of separation between certain services, where for
example the prime broker and administrator are operating
on separate channels. Either way our approach is to offer
the choice.”
Range
The range of services provided by prime brokers has
expanded considerably.
“Core services generally include clearing, settlement,
reporting, client service, financing, start-up help and
capital introductions, where prime brokers bring together
hedge fund managers seeking capital and the investors that
supply it,” says Vasan.
Among the recent trends, Vasan highlights the move of
hedge funds beyond equities across all asset classes. “Prime
brokerage opportunities have similarly extended beyond
servicing classic equity long-short strategies to multi-asset
class strategies,” he says.
Single Platform
Noticing the emerging change in tactic among clients,
CSFB was one of the first global prime brokers to move its
equity and fixed income capabilities onto the same
platform. The prime broker facilitated this move three
years ago in order to meet what it saw as a growing
demand for an “asset-class neutral” service.
Vasan has various predictions for the hedge fund
community in the coming years. “As in any growing and
increasingly efficient market we expect the ‘secular’
pressure on returns to persist,” he says.
“This should in turn continue to fuel a search for
differentiation by hedge fund managers. As for prime
brokers, we see competition accelerating the
‘commoditisation’ of traditional offerings and placing a
premium on a differentiated offering as well.”
Regulation
Apart from performance-related challenges, many hedge
fund managers have until February 2006 to register with
the US Securities & Exchange Commission.
It is expected that registration will increase the
administrative tasks required of these managers.
“This should increase control resource needs and to a
degree costs,” says Vasan. He doesn’t expect this to affect
who CSFB takes on as a client, noting that “the Firm
already has a highly-targeted approach.”
CSFB currently serves 300 managers across equity and
fixed income prime brokerage. “To maintain high individ-
ual client focus we aren’t looking to take this beyond about
400 over the next eighteen months,” states Vasan.
Within Europe, the upcoming Basel II capital adequacy
requirements will have an important impact on the hedge
fund and prime brokerage industry.
“We expect an increased focus on the credit quality of
the counterparty in a trade in addition to the collateral,”
says Vasan.
Vasan ultimately sees a one-time expansion in the top
tier prime brokers. “A few will emerge as 'super' prime
brokers, each likely with a unique identity, operating on a
full-service global scale.
“For Credit Suisse, there is added potential to create
value for hedge funds through our “One Bank” platform.”
In order to realise its “One Bank” initiative, Credit Suisse
is aligning its Investment Bank, Private Bank and Asset
Management units into a one-stop shop for clients.
And with an individual like Vasan leading the group’s
Prime Services business Credit Suisse is well positioned to
harness these strengths for hedge funds.
Philip S. Vasan is Head of Global Prime Services of Credit
Suisse First Boston, based in New York.
He is a member of the Global Equity Management
Committee and the Firm's Management Council.
Vasan joined the Firm in 1992 to develop CSFB's global
currency options business.
In 1996 he became Head of Global Foreign Exchange,
which he ran until 2000.
Prior to his current position, Vasan was worldwide head of
Equity Derivatives and Convertibles.
He has also led both the Firm's institutional e-commerce
and cost reduction efforts, and has co-chaired CSFB's
Managing Director Evaluation Committee. Before joining
CSFB, Vasan ran Citibank's FX options business in the U.S.
after trading interest rate derivatives there.
Vasan received his B.A. with High Honours from Oberlin
College and his Ph.D. in Economics from Harvard
University, where he was named top graduate instructor in
the University. He has authored a text on Options used to
train CSFB staff and clients, and has served as a visiting
lecturer in Finance at the MIT Sloan School of Management.
INVESTOR SERVICES JOURNAL 15
Prime Brokerage
here Comes
the Sun
The performance of alternative
investments has surpassed that
of traditional equity and fixed
income vehicles and has caused
a seachange within the prime
brokerage industry. Brian Bollen
reports on the regulations
affecting hedge funds and the
opportunites for prime brokers
“Sunlight is good, unless you’re Dracula, and we don’t
want Draculas in the business.” That’s the pithy view of
one New York-based prime broker when called upon to
comment upon the impact that planned new regulatory
arrangements will have upon hedge funds in the US. “We
want sunshine, we want openness, we want transparency,”
he continues, implying that anything that increases
transparency must by definition be good. So long as it
does not affect performance. “We want astute, aggressive
managers to take care of our wealth,” he adds.
John R. Phillips, Chief Investment Officer, Philadelphia
Breaking through the cloud cover?
16 INVESTOR SERVICES JOURNAL
Capital Management, cast an eye over the proposed new
regulatory situation at the request of Investor Services
Journal.
The SEC recently adopted a new rule that requires most
investment advisers that manage more than $30 million to
register as investment advisers under the Investment
Advisers Act of 1940, he reports. This includes hedge fund
advisers. Advisers with less than $25 million are prohibit-
ed from registering with the SEC but are subject to state
regulatory agencies. Advisers can avoid registration by
requiring a two-year lock-up period. The SEC, as a way to
distinguish hedge funds from venture capital funds, insti-
tuted the lock-up criterion. The regulations become effec-
tive in February 2006.
Registration
“Who bears the brunt of registration? It seems that the
hedge funds themselves will be responsible for their own
compliance to the new law. But there are certainly new
opportunities for service providers to assist hedge funds in
achieving compliance. Prime brokers are probably already
registered and managing their compliance requirements
from other areas of their business. They likely possess sig-
nificant internal expertise. Smaller hedge funds are likely
deficient in their expertise so an opportunity exists for
prime brokers to expand their realm of service.
“A direct impact will be a better “accounting” of the true
size and scope of hedge funds as an asset class.
Background information on managers will be on record
with the SEC. Hedge funds will have to spend additional
effort to manage the compliance requirements. It looks
like that is about it. It is dangerous for investors to
become sanguine about the need for their own due dili-
gence when considering registered advisers. That would
be one unfavorable and unintended consequence. Some
of the resistance from the hedge funds is the fear that this
initial step becomes a “slippery slope” of regulation.
Subsequent requirements could compromise a manager’s
edge. As an example, higher levels of transparency into a
fund’s holdings may bring these types of concerns.
Outlook
“What is the outlook for further regulation? Given the
changes at the top for the SEC, it’s hard to know where the
organisation is going to focus its effort in the near term. I
think it’s safe to say that we are not moving towards an
environment of reduced regulation. It is also likely that
future regulations will create a regulatory parity among
the different investment alternatives.
“Most importantly, hedge funds need to embed a formal
process of compliance into the operation of their business.
This is likely a very good outcome from the new laws. In
the end, it should help well-run funds to increase the trust
of investors – thus making hedge funds a more desirable
investment alternative. Prime brokers should approach
this issue in the same way they approach each issue con-
fronted by their hedge fund clients. Most prime brokers
already have internal needs for services that the bank has
learned how to provide to itself (financing, stock loan,
trade clearing, risk management, capital introduction etc).
A well-managed integrated banker will leverage its internal
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 Prime Brokerage
expertise and provide this expertise in the form of services
through its prime brokerage arm.
“As with all forms of regime change, there will be new
problems, but there will also be new opportunities. The
requirement to register as an investment adviser should
not cause a severe problem for anyone who is not already
“Obviously, those who don’t adapt well to the
regulated environment will fall behind”
marginalised for some reason. Cost for compliance will
increase, but should be manageable. The biggest question
is where do the regulations stop? If they continue to
become more onerous, they could affect a hedge fund’s
ability to successfully execute its strategies. The opportuni-
ty comes in two forms. One, Improving the hedge fund
image to investors may pave the way for additional invest-
ment. Adhering to the new regulations may help to polish
this image. Two, those who plan to provide compliance
services will have a rapid growth market into which they
can sell their services.
“Those investment managers that can adapt to a regulat-
ed environment will likely produce a positive marketing
byproduct (either justified or not) that will improve
investor confidence. Those prime brokers that can help
their hedge fund managers reach compliance will secure
their success by helping in the success of their client firms.
Obviously, those who don’t adapt well to the regulated
environment will fall behind.”
“The industry belief was that by keeping a low
profile, hedge funds could be more nimble in
their investment choices”
Opportunities
Jennifer Morrow, of GainsKeeper, a Boston-based
provider of automated financial tools and services for the
investment community, invited ISJ to share the benefits of
background work she has carried out in recent times to
identify and quantify the business opportunities that
might be opening up. Her style makes a refreshing change
for those more accustomed to jargon-laden formality. “You
can’t open a newspaper without reading the phrase “hedge
fund” lately,” she begins, by way of contextualisation.
“They’ve garnered a lot of attention in the past few
years, some for their successes and others for their failures.
The SEC noticed that hedge funds account for a rapidly
growing proportion of transactions in the market and has
decided that investors will be better served if hedge funds
become more regulated. According to the Financial Times,
the Hedge Fund universe exceeded assets under manage-
ment of $1 trillion in the US as of March 31 2005. The
Canadian market is also a fairly sizable US$11.3 billion.
“These funds generally “invite” investors (partners) to
join their fund (partnership) via an Offering
Memorandum. This legal document details to the investor
the standard terms they agree to by investing in the fund.
Depending on the fund’s structure, a fund is typically lim-
ited to 100 investors or fewer. An investor’s money is
“locked up” for a defined period of time meaning that
18 INVESTOR SERVICES JOURNAL
withdrawals cannot be made within this lock up period.
“The SEC’s attempt to more closely regulate hedge funds
involves requiring them to register as a Registered
Investment Adviser (“RIA”) by February of 2006. This
requirement applies to funds with assets over $25m or
those funds with greater than 15 investors. Any fund with
a lock up period shorter than two years is also sub-
ject to this registration requirement. In addition to
registering, these funds must also appoint a full-
time compliance officer to staff and subject them-
selves to ad hoc SEC inspections. Myriad events prompted
the SEC to initiate this regulation, she notes. “Since their
introduction, hedge funds have always been secretive
about their investments, fee structures and particularly
their use of leverage. The industry belief was that by keep-
ing a low profile, hedge funds could be more nimble in
their investment choices. They’d prefer to move silently in
and out of certain names and thus be able to profit from
areas of the market that others weren’t watching.
“The fact that few hedge funds declare a rigid investment
style also allows them to change their investment objec-
tives at will. This can increase the investment risk to an
investor and the SEC hopes that by creating more trans-
parency via registering, there will be less fraud committed
by hedge fund managers.
“The case of Long Term Capital Management (LTCM)
illustrates what can happen if a manager is completely free
to invest in whatever it wants. In this case, LTCM created
an Offering Memorandum that stated they would take
investors’ money and use massive computer models to
wring money out of market inefficiencies. This is not
in itself peculiar in the industry. However, what they
didn’t state was how much leverage they would take on
in this strategy. Leverage is basically borrowing funds by
going on margin and its effect is to magnify whatever
trading Profits and Losses are generated. LTCM was worth
approximately $2 billion but it had leveraged upwards of
$1 trillion. In the simplest terms, their computer model
bet the wrong way and all the leverage used caused the firm
to lose everything. The magnitude of their mistake was so
great that the banks who had lent money to LTCM
appealed to the Government for a bailout. The Federal
Reserve Bank of New York stepped in and averted a major
financial crisis.
“If LTCM had been required to register, its asset size,
leverage ratio and strategy would have been more public
and red flags could have been raised before things reached
crisis level. The Fed just can’t step in and bail out every
hedge fund when they mess up. Other investors have been
defrauded by hedge funds when those funds incorrectly
value their holdings. For example, quotes for many fixed
income securities aren’t published by an exchange. Many
fixed income traders “mark to market” their bonds by call-
ing other traders and asking how much they’d pay, obvi-
ously highly subjective. If a fund is subject to random SEC
audits, it is much more likely to establish procedures to
document how they price, where they get their prices
from, etc. An investor gains the added comfort that the
performance numbers they receive from a hedge fund are
accurate.”

Changes
Hedge fund regulation is particularly pertinent now
because SEC chairman Donaldson left office on July 1 to
be replaced by Christopher Cox [who as a Republican is
assumed to be pro-business and anti-regulation].
“Many industry insiders are curious to see if Cox “If LTCM had been required to register, its asset
will carry on this issue, which Donaldson sees as his
legacy,” says Morrow. “The Regulatory Authorities size, leverage ratio and strategy would have
of Canada, the UK and Germany have all issued
statements in recent press saying they will follow thebeen more public and red flags could have
US’ lead in scrutinising the activities of hedge funds
in their respective countries. Thus, funds won’t nec-
been raised before things reached crisis level”
essarily be able to domicile themselves in other parts of
the world to get around registering. A further sign that
hedge funds are becoming more mainstream is
Morningstar’s recent announcement that they will start
tracking hedge funds much like they do mutual funds.”
All this attention will help GainsKeeper and similar
operations, observes Morrow. Since registering and hiring
a compliance officer will not be cheap, hedge funds will be
looking for ways to automate their compliance affordably.
“We have the capability to be an outsourced provider of
accounting, compliance and possibly training services to
this $1 trillion industry. Once other parties see how much
revenue these funds make (thanks to the SEC), many tra-
ditional financial firms will also try to enter this market.
Since we already service traditional mutual funds, today
we have the ability to provide gain loss reporting, tax lot
identification, wash sale analysis and QDI reporting to
hedge funds.”
A further sign that hedge funds are becoming more
mainstream is Morningstar’s recent announcement that
they will start tracking hedge funds much like they do
mutual funds.
Services
“We could automate much of a Hedge Fund’s back office.
Specifically, hedge funds need automation in three areas:
Partnership Recording, Compliance and Risk
Management. Clearly these areas are not mutually exclu-
sive as each category has functions that interact with one
another.
“A compliance module would be very saleable to these
hedge fund compliance officers as so many hedge funds
lack any semblance of a procedures manual. The compli-
ance offering could provide an order management system
(OMS) that time stamps when an order was created, when
it was completed, at what price, etc. This software also
provides archived records of trades that could be stored
off-site and ties in well with the recent emphasis on disas-
ter recovery plans. Additional compliance rules could be
built into the OMS to prevent a trader from trading in
something too far off a fund’s stated investment strategy.
For example, if a trader entered an order to trade US
Treasuries in a 100% equity fund, the OMS could prompt
them to enter an authorisation code from Compliance to
make the trade go through. Rating Agencies and Auditors
love to see this kind of Pre-trade control.
“A market also exists for Risk Management software,
which could analyse all of the holdings and produce
reports showing, for instance, turnover, brokerage usage
Prime Brokerage
and sector concentration. Compliance officers often don’t
want their traders producing extraordinary commissions
for favoured brokers and sector concentration analysis
shows portfolio managers if they are unwisely investing in
two stocks that essentially serve the same purpose. For
example, if Verizon and SBC have exactly the same beta, it
may be more efficient to own just one of them. Sector
concentration analysis is very often used by Index Funds.
It hard not to conclude, then, that the possibilities are
many and that the SEC ruling is a blessing for
GainsKeeper and firms like it, as hedge funds will now
need their services more than ever. In the course of
researching this article, compliance emerged as a domi-
nant, recurring theme.
The spread of observers commenting that many smaller
funds do not have the resources to handle the compliance
and other requirements resulting from increased regula-
tion includes Kevin A. Pollack, Managing Partner,
Resurrection Advisors. “Consequently, we have observed
many smaller funds seeking to partner with or sell to larg-
er fund platforms that can handle those needs as well as
add other value, including more assets and infrastructure.
Otherwise, these smaller funds face the possibility of hav-
ing to shut down or become stretched very thin because
they are unable to afford the cost and lack the expertise
and time required to handle these requirements on their
own.
Not only do increased regulations serve as a barrier to
success for smaller funds, but they also serve as a barrier to
entry for new funds launching without significant assets.
As a result, there should be increased pressure on smaller
funds, whether new or old, and some of these funds could
be forced to exit the business. Many of them are seeking
any means to survive, including M&A/JV activity, to
reduce the impact of the increased regulation on them.”
And finally
Closing words of warning come first from Steve Vermut,
founder and CEO of prime brokerage Merlin Securities,
and then from David Aldrich, head of securities industry,
banking, at The Bank of New York in London. "You can
outsource your compliance, but the SEC will want to see a
tailored compliance manual for each specific firm,
tailored for your organisation and for your strategy."
Concludes David Aldrich, “A typical small hedge fund will
already outsource its compliance, and that does not neces-
sarily have a negative connotation. But there is one impor-
tant point that everyone needs to remember. You can out-
source the function, but you cannot pass the buck. You,
the hedge fund, remain liable. The onus is on you to
choose a top quality provider.”
ISJ
INVESTOR SERVICES JOURNAL 19
 Prime Brokerage compliance
The compliance
officer to-do list
These are the 24 specific duties
or functions of a chief
compliance officer outlined by
Gene Gohlke, Associate
Director Office of the SEC’s
Compliance Inspection and
Examinations, (who stressed
that they represented his own
view and did not reflect the
official position of the SEC)
20 INVESTOR SERVICES JOURNAL
1 - Advises senior management on the fundamental importance of establishing and main-
taining an effective culture of compliance within the firm.
2 - Confers with and advises other senior management of the firm on significant compliance
matters and issues.
3 - Is not only available but is sought out on a "consulting" basis regarding compliance
matters and issues by business people throughout the firm. Should become known as the
"go to person" on compliance matters.
4 - Becomes involved in analyzing and resolving significant compliance issues that arise.
5 - Ensures that the steps in the firm's compliance process - risk identification, establish-
ing policies and procedures and implementing those policies and procedures - are appropri-
ate and are undertaken timely by staff of the firm to whom those functions have been
assigned.
6 - Becomes personally involved in various steps of the process such as serving on risk or
policies and procedures committees when necessary and appropriate.
7 - Ensures that compliance policies and procedures are comprehensive, robust, current and
reflect the firm's business processes and conflicts of interest.
8 - Ensures that appropriate principles of management and control are observed in the imple-
mentation of policies and procedures. These principles include separation of functions, clear
assignment of responsibilities, measuring results against standards and reporting outcomes.
9 - Ensures that all persons within the firm with compliance responsibilities are competently
and fully performing those functions.
10 - Ensures that quality control (transactional) testing is conducted as appropriate to
detect deviations of actual transactions from policies or standards and that results of such
tests are included on exception and other management reports and are promptly addressed,
escalated when necessary, and resolved by responsible business people.
11- Ensures there is timely and appropriate review of material and repetitive compliance
issues as indicators of possible gaps and weaknesses in policies and procedures or risk
identification processes and facilitates the use of such information in keeping the firm's
compliance program evergreen.
12 - Undertakes periodic analyses and evaluation of compliance issues found in the regular
course together with the results of appropriate forensic testing conducted by compliance
staff as a means for obtaining additional or corroborating evidence regarding both the
effective functions of the firm's compliance program and the possible existence of disguised
or undetected compliance issues.
13- Ensures that compliance programs of service providers used by the adviser are effective
so that the services provided by these firms are consistent with the adviser's fiduciary obli-
gations to its clients.
14 - Establishes a compliance calendar that identifies all important dates by which regula-
tory, client reporting, tax and compliance matters must be completed to ensure that these
important deadlines are not missed.
15 - Promotes a process for regularly mapping a firm's compliance policies and procedures
and conflicts of interest to disclosures made to clients so that disclosures are current, com-
plete and informative.
16 - Manages the adviser's compliance department or unit in ways that encourages proactive
work, a practice of professional skepticism and "thinking outside the box" by compliance staff.
17 - Manages the adviser's code of ethics which is a responsibility given to CCOs of advisers
by rule 204A-1 under the Advisers Act.
18- Undertakes or supervises others in performing the required annual review of an
adviser's compliance program. Every adviser is required to conduct at least an annual
review of its compliance program. The review should consider any compliance matters that
arose during the previous year, any changes in the business activities of the adviser or its
affiliates, and any changes in the Advisers Act or applicable regulations that might suggest
a need to revise the policies or procedures.
19 - Reports results of the annual review to senior management and ensures that recom-
mendations for improvements that flow from the review are implemented as appropriate.
20 - Is a strong and persistent advocate for allocating an appropriate amount of a firm's
resources to the development and maintenance of an effective compliance program and
compliance staff.
21 - Recognises need to remain current on regulatory and compliance issues and partici-
pates in continuing education programs.
22 - Ensures that staff of the firm is appropriately trained in compliance-related matters.
23 - Is the adviser's liaison and point of contact with SEC examination staff, both during
exams and as part of the SEC's CCOutreach program.
24 - Is active in industry efforts to develop and implement good compliance practices for
advisers to private investment funds.
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Dr. William Freund, Chief Economist Emeritus, New York Stock Exchange

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Hedge Funds - Asia
With opportunities in the
developed markets of the West
nearing exhaustion, service
providers have turned their
thoughts towards Asia for the
next hedge fund goldmine.
Alison Ebbage investigates
Asian
Alpha?
The hedge funds market in Asia has
seen exponential growth in recent years.
That there is interest in investing in hedge
funds is not in question.
But in its current state the market can
only kindly be described as fragmented,
with differing levels of maturity, regula-
tion and assets under management. And
because of the industry still being in its
initial growth stage it is difficult to fore-
cast what it will look like when its full
potential has been reached. Clearly for
hedge funds service providers then the
task is to anticipate how the market will
develop and position themselves to meet
those future needs.
“In Japan it’s pretty much all Cayman products
and funds of funds as the domestic system can
only cope with yen denominated products and
the hedge funds industry is always in dollars”
Up until now the only distinction to be
made is between developed and non-
developed markets.
Hole in one, anyone?
Larger local hedge funds aimed at more
22 INVESTOR SERVICES JOURNAL
local institutional investors have been
seen mostly in the more mature markets
of Australia and Japan.
Most of these funds plus those in
other jurisdictions trying to attract assets
from global investors wanting to add an
Asian flavour to their portfolios, have
been set up as offshore funds with a
Cayman domicile.
Domicile
Geoff Cook, managing director at
Brown Brothers Harriman in
Luxembourg comments: “In Japan it’s
pretty much all Cayman products and
funds of funds as the domestic system
can only cope with yen denominated
products and the hedge funds industry is
always in dollars.
“It’s very much the flavour of the day as
demand is significant. But outside of
Japan it’s a very fragmented market that
remains niche.
I think it is developing along the lines
of the traditional Cayman domicile.”
Indeed so far the tendency outside of
Japan and Australia has been for smaller,
boutique type hedge funds run on behalf
of high net worth individuals to be set
up. Alistair Pow at the Bank of New York
in Singapore comments: “At the moment
most hedge funds are smaller operations
and although Australia and Japan are
quite mature and sophisticated other
countries, like Taiwan, Malaysia and
Singapore, are only just scratching the
surface with more family office type
operations.
“There are also a lot of ex-investment
bank expatriate traders that are self seeded
and had help from their own contacts.”
Consolidation
But as the global hedge funds market
matures then pensions funds are looking
to get in on
the action.
The expected effect is that some consol-
idation will take place as a flight to the
relative safety of size takes place. The
reasoning is that larger players like pen-
sions funds like the security afforded by
hedge funds managers who have sizeable
 Hedge Funds - Asia

assets under management and thus the operational infra- staying in this industry are low enough that we’ve seen
structure in place to support those assets and mitigate risk. surprisingly few hedge funds close down across the world.
In this respect the market in Asia is similar to the US But larger funds obviously are perceived to have less
market five years ago; and in the operational risk than smaller funds. For that reason some
past five years the US market has funds will look to merge to give themselves an edge in
seen significant amounts of consol- presenting themselves as lower risk than when they
idation with new money mostly stood alone.”
finding its way to the
“Consolidation is inevitable partly due to the
larger players, forcing the
hand of the smaller bou-
tiques. capacity of Asian markets to handle the volume
Capacity constraints
within the market could of funds and inflows of capital”
also add to any consoli-
dation. Back offices
Colin Lunn Colin Lunn, head of sales and But smaller funds can also protect themselves by being
client relationships, Asia Pacific, HSBC Alternative Fund backed by well-established and reputable back office
Services comments: “Consolidation is inevitable partly due entities.
to the capacity of Asian markets to handle the volume of Indeed the presence of a major player overseeing
funds and inflows of capital. compliance and risk management can give serious com-
“Asia accounts for 15 per cent of global market fort to investors who might otherwise shy away from
capitalisation, 10 per cent of which is in Japan – the smaller funds. But that is assuming that smaller opera-
capacity constraints are therefore obvious.” tions are of interest to big hedge funds service providers
But Lunn thinks that the focus will be on mergers rather in the first place.
than folding hedge funds: “The barriers to entry and Most administrators are not looking to pick up a large

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 Hedge Funds - Asia
number of small assets under management. For them
economies of scale is the name of the game and although
they are willing to form relationships with boutique out-
fits, those relationships are strictly on the basis of those
outfits having the requisite stickiness to attract more assets
to manage.
Pow comments: “Smaller funds are more reliant on a
good administrator and although our traditional angle is
to go more towards larger institutional hedge funds, we
can also offer a service that is more geared towards the
needs of smaller hedge funds.
“We are trying to do essentially is identify which funds
will be successful in the long term and support them; to
do that we need to know what a fund is invested in and
who is running it to gain a measure of likely success.
“It may well be that boutique service providers will
spring up to support some of the smaller funds that are
“But smaller funds can also protect
themselves by being backed by well-established
and reputable back office entities”
not suited to teaming with larger hedge funds service
providers.”
Another factor to consider is that currently there are
only a few global service providers active in the region.
Until recently HSBC and Ban k of Bermuda had more or
less carved up the market between them.
HSBC then took over the Bank of Bermuda and the
market is still waiting to see what the new combined offer-
ing will look like as well as how newer players in the mar-
ket such as Citco will move to gain market share.
Scale
Andrew Dipkin, Managing Director, Citco Fund Services
comments: “Scale is always an issue for every administra-
tor and every player will focus on what types of funds they
want to administer and ensure they can meet the agreed
upon service levels.
“Of the three global administrators here Citco is the
newest to the region and we are delighted to participate in
what we see as a rapid growth sector.”
Northern Trust is another player eyeing the market,
Jonathan Quigley senior technical sales and client service
person for the company in Dublin comments: “The hedge
funds we are looking to administer are the ones where the
flow of information is good and a reputable prime broker
has been appointed.
“We see the whole region as a superb opportunity as the
current situation is a handful of service providers out
there and anecdotal evidence suggest that service levels are
not all they could be.”
And Pow also thinks that there exists a hint of dissatis-
faction with the current state of play. “People liked the way
the Bank of Bermuda offered independence and although
the new merged company is trying to retain that charac-
teristic for its alternatives business, there is still the percep-
tion that it will also have to serve its own internal business
in addition to external ones and that this makes it simply
24 INVESTOR SERVICES JOURNAL
too big to be effective in a marketplace currently charac-
terised by small hedge funds.”
Indeed it’s independence that is being actively marketed
by Citco whose management recently bought back the
company: “We recognise the ongoing evolution of the
alternative investment universe, hence the recent buy back
decision and are continuously developing new technology
and specialised services to keep pace with industry, to dif-
ferentiate our services and be one of the only truly inde-
pendent non-consolidated administrators out there. We
think our independence is critical to the administration
model,” says Dipkin.
Opportunity
The Bank of New York meanwhile, clearly sensing an
opportunity, plans to move its existing platform to the
region to create a suitable environment for local manufac-
turers.
The advantage of doing this rather than setting
up a separate platform is that Western standards
can be imported.
After all if the market is about to become more
mature and attract large amounts of pensions
fund assets then the high expectations of those
investors and the resulting largely institutional market-
place will surely apply to both front and back office.
Indeed experienced hedge funds investors demand
streamlined, volume-tolerant operations and are also look-
ing closely at due diligence and risk control; and demand-
ing sophisticated and transparent performance analytics.
Dipkin comments: “Small funds usually do not require
the more granular reporting and higher service levels that
the institutional funds require.
“For example, many of the institutional funds that we
service often will have multiple prime brokers, strategies
and funds, so we are calculating a consolidated daily profit
and loss or reporting by strategy within the fund or per-
forming daily trade/cash reconciliations between the street
and the manager as part on an outsourced solution.
Smaller funds don't have that level of complexity to war-
rant these kinds of service levels.”
And as with the global trend then the scale and scope of
services on offer by services providers is increasing as it
becomes apparent that this institutionalisation of the sys-
tem is resulting in more rigourous risk management and
compliance systems – both of which can be outsourced.
If a hedge fund wants true operational efficiency and
competitive advantage, it must now consider the support
that specialist service providers can offer to its business
operations in areas like stock and fund lending, capital
market products, derivatives and structured products, in
addition to more traditional services offered.
Regulation
And regulators too play their part in extending the scope
of tasks undertaken by imposing greater compliance levels
and also trying to attract hedge funds to their local market
with incentives.
In Singapore, for example, regulators have made a con-
certed effort to facilitate the development of the hedge
fund sector.
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Hedge Funds - Asia
“It may well be that boutique service
providers will spring up to support some of
the smaller funds that are not suited to team-
ing with larger hedge funds service providers”
Key Trends in Asian Hedge Funds
- Current number of funds at 563;
101 new launches in 2003;
105 new launches in 2004;
30 new launches so far in 2005
- Assets stood at US$60bn as of end 2004
- For 2005, assets expected to grow to US$85bn and number of
funds to increase to at least 600
Source: EurekaHedge
26 INVESTOR SERVICES JOURNAL
The result has been a flurry of activity but all govern-
ments, not just in Singapore, still impose complex trading,
dealing, compliance, risk and reporting requirements.
And although those regulations will change and evolve,
the pressure on margins will remain constant leaving serv-
ice providers with a constant cost efficiency headache.
Pow comments: “Regulation is still quite loose in Asia as
a whole and the usual debate surrounds the relative advan-
tages of Hong Kong versus Singapore.
“I think the two are much of a muchness but that
Singapore is better at giving incentives for companies to
base there. People have bought into the concept of
Singapore more.”
And most players believe that there will be a tightening
by regulatory bodies following a series of mishaps.
In Singapore one player simply shut up shop after suffer-
ing trading losses that were too great to bear.
In Hong Kong too there is an ongoing case with alleged
wrongdoing by a principle at a hedge fund firm. It is
alleged that the fund administrator failed to notice subtle
changes to bank account names and numbers.
Clearly these events do not make great PR and may has-
ten authorities’ thinking that they need to scrutinise things
a bit more carefully and add a level of compliance and
functionality – yet more areas where hedge funds man-
agers and their services providers can collaborate.
Future
In the face of these increased demands then it may well
be that hedge funds service providers too need to find the
breadth and depth necessary to cope with constant evolu-
tion and expansion.
Introducing a best practice element and standards
regarding the exposure and experience of those operating
in the industry would inevitably hasten the trend towards
a smaller number of larger operators on both the manager
and service provider side of the business.
Dipkin sums up: “There is definitely room for expansion
in this area, but getting the model right is tricky. Our deci-
sion to come to the region was not only to be able to offer
our services in the region but also to create a "sun never
sets" global offering.
“Other players may not able to leverage such a strong
global presence and may therefore struggle with margins.”
Alison Ebbage is a fund and asset management writer
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Analyse this...Hedge Funds
Service providers on the hedge funds industry
Sean Flynn
Do you expect the regulatory ‘squeeze’ on the hedge fund
industry to intensify? If the answer is yes, where does that leave
the service providers in terms of opportunities relating to this
industry?
Sean Flynn, Head of Hedge Fund Services, UBS Fund Services
The hedge fund industry has experienced significant growth
over the last few years, with assets now in excess of USD1tril-
lion, and the expectation of continued growth. As a result,
hedge fund trading has become a significant contributor to the
trading activity on all major stock exchanges.
The distribution of hedge funds goes beyond high net worth
individuals to include institutional investors (such as pension
funds, insurance companies, etc) with products being developed
to target retail investors. Many of these products use leverage as
part of their strategy.
These developments have caught the attention of regulators in
the United States and Europe. Given that this growing asset class
tends to be domiciled offshore, regulators often have little infor-
mation on its activity, including the amount of leverage used,
and no oversight of its operations.
In the United States, the SEC approach has been to require all
investment advisors with more than 14 clients (which includes
investors in funds) to be registered by February 2006. At pres-
ent, there does not appear to be any further planned increased
regulatory requirements in the US.
In Europe, The EU is reviewing the hedge fund industry and
it is not clear at this time what, if any, increased regulations will
be proposed.
Our view is that the increased regulation of hedge funds in the
United States represents an opportunity for top-level service
providers of the hedge fund industry.
We anticipate that the increased transparency that this new
regulation supports will also be aligned with a ‘flight to quality’
in the service providers hedge funds select, which in itself cre-
ates opportunities for an organisation such as UBS.
Newsflash: UBS launches alternative asset management business
UBS has formed a new alternative investment management
business, Dillon Read Capital Management. John Costas, cur-
rently Chairman and CEO of UBS’s Investment Bank, will lead
this business as CEO. Dillon Read Capital Management will
form part of UBS’s Global Asset Management business led by
Chairman and CEO John Fraser.
John Costas will leave UBS’s Group Executive Board at the end
of 2005. He will remain as non-executive Chairman of its
Investment Bank.
28 INVESTOR SERVICES JOURNAL
Fred Jacobs
Which global domiciles will continue to be hedge fund
leaders?
Fred W. Jacobs, Senior Vice President and Managing Director in
charge of global alternative investment business development,
PFPC Inc.
When launching a hedge fund, one of the biggest decisions
facing a manager is choosing the proper domicile that meets
the complex needs of his or her respective investment prod-
uct.
Cayman Islands is probably the best known name within
the industry, acting as the domicile for approximately 6,400 of
the world’s hedge funds. Even with this stature, Cayman regis-
tration continues to grow at a rapid pace and the domicile
will most likely maintain its dominant leadership position
due to many attractive aspects.
Cayman is tax neutral, compliance conscious, and has built
the legal and administrative infrastructure to accommodate
growth. Further, many hedge fund investors—including Asian
institutions, among which interest in hedge funds is quickly
growing—readily recognise the name.
Both Ireland and Luxembourg domiciles have also experi-
enced an upsurge over the past few years, a trend that is likely
to continue with the growth of the European institutional
markets.
Ireland, in particular, has leveraged a large and educated
workforce to reach beyond Dublin to gain business from
funds domiciled in other locales. Listing on the Irish exchange
will probably remain a popular choice for global hedge funds.
The United States is another fast growing domicile. The
rationale is simple—the best product to market to most US
clients is one that is US-domiciled.
In addition, there is no domicile competition for a 3c1 or
3c7 fund as there is for an Undertakings for the Collective
Investment of Transferable Securities (UCITS)-based fund.
Although many advisors will soon need to be registered with
the US Securities and Exchange Commission (SEC), the pop-
ularity of domiciling hedge funds in the US will likely grow,
as traditional investment banks are showing an amplified
interest in alternatives.
The hedge fund industry has borne witness to dramatic
growth in the past few years.
With this growth, the competition has grown fierce among
the commonly recognised domiciles, which, in addition to
those mentioned, includes Bermuda, BVI, Guernsey, and
Jersey, among others.
While each domicile has its own distinct cannon of advan-
tages that can help ensure future growth, it appears that some
are breaking away from the pack.

Robert Miller
Comment on the future of algorithmic trading and its
impact on transparency in the hedge fund industry.
Robert J. Miller, CEO CorrectNet, Inc. & Frank R. Brown, Chief
Quantitative Strategist, EDGETRADE
Trading has always been an information game. Devising and
optimising an investing strategy relies on knowledge, quantita-
tive reasoning and accurate execution—all fueled by quality
information. More than ever, hedge fund managers are seeking
ways to improve their strategy execution by using information
technologies to bolster their core competency—investment
decision making. A clear trend is a push to eliminate expensive,
error-prone manual processes in favor of automation. And an
obvious expression of this general movement is the adoption of
algorithmic trading capabilities.
Algorithmic trading tools automate the labour-intensive tasks
associated with trade execution, freeing up traders from tedious
distractions so they can use their expert judgment and market
knowledge to add value to the trading process. These tools also
enable rapid execution of trades requiring significant calcula-
tion, such as in risk arbitrage strategies, and trades that must be
made in response to an event such as a stop price being reached.
Algorithmic trading, as the term is understood, does not
attempt to create “alpha” or P&L, so proprietary strategies such
as “black-box” trading or statistical arbitrage do not fall into this
category. Instead, once the investment or trading decision has
been made, algorithmic trading is a tool to help execute the
trade more efficiently. An example - A trader wishes to trade the
arbitrage between a basket of the stocks in the Dow Jones
Industrial Average, and the associated Diamond (DIA)
exchange-traded fund (ETF). To do so requires tracking the
prices of the thirty stocks in the basket, using those prices to cal-
culate the fair value for the DIA, and executing the trade when
the spread between the market price for the DIA and its fair
value exceeds some threshold. It is simply not practical to carry
out this procedure manually.
Why are hedge funds just now beginning a broader use of algo-
rithmic trading tools? A convergence of robust business func-
tionality plus two key business drivers is pushing hedge fund
managers to add algorithmic tools to their arsenal. Along with a
demonstrated ability to handle the more complex trading
strategies employed by fund managers, the critical factors speed-
ing the adoption of this class of trading support software are: a)
non-stop competition for alpha forces managers to continually
innovate and improve execution capabilities, and b) the “institu-
tionalisation” of hedge funds is driving deeper and more sophis-
ticated reliance on information technologies to provide a quality
investment platform for clients. Ultimately, the evolution of
more sophisticated algorithms will enable hedge fund managers
to have greater success implementing their existing strategies in
a more efficient manner.
Analyse this...Hedge Funds
Mike Gamson
Please comment on the current STP levels among the hedge
fund manager community. Do you foresee further outsourc-
ing opportunities in this sector?
Mike Gamson, Director, Trade Order Management and
Compliance, Advent Software
In the US, SEC registration is the big issue as it pertains to
hedge funds.
It’s certainly been a driver for our business. Firms now
need better control of their accounting and back office proce-
dures to comply with the 1940s Investment Advisor Act obli-
gations.
From a regulatory standpoint, it’s clear that the old spread-
sheets that may or may not be right are not going to cut it any
more.
Recognising this is the first step in creating an environment
of greater automation, and higher levels of STP. But hedge
funds also rarely build their own systems.
These firms are typically quite lean, and focus their internal
expertise on trading. They’re very interested in going outside
the shop for expertise in technology.
Additionally, institutional assets are clearly fueling the
growth of the industry.
There are now more players, greater profitability, and
greater management demands, all leading to an increased
demand for technology.
As existing players get bigger and new players enter, hedge
funds need to fundamentally provide greater transparency on
their strategies and performance, and a lot of progress has
been made here.
STP is becoming more important in other areas of hedge
fund trading though. For instance, the volume of derivative
trades is increasing and we do not have well established cen-
tral trade matching facilities – there is still a lot of manual
work being done in this area.
Part of the solution will be to get Financial Products Mark-
up Language (FPML) used more widely, and while it is get-
ting there, at this point it is by no means universally adopted.
Swaps Wire and the DTCC are both building derivatives set-
tlement capabilities, so that should also bring more efficiency
gains.
Overall, greater STP will be achieved when firms can scale
their business through electronic assistance in executing and
settling trades.
This should lead to an increased velocity of trading, and in
the end, greater profits.
INVESTOR SERVICES JOURNAL 29
Analyse this...Hedge Funds
Jonathan Quigley
What opportunities do hedge funds currently present to
service providers? Comment on opportunities for hedge
fund service providers from a hedge fund
outsourcing/servicing perspective?
Jonathan Quigley, Hedge Fund Administration Technical
Sales, Northern Trust
As hedge funds enter a more challenging phase this is creating
more opportunities for administrators who can demonstrate
an ability to manage and accommodate changes in investment
styles within a strong risk-controlled culture.
There is growing evidence and research to suggest that
inflows into hedge funds will be reduced from the headline
levels experienced recently. These testing market conditions
are likely to encourage hedge fund managers to adapt strate-
gies and styles in order to optimise returns: this includes
diversifying into private equity but with hedge fund charac-
teristics.
The increased complexity is prompting more fund man-
agers to actively consider out-sourcing to a team of experts
who can provide a high level of operational risk management
and investor servicing.
This is creating opportunities for administrators who are
already fully involved in delivering services for hedge funds,
fund of hedge funds, private equity and property. As a result
of its acquisition of the Baring Financial Services Group,
Northern Trust is in a strong position to manage and accom-
modate these changes in investment styles. We continue to
take on new administration appointments from both single
hedge fund and fund of funds managers.
Looking forward there is increased scope for commoditisa-
tion of the outsourcing industry through the effective appli-
cation of technology as some hedge fund administration
applications become more standardised. However, we believe
that for the foreseeable future hedge fund administration
must always be supported by people with a high level of
understanding about the specialist requirements of the sector.
In summary, we believe hedge funds will remain a key fea-
ture of the investment world as the emphasis on achieving
absolute returns continues to influence both private and insti-
tutional investors. Fund managers will increasingly seek
administrators who can combine a single point of contact
with the capability to accommodate a broader spectrum of
activity in line with their changing requirements.
We will continue to build on the philosophy of partnering
closely with our clients to ensure we respond to their rapidly
changing needs and provide a strong risk-controlled culture.
We feel this critical to our remaining a mainstream hedge and
alternative fund administrator of choice.
30 INVESTOR SERVICES JOURNAL
David Walters
Comment on the types of insurance available for the
directors and officers of hedge funds?
David Walters, Director – Professional Risks, Miller Insurance
Services Limited
Fund directors have unlimited personal liability and this
ought to ensure that their purchase of Directors’ & Officers’
Liability is given the attention that it clearly requires.
The primary function of a D&O policy is to safeguard the
personal assets of a director when they are alleged to have
committed a Wrongful Act. The impact of such an allegation
on an individual can be devastating as they cannot rely on the
fund to indemnify them. This fundamental uncertainty
means that in certain circumstances, allegations of fraud or
wilful wrongdoing in particular, directors may be forced to
defend themselves. Rather than take the risk of funding
potentially ruinous litigation, most company or fund
directors purchase D&O insurance. Having made the decision
to buy such coverage, an analysis of potential claimants is
necessary to ensure that the end product may be relied upon
in the event of a claim. Regulatory authorities are taking an
increased interest in hedge funds and tighter regulation will
be inevitable either by the Financial Services Authority (FSA)
or the Securities & Exchange Commission (SEC). In these
scenarios the policy will require two levels of cover:
A sub-limit for regulatory investigation even where there is
not an identifiable Wrongful Act. This provides invaluable
early defence and has been shown to mitigate potential losses.
If, however, a regulatory investigation does unearth an identi-
fiable Wrongful Act, cover should be available for this. It may
be that fines levied by such an authority are uninsurable, e.g.
FSA, but mounting a defence is crucial.
Shareholders are becoming increasingly aggressive and
attention must be paid to any potential exclusions of claims
made by substantial shareholders. Policies can be arranged so
that in situations where a claim is brought independently or
there is no board representation this exclusion does not apply.
Furthermore, care must be taken when selecting a Limit of
Liability. Where a fund has assets under management of over
US$50m, the D&O limit should not be viewed as covering
this sum/value but as providing a substantial fighting fund. It
must also be remembered that D&O limits are aggregate and
cost inclusive.
In summary, a D&O policy is a valuable asset provided it
has been appropriately considered from the outset.

Gavin Gray
How realistic is the possibility of one global regulator for
the hedge funds industry?
Gavin Gray, Managing Director, Phoenix Financial Services
Limited
In looking at the prospects for international convergence of
regulation for the hedge fund industry, it is necessary to con-
sider the recent pronouncements of the key global regulatory
bodies in regard to hedge fund regulation.
In the US, following the publication of the Securities and
Exchange Commission Staff Report on Implications of the
Growth in Hedge Funds, we have seen the adoption of the
new Hedge Fund Adviser Registration Rule. The new rule,
which significantly curtails the 15 client exemption previously
available to advisers, will have the effect of significantly
extending the US SEC’s ‘corporate governance’ style regula-
tion into the hedge fund adviser arena.
Following the recent EU Green Paper on the Enhancement
of the EU Framework for Investment Funds, we have had the
announcement that the EU will establish an industry working
group to study whether a common regulatory approach, with-
in the EU, can facilitate the further development of the
European markets for hedge funds and private equity funds.
Alongside the publication of this paper, the EU indicated that
its current view is that there is no compelling case for EU leg-
islation on hedge funds and indicated that there is no demand
from market participants for EU coordination to remove bar-
riers to market access. However, the EU did outline that the
gradual market opening towards retail investors does, along
with a number of other issues, deserve further attention.
In the UK, the Financial Services Authority has recently pub-
lished two discussion papers related to the hedge fund indus-
try. One of these focuses on the risks hedge funds present to
the FSA’s statutory objectives and confirms the establishment
of a dedicated centre of hedge fund expertise within the FSA.
The second paper looks at the regulatory regime that applies
to sophisticated investment products, including hedge funds,
and particularly wider range retail investment products.
These pronouncements highlight the fact that that there are
a number of relatively common issues of key concern to the
global regulators in the area of hedge funds, such as increased
focus on the regulation of the operations of the hedge fund
manager/adviser and the entry of the hedge fund product
into the retail arena.
However, having these regulatory bodies focus on common
concerns and asking them to defer to one global regulatory
body are two entirely different matters. While we are currently
seeing the former the only foreseeable potential for increasing
the likelihood of the latter scenario would appear to be in the
hands of the EU, and the outcome of any discussions with
industry on a common regulatory approach.
Analyse this...Hedge Funds
Tony McDonnell
As the hedge fund industry continues to grow, how relevant
is the role of the fund administrator as a “watchdog” for
these funds and the guardian of investors’ interests?
Tony McDonnell, Head of Sales and CRM, Dublin, HSBC's
Alternative Fund Services
It is exactly because the hedge fund industry has seen such
explosive growth (and because it is widely accepted that this
growth will continue albeit on a region by region or strategy
by strategy basis) that the role of the administrator has
become even more important and diverse.
Fund administrators have always been acutely aware of their
role as fiduciaries to a fund’s investors.
However, the drivers for growth in the hedge fund space
i.e. the push for return and increased use of sophisticated
strategies and instruments, add complexity at a time when
there is a demand for greater clarity and more information.
These two opposing elements, mean that the entity holding
direct relationships with all parties in the fund management
lifecycle, with an overview of the whole process, is best posi-
tioned to both provide information and also act as an inter-
face between all parties.
That entity is the fund administrator. It is becoming
necessary for fund administrators to work closely
alongside their fund manager clients – allowing them to
outsource those areas of the business that are not core
competencies such as NAV's, performance measurement,
trading platforms, etc.
The role is not simply one of oversight but rather active
participation in an iterative relationship that reflects the
manager’s internal and external requirements at any given
time.
Moreover, as fund managers are faced with increasing
regulatory requirements, the administrators’ role will become
significantly relevant in this area in terms of guiding
managers through the plethora of new regulations and
tax requirements, reporting etc.
While small, emergent managers have always needed
(and utilised) the specialist knowledge, skills and services
that administrators provide, it is the institutionalisation of
the hedge fund business which is having the greatest impact,
bringing as it does, the demand for greater transparency,
independent third party oversight and the reassurance that
comes from looking at the institution behind the fund.
INVESTOR SERVICES JOURNAL 31
 Hedge Fund Performance

Looking Up
June 2005 proved to be a good month for hedge fund performance,
according to the latest results from Hedge Fund Research
Incorporated. ISJ presents the latest data
Good fortune blessed the hedge funds industry in June of return for this index was -5.47 for the year to
2005, according to HFR. The company’s Fund Weighted June 2005.
Composite index posted a rate of return of 1.63 for June
2005. Fund of Funds
This result compares favourably with the result of 1.91 for Fund of Funds performed well during June 2005,
the year to June 2005. according to HFR’s performance results.
The HFRI Regulation D category performed well in June The top performer was the HFRI Fund of Funds:
with a return of 3.47. The return from this index for the Market Defensive Index, which delivered a return
year to June 2005 was 7. of 2.17 for June 2005.
The HFRI Sector (Total) returned 2.34 for June 2005, The same index delivered an overall return of
whereas performance for this sector for the year to June 0.38 for the year to June 2005. The HFRI Fund of
2005 delivered a return of just 1.30 Funds: Strategic Index also performed favourably,
The HFRI Short Selling Index delivered a return of 1.66 for with a return of 1.82 for June 2005.
the month of June 2005. The return posted by this category Long-term performance for this Index was 1.70
for the year to June 2005 was a brilliant 8. for the year to June 2005.
Emerging markets proved to be a worthwhile investment, The weakest performer in Fund of Fund terms
with the HFRI Emerging Markets Index reporting a return was the HFRI Fund of Funds: Conservative
of 1.67 for June 2005. This Index delivered a return of 5.52 Index, which delivered a return of 0.88 for June
for the year to June 2005. 2005.
The weakest performance for the month of June 2005 came The Index delivered a rate of return of 0.72 for
from the HFRI Equity Market Neutral Index: Statistical the year to June 2005.
Arbitrage. Overall performance for this index for the year It is worth noting that the HFRI Fund
to June 2005 was 1.85 Weighted Composite Index delivered a return of
Another index worth noting is the HFRI Convertible 1.63 in June 2005, while its Fund of Fund coun-
Arbitrage Index. terpart delivered a return of 1.36 for the year to
This index reported return of 1.02 for June 2005. The rate June 2005.
Over the year to June 2005, the HFRI Fund
HFR Hedge Funds Index Rate of Return June 2005 Weighted Composite Index delivered a return of
JUN YTD 2005
1.91, whereas the Fund of Fund Weighted
HFRI Fund Weighted Composite 1.63 1.91 Composite was 1.02 for the year to June 2005.
HFRI Convertible Arbitrage 1.02 -5.47
HFRI Distressed Securities 1.41 2.62
HFRI Emerging Markets (Total) 1.67 5.52
Market Benchmarks
HFRI Equity Hedge Index 2.00 1.76
All but one of the leading market indices per-
HFRI Equity Market Neutral 0.79 2.87 formed favourably in June 2005. The top per-
HFRI Equity Market Neutral: Stat. 0.43 1.85 former was the HFRI Fund Weighted Composite
Arb.
HFRI Equity Non-Hedge 2.81 1.28
Index, with a return of 1.63. The NASDAQ
HFRI Event-Driven 1.40 1.82 Composite Index had a poor month, with a
HFRI Fixed Income (Total) 0.72 2.22 return of -0.54 for June 2005.
HFRI Macro 1.15 0.98 The second best performance was delivered by
HFRI Market Timing 1.71 3.11
the Lehman Brothers Aggregate Corporate Bond
HFRI Merger Arbitrage Index 1.23 2.20
HFRI Regulation D 3.47 7.00
Index: 0.85 for June 2005. Its counterpart, the
HFRI Relative Value Arb. 0.80 0.46 Lehman Aggregate US Government Bond Index,
HFRI Sector (Total) 2.34 1.30 delivered a return of 0.61 for June 2005. The
HFRI Short Selling 1.66 8.00
Source: HFR

32 INVESTOR SERVICES JOURNAL

 Hedge Fund Performance

HFR Fund of Hedge Funds Indices Rate of Return June 2005

Market Benchmarks Rate of Return - Year to
JUN YTD 2005 June 2005
HFRI Fund of Funds HFRI Fund Weighted Composite
1.36 1.02
Composite
HFRI Fund of Funds: 0.88 0.72
S&P 500 w/ dividends
Conservative
HFRI Fund of Funds: 1.29 0.92 NASDAQ Composite
Diversified
HFRI Fund of Funds: Market MSCI Indices US$ World
2.17 0.38
Defensive
HFRI Fund of Funds: Strategic 1.82 1.70 Lehman Agg. Corp. Bond
HFRI Fund Weighted 1.63 1.91
Composite Lehman Agg. - US Govt Bond
Source: HFR
-6 -5 -4 -3 -2 -1 0 1 2 3 4
Source: HFR
Market Benchmarks Monthly Rate of Return June 2005
MSCI Indices US $World Index delivered a return of 0.71 for HFRI Fund Weighted Composite
June 2005. The S&P 500 w/dividends index delivered a return
S&P 500 w/ dividends
of 0.14 for June 2005.
For the year to June 2005, The S&P 500 w/dividends index NASDAQ Composite
delivered a return of 0.14, the NASDAQ Composite Index
MSCI Indices US$ World Index
delivered a return of -5.45, the MSCI Indices US$ World
Index delivered a return of -1.75, the Lehman Brothers Lehman Agg. Corp Bond
Aggregate Corporate Bond Index delivered a return of 2.68 Lehman Agg. - US Govt Bond
and the Lehman Brothers Aggregate US Government Bond
-1 -0.5 0 0.5 1 1.5 2
Index delivered a return of 3.17 ISJ Source: HFR

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Custody - Benelux
With a presence in Europe’s
epicentre, securities services
providers in the Benelux region
have ring side seats to regulatory
changes affecting the Continent.
ISJ examines the opportunities
and challenges affecting these
providers
Centre
Strength
In the last decade, Belgium, the Netherlands and
Luxembourg have become test drivers of new rules intended
for implementation across Europe. As far as regulation is
concerned, these countries often have first hand knowledge
of new developments emanating from Brussels and can act
accordingly. Financial service providers have a similar advan-
tage. Their countries were among the first to enact regula-
tions for hedge funds, providing custodians with significant
servicing opportunities. These opportunities have spurred
providers to fine tune their core competencies, paving the
way for outsourcing deals in the Benelux region. On decid-
ing to stick with global custody services in their core offer-
ing, ABN AMRO sold its domestic custody operations in
eight markets (amongst them the Netherlands) to Citigroup,
making the US provider the largest sub-custodian in the
Netherlands and furthering consolidation in the securities
services sector.
Custodians who are present in the Dutch market stand to
benefit from the newly-announced pensions legislation. The
Dutch government is also committed to positioning the
Dutch funds industry more competitively. “The offshore
centres of Luxembourg and Dublin have tax advantages and
friendly regulatory regimes,” says Sikko van Katwijk,
Managing Director, Citigroup Global Transaction Services
EMEA. “The Dutch government is focusing on changing the
current legislation for the Dutch funds business in order to
compete more effectively.”
Consolidation among securities services providers in the
Benelux region is impacted by underlying changes within the
securities infrastructure globally and within the European
Union. “We are trying to be as scaleable as possible in order
to prepare for what we see as the next phase of development
in the securities industry,” says van Katwijk. “International
Central Securities Depositories such as Euroclear and
Clearstream are moving up the value chain and are consoli-
dating with the local markets. Euroclear has acquired the
local CSDs in Holland, France and Portugal. As part of our
deal with ABN AMRO, we are trying to establish ourselves as
a provider of more than just sub-custody activities. Based on
the assumption that clients will, in the future, connect direct-
34 INVESTOR SERVICES JOURNAL
ly to the securities settlement infrastructure, we will continue
to be an agent operator and an asset services provider.”
Scale
The evolving settlement landscape in Europe has accentuat-
ed the importance of scale among securities services
providers in the Benelux region. “The industry will prove
difficult for those parties who do not have the necessary
scale,” says van Katwijk. We have the advantage of scale and a
business model, which allows for easier consolidation and
integration with businesses like ABN AMRO.”
The acquisition of ABN AMRO’s custody book gives
Citigroup an operations centre in the Netherlands. “There
are benefits to having an operations centre here because
Dutch pension fund trustees are under increasing pressure
from the regulator, making them more open to out sourcing
and to hiring a professional firm for custody and other
administrative services,” says van Katwijk. “We anticipate
that being a local provider of services will give us the best
opportunity in this space.”
Citigroup also stands to benefit from asset pooling, which
will become a major trend in the pension fund pooling space
in the coming years. “Individual markets and individual leg-
islation will evolve into a European space,” says van Katwijk.
“Asset management is the first area where it is now possible
to bring assets into a single pool across jurisdictions and
legal entities in the European Union. Local pension funds in
the European community will benefit from this develop-
ment. Pension services companies in Holland are beginning
to acquire third party businesses, providing them with a
larger region to serve when pension funds mature and invest
further into the European Union. Alternative investments are
permissible under the current investment laws. Pension
funds will allocate more money to
hedge funds, which provide a better
return.”
An evolving infrastructure and
tightening investment laws are set to
trigger further consolidation among
service providers in the Benelux
region. “The clients will have a limit-
ed choice of providers who are com-
peting for the same business. These
clients are more inclined to choose
strategic partners to work with. ”
Sikko van Katwijk
Mergers
The foremost example of securities services provider con-
solidation in the Benelux region is that of Dexia with
Canada’s RBC. While this development is important, it has
minimal impact on the banks who are firmly established in
the region. Providers like BNP Paribas Securities Services
(BP2S) are nonetheless mindful of this consolidation and
continue to seek out new opportunities in the region.
Securities services providers in the Belgian market will be
heavily impacted by the imminent arrival of a local law that
will allow investment funds to lend some of their assets to
other institutional investors like pension funds, insurance
companies or brokers.
“This is a major advantage for the Belgian market and an
opportunity for these institutions to earn an extra return on

the assets they hold,” says Renaud Vandenplas, BP2S' head
of location in Belgium. “Currently being prepared, the law is
not expected to come into force before the end of the year,
or even until the beginning of 2006.”
With a strong presence in the Benelux region and in the
Euronext market, BP2S is confident it will hold its own in
the face of increasing consolidation. “Although the merger of
Dexia and RBC on the one hand and Credit Agricole and
Cas d’Epargne on the other gives them a bigger size, we are
confident about our position in this market. Similarly, the
outcome of a possible merger between European stock
exchanges is dependent on whether Euronext or the
Deutsche Borse will succeed in their bid for the London
Stock Exchange. Whatever the outcome, we are well estab-
lished in the Euronext market and have a respectable posi-
tion in Germany. But if Euronext has proposed to place
their central office in London if it wins the bid, does this
mean our trading and settlement operations could move to
London? Certainly not. Nevertheless, there many unknown
impacts. But we are comfortable, having the size and a pres-
ence in all markets concerned, including London.”
Law of the Land
Belgium’s new securities lending law would translate into
extra revenue for investment funds, who would be able to lend
their assets through a securities lending provider. “In addition
to securities lending, providers can offer a host of value added
services, including settlement, the management of the securi-
ties lending process and the corporate actions,” says
Vandenplas.
Despite new laws allowing for hedge funds in Belgium, the
industry has had a prolonged take off. “The Belgian market is
quite small compared to Germany, France and Italy, as there
are a smaller number of institutional investors who are ready
to invest in such asset classes that are more risky and less well
known,” says Vandenplas. “The Belgian investor is not very
fond of a lot of risk. He tends to invest in new products later
rather than sooner.”
In addition to hedge funds, STP and levels of automation in
the Belgian market are low. “On the pure buyside, STP levels
are far from 90 per cent,” says Vandenplas. “There is a lack of
market standards for a lot of instruments, including invest-
ment funds. Competing STP platforms do not help. Small
fund managers in Belgium do not have the skills or the finan-
cial means to invest in an automated process. Some of them
still send faxes to their agent in order to process orders. STP
levels have improved in recent years, but they are still far away
from 90 per cent.”
BP2S and other service providers in Belgium are awaiting
the outcome of Euronext’s and the Deutsche Borse’s bids for
the London Stock Exchange and the impact this will have on
the settlement platforms. “We welcome competition between
the providers and the settlement infrastructure, but this com-
petition should be open and fair. We are taking the necessary
measures to study the legal text emanating from the European
Commission and undertaking the necessary actions to ensure
fair and open competition. This could have a major impact
for the securities services landscape in the coming years.”
Locale
In order to commit to the Benelux countries, custody
providers have established connections with the relevant
Custody - Benelux
central securities depositories in the region. ABN AMRO
Mellon Global Securities Services (GSS) recently announced
the launch of in inhouse custody operation in the
Netherlands. “This shows our commitment to the Dutch
market and to our clients in this market,” says John Gout,
senior sales manager for the Benelux region. “This is our
home market and most of our senior management are of
Dutch origin. Having a connection to the market makes our
infrastructure much more efficient from an STP, control and
risk point of view.”
“Asset management is the first area where it is
now possible to bring assets into a single pool
across jurisdictions and legal entities in the
European Union”
As one of the largest pension fund markets in Europe, the
Netherlands is regarded as the land of opportunity. Gout
explains: “We are having interesting discussions with corpo-
rate pension funds, who are feeling the heat of the new
accounting rules. They have to change their asset structures
in order to avoid any fluctuations in the company balance
sheet, occurring from the liabilities of the pension fund.
Clients want us to add liability information when reporting
for them. Accounting, reporting and risk management tools
are key. We are shifting our conversations from traditional
custody and safe keeping to data provision, consolidating
individual information on whatever level our clients would
like. The discussions are getting more sophisticated and are
centred on regulatory reporting, performance measurement,
risk management and data warehousing.”
The Dutch regulator has introduced asset liability match-
ing laws for corporate pension funds. “This is a big change
for the pensions community,” says Gout. “Previously, these
funds had a calculation rate of four per cent. They now have
to follow the market interest rates when matching assets with
liabilities. Rate fluctuation has implications on matching
assets with liabilities. As a consequence these funds are look-
ing for derivative-related instruments, which enable them to
control the liability matching issue. Custodians who can
offer clients the systems, which can handle those exotic
instruments (derivatives), are in favour. Most investments
are related to matching assets with liabilities. Any liquidity
left is likely to be steered towards generating alpha. At the
moment, everybody is looking at hedge funds and com-
modities are getting quite interesting. Pension funds are
starting to put sizeable amounts into hedge funds. These
investments have risk and transparency issues. Pensions
funds find it extremely difficult to get the necessary data out
of hedge fund managers on a regular basis, once a month if
possible. But this data enables them to find out what the
allocations are and it ensures transparency. We provide look-
through vehicles to enable pension funds to look through
the fund and to find out the allocation to the fund. It gives
the pension fund the transparency and the knowledge of
where the hedge fund is investing. Dutch pension funds are
investing in hedge funds and we have to ensure we provide
the accounting and the performance tools relating to those
funds.”
In addition to look-through vehicles, custodians provide
the necessary technology to accommodate the range of
INVESTOR SERVICES JOURNAL 35
Custody - Benelux
investment vehicles available. “Of course everybody can do
the traditional instruments but if you look at OTC deriva-
tives, this is very much a fax/ e-mail based market,” says
Gout. “The STP levels among alternative investments are
not great, but this it still not a very developed market.”
Most service providers in Europe currently welcome a
DTCC-style approach to the securities confirmation and
affirmation process. “We are certainly not there yet, but any
consolidation is good from an IT point of view and an effi-
ciency and cost reduction point of view,” says Gout. “We are
hoping for a DTCC style approach for Europe and perhaps
later in Asia and agree with the concept of harmonisation
and consolidation in the long term. This would make the
world a better place to work in.”
As a pioneer of industry consolidation, ABN AMRO Mellon
is continuing its quest for economies of scale. “Typically
when there is a joint venture or merger people always ques-
tion how long these arrangements will last. We have a great
story to tell in this regard,” says Gout. “Pension funds and
asset managers are also joining forces. Today, I may be talk-
ing to a small to medium-sized client, which may be part of
a bigger group tomorrow. Custodians should think about
this. Smaller clients may generate small revenues but you
have to look at the bigger picture as tomorrow they may be
part of a larger organisation.”
Alternatives
Citco Bank is an international player which provides cus-
tody services to large- and private banks that are active in the
hedge- and mutual funds industry. “An increasing number of
institutions are investing in alternative products,” says Mark
Knapen, Marketing Manager, Citco Bank Nederland N.V.
“These traditional banks are looking to outsource parts of
their business relating to the hedge- and mutual funds
industry. This part of the business has a significant impact
on their systems. Economies of scale are required in order to
justify the investment in the infrastructure, and to continual-
ly change your systems in order to handle investments in
these funds.”
Citco also targets fund of hedge fund managers by provid-
ing administration and transfer agency services to their
funds through Citco Fund Services and custody is supplied
through Citco Bank.
“Fund of funds investing in hedge funds need a custodian or
a single point of access in order to consolidate all of their
investments in the various single manager funds,” says
Knapen. “A lot of fund of hedge fund managers are looking
for a combined custody and administration service or a so
called one- stop shopping concept. Particularly in markets
like Germany, where hedge funds are emerging, transparency
is a must. A lot of hedge funds and fund of funds managers
are trying to provide transparency because investors such as
pension funds and insurance companies are highly regulat-
ed. The increase in transparency requirements is largely due
to the institutionalisation of the hedge funds industry. We
try to deliver transparency as much as possible by investing
in the necessary systems, although it is difficult to deliver the
transparency if the underlying target funds in a hedge fund
are not providing this transparency.”
To ensure transparency, Citco Bank ensures that the
administrator with whom it has to place hedge fund orders
has set up a digital format of order placement and settle-
ment communication. “We try to establish alliances with the
36 INVESTOR SERVICES JOURNAL
underlying administrators to ensure they can deliver the
information we need in an electronic format, which makes
it easy for us to consolidate that information,” says Knapen.
“If a client is directly investing in a variety of hedge funds,
they will get information in different types of formats, dif-
ferent contract notes, different types of statements all from
different time zones. We consolidate this information to
ensure our client receives it in one format. Citco Bank com-
pletes these documents for its clients. Although we do not
see any change to this labour intensive work in the short
term we do see a change in the number of administrators
who can deliver information electronically.”
United
Systems and technology are a key theme for Luxembourg’s
Credit Agricole Investor Services, which recently joined
forces with Caisse d’Epargne to provide additional services
to the Spanish market. The new Group, to be called
CACEIS, already has fund administration operations in
Luxembourg, Brussels and Amsterdam and is hopeful that
the regulators in these countries will drop their guard about
where fund safekeeping and administration should be car-
ried out. In Holland for example, funds are legally obliged to
custodise assets in their country of origin.
Commenting on the impact of the RBC/Dexia merger on
CACEIS, Bens says: “It is a nice move but integration still
needs to take place. We definetely will see more of these con-
solidation processes in the securities services business in the
months to come. CACEIS is another example of this trend.”
While Holland presents the largest pensions market in the
Benelux region for CACEIS and other providers, countries
such as Belgium and Luxembourg have to modify their regu-
latory frameworks to address their underdeveloped pensions
markets. “Luxembourg will manage this better because the
domestic market is very small,” says Bens. “The domicile can
provide one solution to offer to pension schemes across
Europe. The SEPCAV, created a few years ago, did not gener-
ate the success levels everybody hoped for. But there are reg-
ulatory discussions in Luxembourg to be able to provide a
European passport for pension schemes.”
Despite a hopeful attitude towards hedge funds in Europe,
Bens admits that these funds are clearly not based on the
Continent. “The asset managers may be based in the US or in
Europe but the products they manage are definitely based
offshore,” he says. “While there has been a lot of talk about
hedge funds and fund of hedge funds, there has also been a
lot of fear. The UK Financial Services Authority is suggesting
to the Alternative Investment Management Association the
installation a guidance code, instead of waiting for the frame-
work to be passed down from the regulatory bodies in
Europe.”
While Bens admits that Luxembourg has attracted a fair
share of the hedge fund market, the domicile is chiefly a cen-
tre for fund of hedge funds. “UCITS III is still being imple-
mented in Belgium, Luxembourg and Holland,” he says.
“Most of the products distributed in Holland are domiciled
in Luxembourg. Only a few fund promoters in Luxembourg
have converted to the UCITS III regulation. This will provide
the industry with a challenge, when fund companies attempt
to implement UCITS III at the same time. The European
Commission has issued a Green Paper which which seeks to
clarify the investment funds landscape. It will be interesting
to see what comes out of that.”

With an expert knowledge of the Luxembourg, Holland
and Belgium markets, Bens believes the development of pen-
sion schemes in Holland will prove extremely beneficial to
securities services providers. “We are one of the largest third
party providers in Belgium and we hope to grow here,” he
says. “We are still looking for business in Luxembourg,
where service providers who can cope with the requirements
of UCITS III and the European Union Savings Directive will
win the business. We look forward to more opportunities
coming out of these directives.”
Opportunity
While specialist service providers focus on regulation to
acquire business, global providers like Fortis continue to
capitalise on opportunities created by the consolidation in
securities services industry. Jan Bart de Boer, Global Director
Commerce, Global Clearing & Custody, Fortis Bank says:
“The sale of ABN AMRO 's domestic custody business to
Citigroup, for example, triggered an evaluation process
among ABN AMRO clients, which assessed whether they
should transfer to Citigroup or opt for another provider.
We were able to attract a number of clients following this
move. When people withdraw from the business it provides
us with opportunities to attract new clients, yet it is a bit
hard to build a business model on such events.”
Another way of attracting clients, providers have found, is
via additions to the traditional custody product. “If you can
add something to the mature custody product, which will
save the client money or adds efficiency, you will continue to
attract clients,” says de Boer. “Fortis integrated its electronic
brokerage services with the clearing and custody product.
We offer this combination to our sub-custody clients and
our global custody clients. We can take in brokerage flow via
SWIFT, FIX and a number of proprietary systems. As this is
an intergrated product clients do not have to sent additional
settlement instructions. This is a way of reducing their all-in
executing and operational costs.”
Thanks to the Markets and Financial Instruments
Directive, pension funds will have an opportunity to become
market participants by trading directly on a stock exchange.
“This, in turn, gives service providers the opportunity to
offer direct market access solutions,” says de Boer. “Under
FTL regulations Pension funds in the Netherlands also face
challenges relating to their solvency levels. We have therefore
adopted a consultative approach towards pension funds and
are trying to deliver much-needed products and services.
Going the extra mile, we will provide these funds with tool
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kits to better understand their assets and liabilities. Some of
these funds need to look into their returns and consider
instruments such as long term swaps, which in turn require
collateral management services we can deliver.”
“We service Dutch and Belgium players with the global
custody product, which will not be affected by developments
at Euronext, Euroclear, Clearstream and the Deutsche Börse.
The global custody franchise is more affected by the regula-
tory environment for pension funds. As far as clearing and
sub-custody services are concerned, the consolidation of the
settlement and clearing infrastructure is very high on our
agenda as the main European clearing services provider.”
Fortis has concentrated its European clearing and custody
activities in Amsterdam, supported by offices in Frankfurt
and London.“Consolidation in the trading and clearing
infrastructure in Europe will most likely involve either the
Deutsche Börse Group and/or Euronext,” says de Boer. “It is
important that we have a strong market position in both
pillars. We are developing as a local custodian in more
markets than just the Benelux region.”
“There is a lack of market standards for a lot
of instruments, including investment funds”
Transatlantic partners
Following the announcement of its merger with RBC
Global Services, Dexia Fund Services predicts further consol-
idation in the securities services industry. “These trends will
continue in the foreseeable future,” says Gilles Reiter, Global
Head of Sales & Marketing at Dexia Fund Services. “Scale is
not everything but it is the key to a lot of other things. One
of the objectives in joining forces with RBC Global Services
is to increase our scale. Pending regulatory approval, both
partners will expand their geographical reach; broaden their
service range and increase their investment capacity as a
result of the merger. We are both on the same wave length
and that’s really essential,” adds Reiter.
RBC Global Services is a well-established global custodian
whereas Dexia is officially recognised as one of Europe's top
fund administrators and transfer agents. “The extension of
asset optimisation services, which we will be able to offer in
addition to the core services of custody, fund administration
and transfer agency, makes for an excellent combination,”
says Reiter.
Reiter acknowledges there are very distinct differences
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Custody - Benelux
between the asset servicing markets of Belgium, Luxembourg
and the Netherlands. “Luxembourg is the second largest centre
for the administration of mutual funds world-wide,” he says.
“It is a very mature and innovative funds market. It is consid-
ered an offshore market and has no domestic market as such.
When it comes to Belgium and the Netherlands, the domestic
mutual funds are very small in size. The Netherlands makes
up one of the most sizeable pension fund markets in Europe.”
“We are having interesting discussions with
corporate pension funds, who are feeling
the heat of the new accounting rules”
Reiter predicts that the current bids for the London Stock
Exchange will have little impact on the European investment
fund industry. “It may have an impact on transaction costs,
which are higher in Europe than in the US” he says. “In this
regard, consolidation may benefit the investors.”
Pending regulatory clearances, one of the key objectives of
the RBC Global Services and Dexia Fund Services alliance is to
increase the merged entities’ activities in the European pen-
sion fund sector. “The knowledge and recognition of our serv-
ices in this mutual fund market paves our way to become a
more active player in the servicing of pension funds,” says
Reiter. “The domestic pension fund markets in France, Italy
and Belgium will create further opportunities. We are current-
ly analysing the pension pooling vehicles in Luxembourg
where a lot of institutional, and increasingly retail, money is
invested into alternatives instruments such as fund of hedge
funds, private equity, venture capital and property funds.”
In addition to Luxembourg, Dexia services hedge funds in
Dublin, South East Asia and France. “If it makes sense, accord-
ing to a client's distribution policy, to have the vehicle domi-
ciled in the Cayman Islands and serviced out of Dublin, that is
the service we will offer to them,” says Reiter. “Compliance and
regulation will increase in importance, creating opportunities
for service providers. It accelerates outsourcing and will also
affect consolidation among service providers. There are a
number of service providers, especially in domestic markets,
who will find it difficult to cope with the systems required to
satisfy the new regulatory regime. Other providers may see
this as an opportunity.”
Infrastructure
Commenting on the changes to the clearing and settlement
infrastructure, Ingrid Reichmann-Kops, Director of Marketing
and Sales at ING Securities Services, highlights the change in
ownership of the Dutch CSD Euroclear Nederland from
Euroclear Bank SA/NV to Euroclear SA/NV. “In the new
structure, Euroclear Bank SA/NV is a sister company,” she
says.
In June this year, the Euroclear Settlement for Euronext-
zone securities (ESES) MSC (Market Steering Committee)
and the Cross-border MAC (Market Advisory Committee)
advised the Euroclear Board to proceed with the ESES project.
“ING expects that the Euroclear Board will follow this advice,”
says Reichmann-Kops. “ESES represents the first step in the
consolidation of Euroclear's settlement platforms. It will offer
streamlined settlement for the three Euronext markets and it
precedes the implementation the Single Application
Platform.”
38 INVESTOR SERVICES JOURNAL
At a macro-level, despite the Dutch public's shunning of
the European Constitution, ING Securities Services is con-
vinced that the advantages of European harmonisation and
consolidation far outweigh the disadvantages. “We are com-
mitted to playing our part within a future integrated
European capital market,” says Reichmann-Kops.
The quest for one European CCP and one European
CSD is gaining acceptance by providers like ING on a daily
basis. “The debate is characterised by concerns about
further exchange-consolidation and the impact this
could have on intermediaries if a proper level of user
influence is not provided for,” says Reichmann-Kops.
“We are actively discussing the minimum-require-
ments for user-involvement in infrastructures that are
de-facto monopolies and which users can not bypass.”
A variety of securities services providers want to stimulate
harmonisation and consolidation of the post trade environ-
ment in order to decrease the costs of cross border-trading in
Europe. “This requires the formation of one European CCP
and one European CSD,” says Reichmann-Kops. “These enti-
ties could operate in the same way as SWIFT. It should be
governed by users, it should want to create efficiency for its
users and it should be financially independent on members to
develop new initiatives.”
Clearing and settlement procedures have an impact on the
pension funds market in the Benelux region. These pension
funds also are impacted by the interim reporting of hedge
results and the valuation of assets and liabilities. “Pension
funds require frequent reporting on the “coverage ratio” in
particular,” says Reichmann-Kops.
The implementation of the Prospective Directive in The
Netherlands' Securities Transaction Supervision Act aims to
create a single European passport for prospectus approval. As
a result a prospectus approved in one European country is
also valid in other EEC member countries. The Directive
requires the appointment of one central authority per juris-
diction, in this case the Authority for the Financial Markets in
the Netherlands, which must approve prospectuses.
One of the most amended parts of the Act is that which
relates to the prohibition of inside information trades. Dutch
legislation is presently subject to an overall review. In the
future, the current Netherlands' Securities Transaction
Supervision Act will be replaced by one all embracing act, the
Act on Financial Supervision.
“We expect further developments as a result of the
implementation of MiFID,” says Reichmann-Kops. “This
includes specific rules for acting as internal systemisor, a role
currently prohibited in the Dutch market. We expect further
harmonisation of the regulations governing the content, for-
mat, approval and publication of prospectuses around
Europe, effective from 1 July 2005. ING is actively involved in
all the relevant working groups and consultative bodies. The
same applies where operational efficiencies are possible. The
key issue in our market is the ongoing harmonisation within
the European clearing and custody markets. These could (or
should) lead to a future where there are competing trading
platforms, but one clearing platform and one settlement plat-
form for a large chunk of Europe's markets. The implementa-
tion of ESES for the Dutch market, originally planned for end
2007, will be reviewed in the context of the revised planning
of the (Euroclear) TARGET II project.” ISJ
A passion for results

In our business – as well as in yours –

results are everything.
We are especially proud of ABN AMRO Mellon’s
lead position in the 2005 R&M Global Custody
Survey, in which pension and fund managers ranked
us first among global custody providers in Europe.

Results like these best demonstrate our commitment

to clients and the industry – and confirm that when
you choose ABN AMRO Mellon, you are choosing
worldwide expertise second-to-none.

Call us to find out how we can help you achieve

the results you want in 2005 and beyond.

For further information please contact:

John Gout
Senior Sales Manager, Benelux
+ 31 (0)20 383 0236
john.gout@abnamromellon.com

www.abnamromellon.com
 Outsourcing
The word outsourcing has
adopted many guises to
ensure it remains a topical
subject in the securities
industry.
What do recent changes in
outsourcing suggest about
the securities industry?
ISJ investigates
On Core
Mention outsourcing to any securities
securities provider and the response is
usually quite positive. In fact, research by
one provider suggests that outsourcing
back and middle office activities adds
over 10 per cent to the shareholder value
of European asset managers (Oxford
Metrica, commissioned by The Bank of
New York).
The evolution of outsourcing over the
last three years is an interesting develop-
ment to observe. An early take up period
was noted in 2003, when a number of
deals were announced. The year 2005, by
contrast, marked the digestion of these
“There are instances where firms have
outsourced middle and back office
activities or purely fund accounting, leaving
them the option of expanding their
outsourcing arrangement in the future”
transactions. “People are now focussed
on getting the job done,” says Tom
Abraham, managing director of
Citigroup Global Transaction Services.
40 INVESTOR SERVICES JOURNAL
“If they feel they cannot get the job done
they will walk away from the transac-
tion.”
The year of outsourcing digestion has
provided mixed fortunes for the securi-
ties services industry, proving that cer-
tain outsourcing deals do not always
work out as planned.
2005 is also characterised by minimal
activity in the outsourcing landscape,
although one of the more notable deals
was signed between Citigroup Global
Transaction Services and Aegon UK. The
outsourcing provider intends to close
the transaction later this year and will,
for a period of time, operate the existing
systems with the same people. “Next
year we will look to integrate Aegon’s
people with ours,” says Abraham.
In recent years,
the scope of the
outsourcing trans-
actions has varied
from deal to deal
and a clear pattern
remains unidenti-
fied. Transactions
involve both com-
ponent based
services and full
lift out deals.
“Over the next
Tom Abraham couple of years
the scope of these
transactions will continue to move in
this direction before it stabilises,” says
Abraham. “There are instances where
firms have outsourced middle and back
office activities or purely fund account-
ing, leaving them the option of expand-
ing their outsourcing arrangement in the
future. But there is no clear pattern. In
the case of insurance companies, the
asset manager does not have a say over
the selection of the custodial work. The
insurance company may select the custo-
dian and the investment management
arm selects the fund
accounting provider. These
instances translate into dif-
ferences in the definition of
scope on a deal by deal
basis.”
Apart from buy side
institutions, an increasing
number of securities serv-
ices providers have taken
steps to outsource certain functions.
Citigroup, for example, has offshored
some of its functions since the early
1980s and continues to do so. “We are

re-evaluating the best locations for services but there are
a lot of complex trade offs which have to be made,” says
Abraham. “The desire to move functions offshore has its
challenges, some of which are regulatory, cultural, lan-
guage-based and based on finding people with the requi-
site skills. We have people in over 100 countries.”
Abraham is confident that financial institutions will
continue to explore a range of outsourcing options. “The
basic economic factors that have driven these decisions
will continue,” he says. “People will be a bit more careful
in terms of how they select their providers and the terms
of the contract. Providers have an opportunity to distin-
guish themselves in terms of how they execute the deals
and not necessarily by taking on more deals and bigger
deals. These are very difficult transactions to undertake,
especially when you’re stepping into firms and helping
them change their overall business model. This change
has to be managed carefully. We distinguish ourselves
from other providers by our quality of execution.”
Partners
The partnership approach between service provider
and the company that has outsourced also has its trade
offs. “We are very much dependent on each other,” says
Abraham. “If we do something wrong they feel it or if
they do something wrong then we feel it. That is a key
element of making these transactions work, realising that
you both have to work at making them succeed.
Historically, when looking at some of the other transac-
tions, there has not been this sense of sharing. We’re
reluctant to use the word partnership because it is over-
used to a degree. But clearly we share the responsibility
and the risk. We have to recognise this and work more
closely together.”
Components
According to Paul Stillabower, global head of business
development at HSBC Securities Services, 2004 was more
lift-out oriented than 2005. “There have been a lot of
outsourcing initiatives in 2005 but the number of clients
looking for lift outs has slowed. However, we have seen a
lot of interest in component outsourcing where clients
are looking to their existing suppliers for more services,”
he says.
“If clients have outsourced custody to one firm, invest-
ment accounting to another and performance measure-
ment to a third, they may opt to consolidate with one of
Outsourcing
these providers for all their
services instead of going through
a full RFP exercise with other
providers. For each service, a
provider has a differente advan-
tage over the others. For example,
the time and effort to complete
transitions in the investment
administration and fund
accounting area, may seem risky
to consolidate away from that
provider. The existing custodian
Paul Stillabower has a price advantage generated
from holding the assets.
HSBC Securities Services has recorded a lot of interest
in both component-bundling and in lift outs. “The
initial lift out deals were a lot about technology, where
the suppliers did not have sufficiently advanced or
“The desire to move functions offshore has
its challenges, some of which are regulatory,
cultural and based on finding people
with the requisite skills”
future-proof technology to support their middle office.
We are seeing less of these deals because suppliers have
or are working towards strategic platforms. There is still
a lot of interest in lift outs but owing to the initial push
a lot of suppliers already have their platform partners.
These technology lift out contracts, for the most part,
are not re-emerging, yet.
“Once the original lift out deals have reached their
contract term – i.e. five or seven years - a client may
decide to re-enter the market and look at other outsource
service suppliers. Although it seem risky to transition
from the existing supplier, the process may be easier if
that particular client has not been integrated within the
provider's strategic platform.”
The beauty of component bundling is that it can involve
more complex services or functions such as performance
measurement, derivatives and futures clearing, and broker
execution in addition to the more traditional custody and
fund administration services. This gives the supplier pric-
ing power and minimises transition risk for the client.
“This arrangement plays to the strengths of global banks
 Outsourcing
who have deep pockets and wide product ranges to sup-
port it,” says Stillabower.
In response to the suggestion that outsourcing can
enhance an asset manager's shareholder value, service
providers deliver mixed views. “From a supplier's per-
spective, we would love to say that by putting business
with the supplier community you can increase share-
holder value,” says Stillabower. “In certain instances,
depending on how the transaction is struck and how it is
accounted
for, you may see a surge in shareholder value. I don't
think anyone disputes that firms who outsource and
focus on product development, marketing, distribution
of their products and asset selection are following a log-
ical path but there are numerous factors that determine
success. The large global asset managers generally have
more processing scale and brand, which allows them to
do more internally than middle-sized, locally focused
“People will be a bit more careful in
terms of how they select their providers
and the terms of the contract”
managers who have large middle and back office func-
tions accumulated over the years. Hedge funds managers,
by contrast, are start ups who have no baggage and who
start up fully outsourced. The question about sharehold-
er value depends on the supplier. Again, integration is
critical. If deals are not being integrated onto strategic
platforms, it becomes harder for the service provider to
manage the deal. If the service is not bedded down,
whether you have a cheque or some value delivered in
year one, year two or year three, the contract becomes
dilutive over five, seven or 10 years. A client may find
that in year’s five, six and seven you are adding people to
make up for some of your supplier shortfalls.”
As a consequence of capacity constraints in the securi-
ties services industry, buyside firms who are currently
looking for an outsourcing partner are finding their
options are limited as providers are quite full up.
“Suppliers are quite interested and you will find, out of
the eight or nine suppliers in the market, a provider who
is willing to do the deal,” says Stillabower. “But their tran-
sition times and workloads may make for a risky situa-
tion. The result is that clients are focusing on the compo-
nents of their services that are causing them pain.”
Over the last year, HSBC Securities Services has seen
more interest in trade matching and settlement services.
“We can offer a bespoke trade matching and settlement
service on a modular basis. The clients we provide these
services for may consider fitting this service in with
another service we could already be providing for them,”
says Stillabower. Other areas of interest include securities
pricing and valuation and securities related treasury
activity. “The whole valuation process, especially for
complex instruments which require daily pricings also an
issue,” says Stillabower. “In addition, clients are also con-
sidering outsourcing treasury functions in relation to
securities related foreign exchange and the related cash
forecasting whilst keeping strategic hedging of currencies
42 INVESTOR SERVICES JOURNAL
or strategic cash management in house. A separation of
those functions has gathered a lot of interest in 2005.”
Specialist accounting for derivatives and derivatives
and futures clearing are functions which clients are
beginning to farm out on a component basis.
To this end, Stillabower predicts an increase in compo-
nent based outsourcing. “Clients have the comfort of
dealing with a provider they may already be doing busi-
ness with. The client knows the provider culturally and
has a functioning relationship manager to serve the rela-
tionship. Additionally, the client knows the service struc-
ture of the provider as well as who constitutes the man-
agement team. That, from a European perspective is a
differentiator for HSBC Securities Services.”
In contrast to component bundling, Stillabower
expects a decrease in the number of technology-based lift
out deals, owing to capacity constraints and execution
quality issues. “The market will continue to push towards
the private client space, including segregated private
client investment outsourcing and more pan-European
retail custody services. We are seeing a lot of interest in
our broker custody product. This is provided in conjunc-
tion with HSBC's Investment Bank which provides the
broker clearing and execution services. HSBC Securities
Services provide the custody and the client does not pay
any transaction charges. This is a good fit for the retail
clients, which execute a lot of trades.”
In addition to outsourcing opportunities in the retail
sector, Stillabower foresees consolidation among suppli-
ers. “Margins and prices are continuing to squeeze,” he
says. “The available resources plays to the strengths of the
global banks who have deep pockets, a lot of resources
and are not really dependent on their share price to sur-
vive. A lot of firms have to focus on quarterly earnings to
support their share price for survival. They are heavily
dependent on asset servicing and that is going to contin-
ue to cause problems unless the stock markets pick up
drastically.”
Institutional investors
The pace of outsourcing by fund managers and pen-
sion funds continues to be strong, says Suresh Gupta,
partner at Capco. Fellow Capco partner Pedro
Matthynssens, adds that there is a convincing economic
and strategic rationale for outsourcing. “Outsourcing
buyside middle and back office can typically generate an
equivalent value of three to six basis points of assets
under management,” he says. “Until last year custodians
offered to take over entire buy-side operations of large
scale asset managers with favourable offers based on a
business case that migrates them onto a common archi-
tecture. But the migration to a common architecture
often compromises the asset manager's functionality,
resulting in a systems integration nightmare for the cus-
todian. Also, as revenues for asset managers have begun
to improve, they have become more hesitant to take the
big outsourcing step and the business case gains limited
traction.”
Offshoring
Fund managers are beginning to offshore pieces of the
 Outsourcing
middle office and back office activities. “This incre-
mental approach reduces the risk and cost of implemen-
tation, and can produce quick wins,” says Matthynssens.
As part of the drive towards offshoring, the asset man-
agement divisions at Goldman Sachs, Morgan Stanley
and Fidelity, all have captive service centres in India.
“Some hedge funds, including Gartmore Group, Venus
Capital and Constellation Capital use offshore providers
for a variety of middle office/back office functions,
including, research, portfolio accounting, quantitative
credit modelling and data mining,” says Gupta. “Many
smaller fund managers have engaged offshore vendors for
routine middle/back office functions, including asset
accounting, custodian reconciliations, and portfolio valu-
ations.”
There appears to be growing demand, especially among
sub scale asset managers for outsourcing key functions
instead of whole scale lift-out of an entire middle or
“There have been a lot of outsourcing initiatives
in 2005 and we have seen a lot of interest in
component outsourcing where clients are looking
to their existing suppliers for more services”
back office. “Reference data and corporate actions are
two such examples. The Big 5, including State Street,
Bank of New York, JPMorgan, Citigroup and Mellon
must adapt to meet this demand lest specialised
providers begin to encroach on their market share,” says
Gupta.
The so-called Big 5 have begun to counteract competi-
tion from offshore vendors by establishing centres in low
cost locations. State Street, for example has a presence in
India and South Africa. JP Morgan and the Bank of New
York also have joint ventures in South Africa .
Risk
New laws such as Basel II have highlighted the impor-
tance of operational risk. “New regulation increases the
capital allocation due to the operational risk implicit in
outsourcing,” says Matthynssens. “Outsourcers will
design contracts and procedures to mitigate risk.
Regulated outsourcers with big balance sheets will have a
competitive advantage.”
Gupta and Matthynssens agree with the suggestion that
outsourcing can enhance shareholder value, adding that
it also saves money. “The three main reasons for out-
sourcing are scale, efficiency and risk,” Matthynssens
adds. “If half of the value released thanks to the scale and
efficiency, it represents a 1.5-3.0bp operating cost saving
for the asset manager. Transition costs can be high but
they are sometimes funded by the outsourcer. If the out-
sourcer is also providing core custody services, costs of
transition and service can be bundled in core custody
fees, spread over many years. Next generation outsourc-
ing will also focus on mitigating risk for the company
that outsources.”
Faced with the prospect of heavy investments in
upgrading technology, a company often can enjoy the
44 INVESTOR SERVICES JOURNAL
benefits of superior technology deployed by a vendor,
thereby releasing capital for revenue-generating business.
Information and data management and corporate
actions processing are among the functions that will be
outsourced by financial institutions in the coming years.
“There will be a growing number of asset managers, also
sub scale and less sophisticated companies, outsourcing
functions rather than complete middle and back offices,”
says Matthynssens. “This so-called component outsourc-
ing indicates that many asset managers still consider the
control of the entire operation a competitive advantage,
especially the large scale asset managers that have the
ambition to play a consolidating role in the industry. But
the opportunity to outsource functions without compro-
mising the functionality and control of the architecture
as a whole will become more and more appealing for
asset managers.”
Outsourcing providers and consulting firms predict a
continued componentisation of middle
office and back office outsourcing,
involving functions such as reference
data, corporate actions and reconcilia-
tions. “We foresee an increased share of
the outsourcing market by offshore
vendors or captive centres, putting
pressure on the Big 5 as well as a
greater impetus by the large providers in boosting their
offshoring capabilities,” says Gupta. Matthynssens adds:
“Outsourcing will be characterised by an increasing
importance of operational risk in outsourcing contracts.”
Here to Stay
It is certain that outsourcing is here to stay, says Mark
Austin, Senior Vice President at JPMorgan Worldwide
Securities Services. “The gestation period for outsourcing
is a minimum of 18 months to two years. We know that a
number of chief operating officers were actively consid-
ering it two years ago and some of those deals began to
flow through over in the last 12 months. As a result we
do not see the activity abating. The level of people
reviewing outsourcing is going to continue. A number of
people are re-reviewing their outsourcing decisions. Last
year was about behind the scenes preparation, this year is
about the deals actually coming to fruition.”
Most of Europe's top asset managers have already out-
sourced or partly outsourced. “If you run down the list of
names, the majority of asset managers have outsourced
in some way, shape or form, somewhere and to some-
one,” says Austin.
Commenting on the recent outsourcing study by the
Bank of New York and Oxford Metrica, Austin says it is
entirely appropriate to say that outsourcing can enhance
shareholder value. “I would refer you to some research
conducted by Henry McVeigh when at Morgan Stanley.
He defined a series of criteria to evaluate a winning fund
management company. One of these was to look at
whether the company had outsourced or not. The ana-
lysts were firmly of the belief that outsourcing, done
properly, was a shareholder value enhancing exercise.
There is no doubt that as outsourcing moves a business
forward, some of the headline costs – which could be

considered ‘above the line’ - are mitigated. In terms of
‘below the line’, one should perhaps also ask “am I mov-
ing to an outsourcer who can mitigate risks in my busi-
ness?” Independent asset managers, with a small balance
sheet and with an operational need to enhance systems,
would be looking at several million pounds to put a new
system in place. If you are outsourcing you will be one of
a group of clients of the provider and the costs of the
new system can be absorbed across that whole set of
clients. That is going to enhance shareholder value.”
Despite the level of sophistication in recent outsourc-
ing deals, Austin maintains it is too early to suggest that
unbundled outsourcing will take over from bundled out-
sourcing. “You are seeing a lot of people come to the
market with an unbundled approach to outsourcing and
once they have been through the whole review and work-
shop process, they have actually come back to a bundled
“The increased value is attributed to
the fact that management has been
able to discern which functions are
core and which are non-core”
approach. There will be elements of unbundling coming
through, but I don't think it is anywhere near close to the
market. The majority of deals this year are going to be on
a bundled basis. Component outsourcing will come, but
just not yet. We haven't seen many people come to mar-
ket and say “we want to outsource our corporate actions
and derivatives but we’re going to keep the rest. The rea-
son for that is that you cannot get away from the funda-
mental importance of the core record. It you hold the
core record, you are the person who buyers are going to
drive all the other services to. If someone else comes in
they are going to need access to that core record, which
results in systems interfaces with a bunch of costs.
Secondly you have a potential reconciliation issue. If you
outsource corporate actions to another party, you con-
stantly have to reconcile back to the core record that is
held at the principal outsourcer. That adds potential costs
and risk. For those reasons I don't think component out-
sourcing is going to come in the next two or three years.
The other hindrance to component outsourcing is the
lack of standardisation in some of the newer types of
message formats in investment operations.”
Austin predicts that a number of buyers who were
among the first breed of outsourcers are likely to review
their suppliers. “The early outsourcers had the issue of
whether the market was deep and broad enough that
they could look elsewhere if they became unhappy with
their existing provider,” he says. “The first trend we're
seeing is a review of suppliers. The second trend we're
going to see is a review by outsource providers them-
selves of their platforms. In 2004, the market took a
breather. Now it has geared back up again and we are
going to see outsourcing move to a stage where it is the
norm amongst fund management companies."
ISJ
Outsourcing
OUTSOURCING ENHANCES SHAREHOLDER VALUE,
BNY/OXFORD METRICA
London 30 June 2005 - Outsourcing back and middle
office activities adds over 10 per cent to the shareholder
value of European asset managers, according to a study
conducted by independent strategic adviser Oxford
Metrica, and commissioned by The Bank of New York.
The study analysed the movements in the share prices
of 21 European fund management companies (including
Investec, ABN AMRO Asset Management and RCM
(UK) Limited) with combined deal-related assets of $2.1
trillion, following the announcement of an outsourcing
deal. It found that the share price increased as a result
of investor expectation of improved manager perform-
ance. This positive impact appears to be unaffected by
the type of outsourcing model adopted or the size of the
deal. The findings also showed that although costs may
be contained in an outsourcing project, direct cost
reduction is not the main driver of value.
The desire and ability of asset managers to demon-
strate understanding of costs and their drivers, and to
distinguish between core and non-core activities was the
key motivator of a successful outsourcing deal, the
research found. By outsourcing genuinely non-core
investment activities managers have more time to focus
on key business issues: investment performance,
investment strategy and asset allocation.
The characteristics outsourcing providers considered
most important were long-term commitment and
stability. The majority of asset managers involved in the
research believe that their operational risk would
ultimately reduce from outsourcing.
Daron Pearce, head of client management for fund
managers, The Bank of New York, said: "By enabling
managers to move away from administrative duties they
can focus on their main goal - generating performance.
We expect the trend to outsource will continue as the
marketplace becomes increasingly competitive and
overcrowded."
Dr Rory Knight, chairman, Oxford Metrica, added:
"The considerations crucial for asset managers wanting
to outsource are strategy and value; not a simple cost
reduction, as much of the market may believe."
Of the 21 European fund management deals highlighted
by the Oxford Metrica research, fourteen of those have
occurred since 1 January 2004. According to Dr Deborah
Pretty, principal at Oxford Metrica, unexpectedly good
shareholder performance of the asset management
company was recorded from one month before the
announcement of the outsourcing deal. "The increased
value is attributed to the fact that management has
been able to discern which functions are core and which
are non-core.
INVESTOR SERVICES JOURNAL 45
Securities Lending - Performance Analysis

On Loan Securities lending group summary at 27 July 2005 (values presented in USD million)

Security Type

All Securities
Lendable
Assets (M)

5,993,497
Total Balance
(M)

1,413,704
Utilisation
(%)

17.16
SL Fee (Bp)

29.27
SL Return to
Lendable
Assets (Bp)

3.64
SL Tenure
(days)

111

A summary of the All Bonds

Corp. Bonds
2,589,924
1,389,328
758,345
205,122
25.71
11.74
11.24
14.64
2.63
1.24
119
133
Govt. Bonds 1,199,188 554,817 41.92 9.99 4.25 113
securities lending industry, All Equities 3,403,573 655,360 10.66 50.13 4.41 102

Americas
including top performing Equities
Asian Equities
1,770,628

329,203
284,615

54,029
8.49

8.77
48.64

76.32
3.35

5.40
92

131

securities, at 27 July 2005. European

Equities
1,191,226 270,538 14.31 44.35 5.57 111

Depos. 44,343 17,278 16.49 74.37 9.20 95

(Performance data is provided by Data Receipts
ETFs 13,010 26,793 38.44 51.24 13.43 59
Explorers) Source: Data Explorers

Top 10 Lendable Equities Top 10 Lendable Corporates

27 July 2005 27 July 2005
The securities lending analysis begins with a Equity by Fee > 100 mn Corporates by Fee >100 mn
snapshot of the securities lending industry at 27 Rank Stock description Rank Stock description
July 2005.
1 TASER INTERNATIONAL 1 REP. OF ARGENTINA

The total balance of assets on loan at this date was 2 DELTA AIR LINES INC 2 RHODIA SA

$1,41 trillion (in Table 1). Out of the total amount 3 FAIRFAX FINANCIAL 3 JEAN COUTU GROUP
of securities available for lending ($5,99 trillion), 4 OVERSTOCK.COM INC 4 FED. REP. OF BRAZIL
about 17.16 per cent of those securities were 5 NOVASTAR FINANCIAL 5 DELPHI CORP
utilised in a securities lending program. 6 PREPAID LEGAL 6 CINCINNATI BELL INC
Government bonds were clearly the most active 7 FED. REP. OF BRAZIL
7 NETFLIX INC
participants. Out of the total $1,199 trillion
8 ARCHIPELAGO 8 GENERAL MOTORS
available for lending, 41.92 per cent of that amount
9 BOWATER INC
was utilised in a securities lending programme. 9 CALPINE CORP

10 CHARTER COMMS. 10 UNITED RENTALS

At 27 July 2005, the most lendable equity by fee was Source: Data Explorers Source: Data Explorers

Taser International (in Table 2), for equities that are Top 10 Lendable Equities Top 10 Lendable Corporates
27 July 2005 27 July 2005
greater than USD $ 100 million. Equities by Fee > 10 <100 mn Corporates by Fee > 10 <100mn
Rank Stock description
Rank Stock description
The Republic of Argentina (in Table 3) was the top 1 MARTHA STEWART
performing corporate stock at 27 July 2005 for 1 CALPINE CORP
2 EUROTUNNEL SA ESA
corporate stocks that are greater than USD $ 100 2 CALPINE CANADA
3 GLOBAL CROSSING
million 3 GENERAL MOTORS
4 MEDIS TECHNOLOGIES
4 GENERAL MOTORS
Martha Stewart (in Table 4) was the top 5 ANTIGENICS INC
5 YAHOO! INC
performing equity at 27 July 2005 for equities that 6 WPT ENTERPRISES INC
6 CALPINE CORP
are greater than USD $ 10 million but smaller than 7 IONATRON INC
USD $100 million. 8 GRAMMER AG
7 CONTINENTAL
8 CALPINE CORP
9 KRISPY K. DOUGHNUTS
Calpine Corporation (in Table 5) was the top 10 BIOLASE TECHNOLOGY
9 DELPHI CORP
performing corporate stock at 27 July 2005 for Source: Data Explorers
10 ICON H & F
corporates that are greater than USD $ 10 million Source: Data Explorers
but smaller than USD $ 100 million. Securities Lending & Reinvestment Return to
Lendable Assets (Bp)
8

Securities lending return to lendable assets (in Table 7

6) peaked at 5 April 2005, with a total of 8 basis 6

points delivered for all securities. Reinvestment 5
return, on the other hand, peaked at 22 June 2005, 4
SL Return to
Lendable Assets (Bp)
with a total of 1.61 basis points delivered. At 27 July
3
2005 securities lending return was 3.64 basis points. RI Return to
Lendable Assets (Bp)
At the same time, the reinvestment return for all 2

securities was 1.08 basis points. 1

0
4/13/2005

6/15/2005
4/27/2005

5/11/2005

6/8/2005

6/22/2005
5/25/2005

7/20/2005
4/20/2005

5/18/2005

6/29/2005
5/4/2005
4/6/2005

6/1/2005

7/6/2005
3/30/2005

7/13/2005
3/23/2005

7/27/2005

Source: Data Explorers

46 INVESTOR SERVICES JOURNAL

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Conference Digest - RMA Securities Lending preview
A Meeting
of Minds
Securities lending events are
useful platforms for advancing
growth. Carol McGinn reports
on the latest conference and
presents the expectations for the
next major securities lending
conference in October 2005
A business program reflecting the current issues affecting
securities lending in Europe was the focus of the ISLA/RMA
14th Annual Conference on International Securities
Lending, held this past May in Athens, Greece. An impressive
list of speakers, representing the borrowing and lending
community as well as technology vendors, highlighted this
annual event, which drew almost 600 attendees.
The conference featured sessions on European clearing and
settlement, the equity markets, regulatory issues, the fixed-
income and equity markets, structured finance, and technol-
ogy. Two prominent keynote speakers — Spyros Capralos,
chairman, Athens Stock Exchange, and David Taylor, author
and 2004 European Business Speaker of the Year — rounded
out the comprehensive business program.
The conference opened on Wednesday, May 11, with wel-
coming remarks from Conference Co-Chairs Philip
Reichardt, Director, Euroclear Bank, London, and Timothy
Douglas, Managing Director, Citigroup Global Markets, New
York. Their remarks were followed by a panel discussion on
fixed income, hedge funds and equities.
Speakers covered alternative investment strategies, focusing
on growth among these strategies and if they are being ade-
quately serviced by the prime broker.
Wednesday’s program also featured panel presentations on
European clearing and settlement, including a discussion on
central bank money vs. commercial bank money and collat-
eralisation requirements, and on equity markets, where
speakers discussed the opportunities and risks surrounding
developing/emerging markets.
Regulation
Thursday opened with a panel on regulatory issues, in par-
48 INVESTOR SERVICES JOURNAL
ticular agent-lender disclosure, Basel II, and proxy voting.
Much of the discussion on proxy voting centred on the
International Corporate Governance Network’s recently
released code of best practices for securities lending, which
some securities lending professionals see as a controversial
document.
There are broker/dealers and agent lenders who feel the
language in this document needs to be softened, according
to one source, and that the document has a negative tone in
how it addresses potential abuses in securities lending.
A session on structured finance followed, in which speak-
ers talked about the different asses classes being used and
how to assess the risks and rewards of swaps and other
derivative products.
The conference closed with a session, ostensibly about
technology, in which the panellists focused mainly on the
extent and impact of greater automation on both the trading
and post-trade segments of the securities financing industry.
Forthcoming Attraction
Agent lenders, broker/dealers, vendors, and other industry
participants will have an opportunity to discuss domestic
issues at the RMA Conference on Securities Lending, to be
held October 18-21, in Boca Raton, Florida, USA.
The fall conference will open with a Securities Lending
Round Table, an open discussion where participants can dis-
cuss key issues affecting the industry. “I would expect this
round table to be quite informative,” says Anthony Schiavo,
Managing Director, Morgan Stanley, who, along with Louis
Molinari, President, Metropolitan West Securities LLC, is
chairing this conference.
“I anticipate topics we might discuss will include agency
lending disclosure and corporate governance.”
The conference continues on Wednesday with a session on
developments in hedge funds and an industry leaders’ panel.
Hedge Funds
Hedge funds continue to be an intriguing topic for both
lenders and borrowers.
Panellists at this session are scheduled to discuss a variety of
issues pertaining to the hedge fund industry that are of rele-
vance in the securities lending market. “We welcome the par-
ticipation of a number of hedge fund representatives, who
can provide us with insight into the growth of this segment
of the market and the impact on the securities lending indus-
try,” says Schiavo.
The conference closes on Thursday with two sessions: one
on regulatory developments and the other on collateral man-
agement issues.
The regulatory panel, as always, is much anticipated, with
updates on the agent lending disclosure project, a discussion
on Reg. SHO, along with other topics related to broker/dealer
net capital treatment.
“The industry has invested a great deal of resources to com-
ply with a number or regulatory changes that we have been
faced with,” says Schiavo. “This forum should provide
updates for a number of professionals that support our busi-
ness.”
“The RMA Conference on Securities Lending business pro-
gram will once again attempt to reflect current and impor-
tant issues facing our industry,” according to the co-chairs.
RMA Securities Lending Analysis

Securities on Loan
North American Treasuries/Bonds
on Loan Q2 2005 / Q2 2004 in
USD $ million
Analysis of the latest securities Canadian Bonds
Q2 2004

Q2 2005
lending industry results from US Corporate Bonds

the Risk Management US Mortg. Backed Securities

Association. A comparison of US Agencies

securities on loan in the second US Treasuries/UST Strips

quarter of 2005 against the sec-

100,000

150,000

300,000
200,000
50,000

350,000
250,000
ond quarter of 2004 Source: RMA

Replicating the pattern from the first quarter of this year, US European Equities on Loan Q2 2005 / Q2
2004 in USD $ million
treasuries were extremely active in securities lending during All other Eur. Equities
the second quarter. About USD $ 345,94 bn worth of US
treasury securities were on loan during the second quarter of Scandinavian Equities Q2 2004
2005, compared to USD$ 259,41 bn for the second quarter of UK Equities Q2 2005
2004. US Corporate bonds also enjoyed a good second quar-
Italian Equities
ter, with the value of securities on loan worth USD$ 70,197
bn, compared to USD$ 68,434 bn for the second quarter of German Equities
2004.
French Equities

Across the Atlantic, French equities far outweighed their

0

10,000

40,000
15,000

45,000
30,000
20,000
5,000

35,000
European neighbours, with a total on loan worth USD$ 25,000
43,152 bn for the second quarter of 2005, compared to USD$ Source: RMA

$31,982 bn for the second quarter of 2004.

German equities were also active players, increasing their Pac-Rim Equities on Loan Q2 2005 /
involvement in securities lending from USD$ 16,804 bn in the Q2 2004 in USD $ million
second quarter of 2004 to USD$ 23,25 bn in the second quar- All other Pac-Rim Equities
Q2 2004

ter of 2005. UK equities decreased their involvement this year, Q2 2005

from USD $10,657 bn in the second quarter of 2004 to just Australia
USD $ 8,915 bn in the second quarter of 2005.
Hong Kong Equities
Within the Asia Pacific region, Japanese equities were by far
the most active asset class. These equities increased their
involvement in securities lending from USD $22,589 bn in the Japanese Equities

second quarter of 2004 to USD $ 22,756 bn in the second 0 5,000 10,000 15,000 20,000 25,000
quarter of 2005. Australian equities were also fairly active in Source: RMA

securities lending programs, increasing their involvement

from USD $4,022 bn in the second quarter of 2004 to USD
$6,438 bn in the second quarter of 2005. Hong Kong equities EURO Denominated Sovereign Bonds on
Loan Q2 2005 / Q2 2004 in USD $ million
were the least active. During the second quarter of 2005, the
All other EURO Den. Sov. Bonds
total amount of Hong Kong equities on loan was US $ 2,755
bn for the second quarter of 2005, compared to USD $ 2,433 Spanish Sovereign Bonds Q2 2004
bn for the second quarter of 2005.
Italian Sovereign Bonds Q2 2005

German denominated sovereign bonds are the most active

German Sovereign Bonds
EURO bonds asset class, with assets on loan increasing from
USD $ 2,449 bn in the second quarter of 2004 to USD $ 5,364 French Sovereign Bonds
bn in the second quarter of 2005.
0 1,000 2,000 3,000 4,000 5,000 6,000
Source: RMA

50 INVESTOR SERVICES JOURNAL


Defying Deficit
Pension fund deficits
test a custodian’s
creativity, writes
Christine Senior
There is nothing like a deficit to focus the
mind of pension fund trustees on cutting
costs, increasing revenue and generally
tightening up control of the management
of their schemes. But the ill wind of under-
funding does blow somebody some good –
custodians are finding that the cold winds
of funding gaps are creating demands from
pension fund clients for new services, or a
greater use of their existing services. The
focus for pension funds, in their bid to
tackle deficits, has been on three areas –
revenue enhancement, cost cutting and risk
management.
Revenue enhancement
At the level of revenue enhancement one
of the effects has been that managers are
looking at more ways to make assets work
harder - or to ‘make assets sweat’, in the oft
repeated mantra. In the current uncertain
investment climate earning a few extra basis
points matters, unlike a few years ago when
double digit investment returns were com-
monplace. So one of the first areas belea-
guered pension fund managers are looking
at is to make any residual cash in custodian
accounts work harder to earn its keep.
“You have accounts in different currencies
so you don’t have to constantly undertake
an exchange trade in order to settle a pur-
chase,” said Dave Green, Head of
Relationship Management, pensions at
HSBC’s Institutional Fund Services,
Europe. “Whereas a few years ago people
had a tendency to leave money there, what
is more likely to happen now is that money
gets swept up, possibly at the end of each
evening, and placed on deposit or in a
money market overnight account. This way
the money is working on a continual basis.”
The quest for revenue enhancement has
also boosted demand for the added value
elements offered by the custodians such as
securities lending and commission
recapture. Where once these might have
been considered marginal by pension fund
managers, they have increasingly become
mainstream elements. Take stock lending,
for instance, which five years ago only the
more sophisticated pension fund manager
considered. “Resistance has reduced over
the last three to five years,” said Nigel
Taylorson, head of relationship manage-
ment for UK and Ireland at ABN AMRO
Mellon. “Now most pension fund clients
ask us to do it. In an age when on your US
dollars you don’t get much more than 2 per
cent, if somebody can give you say 30 basis
points that’s a fair chunk incrementally.
When you were getting 12-15 per cent
returns it didn’t matter so much.”
As managers are chasing higher returns,
so they have abandoned balanced managers
for specialist mandates, which in turn has
led to more portfolio changes. So demand
for transition services has risen – hence the
greater offering of transition services
among custodians.
“A lot of us are doing transition
management,” said Taylorson. “Because
pension funds are switching mandates,
there is more opportunity for custodians to
do the transition out of one asset class into
a totally different asset class.”
Another effect of the deficit environment
for corporate schemes is the input of the
plan sponsor on the running of schemes.
Corporates take a keen interest on the
funding situation of their pension fund,
which impacts on the company’s valuation
and credit rating. Influence from company
chief financial officers, with experience and
knowledge of sophisticated investment
products like derivatives, has widened the
investment horizons of corporate pension
funds, which are increasingly considering
derivatives either as a risk management
tool, or as a revenue raiser. This is opening
up opportunities for investment banks,
with the expertise in these areas. “The
corporate treasurer is very familiar with
sophisticated funding instruments,” said
Ann Doherty, Regional Head of Client
Management, EMEA for JPMorgan
Worldwide Securities Services. “We are see-
ing an increased use of derivatives and
increasingly sophisticated derivatives within
pension funds - not only exchange traded
derivatives but also over the counter deriva-
tives. “Some pension schemes may be hedg-
ing asset classes, or hedging currency
depending on where their investments are
compared to their liabilities. Some are
looking at risk management as well as yield
enhancement. The types of instruments
being used are varied including total return
swaps.” The result has been an increase in
the provision of education by JPMorgan to
trustees who are likely to be unfamiliar with
these kinds of instruments.
Pension deficits
Cost cutting
On the cost cutting front many pension
funds are opting for pooled services under
one roof to derive cost benefits, according
to Alasdair Reid, Head of State Street’s asset
owners group, Northern Europe. “We are
finding more clients look to one organisa-
tion to bundle all services – custody,
accounting, performance measurement,
securities lending under one roof, whereas
before they may have considered going for
best of breed. The economics stack up bet-
ter if you have more services under one
roof, we are able to offer economies of
scale.” But at the same time he says clients
are more demanding in terms of the indi-
vidual components. Reid adds: “This whole
market place is about mass customisation.
You need scale but you can’t offer one size
fits all.”
Risk Management
Another effect of deficit environment has
been closer monitoring of costs and a
greater emphasis on transparency. This is
particularly important in the area of foreign
exchange dealing.
“We are doing a lot more on foreign
exchange trading and the transparency for
clients there,” said Green at HSBC.
“Traditionally with foreign exchange trad-
ing for the underlying assets that the custo-
dian is holding, charges are not so visible.”
To increase the transparency of foreign
exchange pricing, HSBC has come up with
a pricing transparency model to set a pric-
ing spread around an agreed price. A
greater emphasis on risk monitoring and
cost cutting has also led to more outsourc-
ing of non-core functions. “Prime facie
middle office outsourcing moves large parts
of the functions of a pension fund from a
fixed cost basis to a variable cost basis
bringing with it all the attendant annual
savings,” said Benjie Fraser, Managing
Director, The Bank of New York. “The best
of breed technology embedded in the serv-
ice provider therefore becomes a ready tap
for the pension fund in terms of electronic
access to a much more robust monitoring
of the underlying investments.
“For example, the access to value at risk
and risk budgeting systems available
through the custodian can be a major con-
sideration in such outsourcing decisions.”
But according to Doherty at JPMorgan,
outsourcing has already advanced to such a
degree that there is little room for it to go
further. “With many of our pension fund
clients their business model is an out-
sourced one to the fullest extent it could be.”
INVESTOR SERVICES JOURNAL 51
The Pensions Interview - Scottish & Newcastle
Home Brew
SCHEME: SCOTTISH & NEWCASTLE PENSION FUND.
CUSTODIAN: THE BANK OF NEW YORK
SIZE OF FUND: £1.73BN.
Ray Martin
Ray Martin, HR director for
Reward and Group Office at
Scottish & Newcastle Pension
Fund talks to James Wallace
about the fund’s set up
Who are the fund managers?
The Trustees have delegated the choice of investment man-
agers and their investment objectives and restrictions to an
Investment Committee. The Trustees will be notified of any
changes in the investment managers selected by the
Investment Committee at the meeting subsequent to any
change.
The Trustees receive regular reports from the Investment
Committee, including a summary of investment perform-
ance as measured by an independent performance measure-
ment service. The pension fund has appointed the following
fund managers:
UK Equities - Baillie Gifford, Liontrust, European Equities -
Fidelity, Global Equities - Capital, Wellington, Global
Bonds - PIMCO, UK Bonds and Global Commodities -
Barclays Global, Private Equity - Quellos, Property-
Standard Life.
Does the fund participate in a securities lending program?
Yes. Our programme is operated through the Bank of New
York. It has been in operation since 1998 and we see it as an
important part of incremental added value to our portfolio.
It is, however, a relatively small component compared to our
commission recapture programme. We currently have no
plans to increase or decrease the scale of the programme
over the small or medium-term.
How much of the fund’s assets are allocated towards
alternative investment instruments?
The pension fund has a 5 per cent allocation to
commodities, global private equity and long lease property.
How is the fund structured?
We have a Trustee Company of 12 Directors, five are
appointed by the company, two are independent, and three
are appointed by employee members and two from pension-
ers. The trustees have a long established Investment
Committee which handles investment matters a summary is
included in our SIP which is attached.
What is the investment strategy?
Our strategy is to achieve a return of 3% per annum above
Sterling risk free rate with a similar duration to our
liabilities, and to minimise the risk required to achieve this.
Currently we invest as follows to achieve this:
UK Equities - 15%; European Equities - 10%; Global
Equities - 20%; UK Bonds - 30%; Global Bonds - 10%
Commodities - 5%; Global Private Equity - 5%; Long Lease
Property - 5%
In 2004 a review of the assets and liabilities of the Plan was
carried out, and the Trustee consulted with the Principal
Employer to the Plan. Following this review it was agreed to
adopt the following long-term asset allocation: 70% growth
assets, 30% matching assets.
Growth Assets include global equities, commodities, bonds
with yields above UK Gilts, private equity, hedge funds,
property, and any other investment the Trustee believes will
enhance returns or bring diversification. Matching assets are
an appropriate mix of fixed income and index linked bonds,
both Government and Corporate. The Trustees believes this
investment policy is, on balance, appropriate for managing
the risks associated with our objectives, and is expected to
provide a long-term return sufficiently in excess of the
return available on long-dated UK Gilts to meet the
actuary's long-term funding assumptions. The Trustees
periodically review the objectives and the overall strategy of
the Fund. The Trustees will also monitor compliance with
this Statement annually, responding to any material changes.
How do you make decisions about where to invest?
We use a Value at Risk model to try to minimise the amount
of risk we take to achieve our return strategy. This leads to
significant diversification of our Growth assets into a
number of different asset classes.
Are there any investment restrictions?
The Trustees have entered into a detailed investment
management agreement with each investment manager and
each agreement includes the following restrictions: - Dealing
in shares or other investments of Scottish & Newcastle is not
permitted (except within an index-tracking fund).
Adherence to all legal requirements and restrictions applying
to exempt approved pension schemes.
How important is corporate governance and socially respon-
sible investment?
The Trustees have delegated responsibility for the selection,
retention and realisation of investments to the investment
managers. The Trustee's policy is that the extent to which
social, environmental or ethical considerations are taken into
account in these decisions is left to the discretion of the
investment managers. The Trustee's policy is to delegate
responsibility for the exercising of rights attaching to invest-
ments (including voting rights) to the investment managers
although the Trustees reserve the right to instruct each
investment manager in particular situations.
The leading provider of Custody and Clearing Services in Norway

DnB NOR your Nordic Partner

Offering: Commitment, Knowledge, Experience and Excellent Service

For further information please contact:
Head of Securities Services - Jørgen Krager: jorgen.krager@dnbnor.no
Securities Finance - Dag Rudiløkken: dag.rudilokken@dnbnor.no
Global Relations and Business Development - Bente Hoem: bente.hoem@dnbnor.no
Corporate Actions - Marius Høvik: marius.hovik@dnbnor.no
e-mail: custody@dnbnor.no • www.dnbnor.no/custody

Nordic Custody & Clearing Alliance: Swedbank, Sweden – Amagerbanken, Denmark – OKOBank, Finland

www.dnbnor.no
Corporate Actions
Automatic
for the
People
Corporate actions
automation is a key
priority for the
securities industry,
writes Rekha Menon
Corporate actions automation was
for a long time considered a pipe dream.
Unlike other areas of the transaction cycle
such as trade execution and settlement,
corporate actions have traditionally entails
a high degree of manual intervention,
with fax, telex and unformatted emails
commonly being used to transmit notices
issued by publicly traded companies. And
the general perception across financial
institutions was that corporate actions are
so complex and manual that they just can-
not be automated. But this is no longer
the case. In the last few years, automation
has slowly crept in the corporate actions
processing life cycle. This is mainly due to
the near universal acceptance of the ISO
15022 message format as the de-facto
standard for corporate actions.
Brendan P. Farrell, Jr., Managing Partner
of corporate actions technology vendor
Xcitek states, “The credit for the growth of
automation in the corporate actions space
goes to ISO 15022. There is nothing else
in the same league at ISO 15022. Till date,
it is the largest industry initiative for
automating corporate actions.”
“Corporate actions is one of the last
areas of STP in a financial institution’s
back office. But the 15022 standard has
played a very important role. Prior to the
15022 message format, from a vendor
point of view, it was very difficult to com-
pare the different corporate actions mes-
sages being received,” adds Gerard
Bermingham, V.P. Professional Services at
Information Mosaic.
SWIFT
Statistics from SWIFT(Society for
Worldwide Interbank Financial
54 INVESTOR SERVICES JOURNAL
Telecommunication), which developed the
15022 standard in association with the
International Standards Organisation
(ISO), corroborate the trend towards
increasing usage of 15022 for corporate
actions data. According to SWIFT, corpo-
rate action messaging volumes on the
SWIFT network have tripled since 2001,
with 35.5 million corporate action mes-
sages being sent in 2004, a 17.5 per cent
increase over the previous year.
Large custodian banks were among the
early adopters of ISO 15022 for corporate
action messages with the adoption slowly
trickling down to the sell side and then the
buy side. Over the last year or so, com-
mercial market data vendors like FT
Interactive Data and Telekurs too have
started sending corporate actions data in
ISO 15022 format. The standard’s credibil-
ity was further enhanced with its adoption
by the London, Tokyo and Singapore stock
exchanges. The most recent convert to the
“The credit for the
growth of automation
in the corporate
actions space goes to
ISO 15022.”
ISO 15022 standard is the US Depository
Trust and Clearing Corporation (DTCC).
DTCC plays the lead role in the country’s
domestic corporate actions arena, with its
proprietary data format being used for
exchanging corporate actions information.
In 2003, moving beyond its role at the US
depository, the DTCC launched a global
commercial solution called Global
Corporate Actions (GCA) Validation Hub
service targeted at all users of corporate
actions information. Handling securities
traded in the US, Europe and Asia, the
GCA Validation Service takes in corporate
actions data from a variety of sources
throughout the world, scrubs it using both
automated business rules and manual
intervention and presents a uniform
cleansed feed of corporate actions
announcement information. Initially, the
DTCC used its proprietary data standard
for this service, but in response to cus-
tomer demand, has now started offering
the data feed in the ISO 15022 format as
well. James Femia, DTCC managing direc-
tor and head of the Global Corporate
Action business, says, “We adopted ISO
15022 in response to growing interest
among broker/dealers, banks, investment
managers and hedge funds worldwide in
our GCA Validation Service.”
The increased level of standardisation in
the corporate actions space has signifi-
cantly impacted the take up of corporate
actions automation. The market for third
party vendor solution of corporate actions
automation has improved considerably
over the past year or so.
Renewed Interest
Farrell of Xcitek says that there is a
growing need being felt for automating
corporate actions within financial institu-
tions and Xcitek, which currently has 50
clients, is seen a growing acceptance of
off-the-shelf applications across all types
of financial institutions. “Larger financial
institutions were earlier in a self-build
mode. But now they are in conversations
with us,” says Farrell.
Harvey Colborne, principal consultant
at technology vendor, Mondas too agrees
that there is renewed interest in the corpo-
rate actions space over the past year. “The
interesting thing is that we are seeing an
interest from firms that had backed off
earlier because of the downturn in the
economy. For instance, HSBC started talk-
ing to us four years ago, but finally we
were able to sell the solution to them only
15 months ago.”
Colborne adds, “In recent months we
are seeing a lot of demand for a web-
based front-end with some firms wanting
the entire solution to have a web based
front end.” In response to this customer
demand, Mondas has itself developed a
web based election management module.”
No doubt automation is increasing,
however, industry experts suggest that
other than in financial capital like London
and New York, the level of awareness
among financial institutions about corpo-
rate actions lack of corporate actions
automation is still rather low. They also
state that the biggest obstacle to achieving
complete corporate action automation
still remains. And that is to do with the
way corporate actions are issued at the
source. The basic corporate actions data is
non-standardised without any uniform
way of representing information.
One way of resolving this issue is by
standardising corporate actions data when
it is being disseminated by the issuer itself.
“Standardisation of corporate actions at
the issuer is an achievable target, but we
should be realistic with our short to medi-
um term expectations,” says Bermingham.
 2 Y E A R S I N A R O W

DTCC:
Voted Best
Corporate Actions Solutions Provider.
The Depository Trust & Clearing Corporation is grateful to be selected as the Best Corporate
Actions Solutions Provider in Waters magazine’s 2005 Annual Ranking.
Voters from five continents chose our Global Corporate Action (GCA) Validation Service as the best
solution to provide comprehensive, accurate and timely corporate action information.
We’d like to thank those brokers, banks, investment managers and hedge funds worldwide.
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www.dtcc.com/gca
Panel Discussion - Corporate Actions

Time for Action Harvey Colborne

The corporate actions landscape is

on the verge of transformation, say
securities industry participants
Harvey Colborne is Principal Consultant – Head of Marketing &
Pre-Sales at Mondas. Colborne has extensive market knowledge
and has over 10 years experience in the securities industry in the
areas of operational risk and software implementation. Brendan Farrell
Colborne’s career has given him a valuable mix of practitioner
and vendor experience as a FOREX dealer for Nedbank, in corpo-
rate actions operations for JPMorgan Investment Management,
Chase Manhattan Custody and also client services / relationship
management at The Bank of New York.
Brendan P. Farrell, Jr. is Managing Partner at Xcitek, responsible
for worldwide sales, marketing, client services and product devel-
opment & direction for Xcitek’s data and software products.
Farrell joined Xcitek in 1996 and has over 20 years experience in
the financial industry including 6 years at Financial Information,
Inc. as Vice President of Sales and Marketing and 6 years at The James Femia
Bank of New York where he held various Officer-level manage-
ment positions in the Securities Operations Division. Farrell has
extensive experience in the securities operations management
and the development and implementation of automated securi-
ties operations data management systems.
James Femia is Managing Director and General Manager of
DTCC with direct responsibility for managing the company's
Global Corporate Action (GCA) business. In this capacity, he
oversees strategic and technical planning, product development
and implementation, sales and marketing, customer support and
relationship management initiatives. He also oversees three serv- Brian Lott
ice centers – located in New York, London and Shanghai – which
provide operational support for the GCA Validation Service.
Brian Lott Brian Lott is the COO of Capco Reference Data
Solutions (CRDS). He is responsible for the management and
delivery of the CRDS business, including daily operation, client
adoption, client migration, and client relationship management.
Brian works with Capco’s professional services team to identify
potential CRDS clients and works closely with the clients on their
strategy development. Lott has 20 years of experience in the
financial services industry.
Naren Patel
Naren Patel is Director of Marketing and Business Development
at Trace Financial Ltd. He has extensive knowledge and 20 years
experience of the securities industry having previously worked at
NatWest and RBC as Head of Relationship Management. He
joined SWIFT in 1999 and was responsible for ISO15022 migra-
tion projects. Patel has been with Trace Financial for the last
three years.
Colin Smart is a product manager within FT Interactive Data’s
European product management group. He currently has respon-
sibility for the data content of FT Interactive Data's European
product range. Colin has 25 years experience in the securities Colin Smart
industry and has spent much of this time working with corporate
actions data. Most recently Colin has been involved in initiatives
to automate corporate actions from both an industry standards
and vendor proprietary format perspective.

56 INVESTOR SERVICES JOURNAL


What are the latest developments to affect the corporate
actions landscape over the last year?
Colborne: One of the latest developments I have noted is
the change in approach by the larger institutions. In the
past implementation was mostly initiated using a 'Big
Bang' approach, whereby the solution was implemented in
a single phase with all of its modules enabled. What seems
to be becoming increasingly popular is a phased modular
approach. This only really works if the target system has
true modular switching, i.e. certain core modules can be
switched off with their dependencies to other core mod-
ules minimised. As an example, client A wishes to use data
scrubbing and event notification capture, but is not inter-
ested in implementing reconciliation or entitlement calcu-
lation. This may be due to those areas of functionality /
processing being the regarded as the most high risk for
that particular organisation or due to other systems work-
ing well in the areas out of scope. I believe that we will see
more 'shorter' systems being implemented to cover off the
higher risk areas of corporate action process-
ing. This also means the practitioners costs can “Over the last 12-18 months the securities
be reduced and timescales improved upon.
industry has embraced a desire to automate
Farrell: Custodians were the first to address the
need for automating corporate actions with corporate actions, although it has been an uphill
predominantly in-house developed bespoke
systems. However, as corporate actions
struggle to make this desire a reality”
announcements increase in volume and com-
plexity (and the in-house developments becoming more
tedious, time consuming and costly) the appetite has
moved towards licensing specialist software such as XSP™,
as part of an integrated STP solution. From our perspec-
tive, Xcitek continue to see great demand from global
financial institutions of all types including asset managers,
hedge funds, and broker/dealers to automate their corpo-
rate actions processing. These forward-thinking, global
organisations realise the benefits that automation brings to
their operations –i.e., reduced risks, reduced costs,
increased service levels to their clients and ultimately
increase in profits. As firms expand the range of products
and services they offer the requirement for some form of
automation in corporate actions processing increases.
Firms who have not yet fully embraced the need for
automating their corporate actions processing tend to be
those who hold fewer positions for example inter-dealer
brokers or firms where the range of products is limited or
concentrated on debt or income where mandatory events
predominate. However, even in these firms the require-
ment to receive and cleanse data from multiple sources is
increasing and along with it the pressure to automate.
Femia: Over the past several years, corporate actions have
become an area of growing risk and cost for many finan-
cial services firms. Both the sheer volume and the com-
plexity of events are increasing. As a result, many large
organisations are reengineering their business processes,
including the way they handle corporate actions. This has
created greater demand for automated solutions. In addi-
tion, we’re finding more investment managers and hedge
funds are employing corporate action information in the
Panel Discussion - Corporate Actions
front office to drive trading strategies and help make wise
investment decisions.
Lott: Most notably I would say it has been the EU Savings
Directive. This will certainly cause more firms to discover
new ways to report the underlying holder of a security or
their participation in a fund. With the requirements gen-
erated by Sarbanes Oxley and Basel II, we are seeing more
attention being given to the client/counterparty data,
specifically as it related to owners and issuers of securities,
and the need to have this kept current as a result of corpo-
rate actions which effect name changes or changes in the
underlying corporate structure.
Patel: The data vendors coming on board to work towards
offering a SWIFT based service. The further impact of an
expanding hedge fund business where speed of informa-
tion update gains importance is another development. The
business world is also coming up with more complicated
events such as 4 phase processes.
Smart: Over the last 12-18 months the securities industry
has embraced a desire to automate corporate actions,
although it has been an uphill struggle to make this desire
a reality. The core drivers for automation have been the
need to reduce operational risk and cut costs – manual
processing of corporate actions is a resource intensive and
costly process. As well as the corporate events themselves,
we are also seeing an increased demand for delivery of
resultant reference data changes related to capital events.
This trade support reference data forms an essential part
of the whole corporate actions’ picture.
Comment on attempts to standardise the corporate
actions landscape. Is the securities industry close to
implementing standards for corporate actions?
Colborne: I believe the move from the ISO7775 standard
to the ISO15022 standard a significant step for the
industry. Under the old standard it was very difficult for
software houses to utilise the notifications as most of the
market were using free format narrative (and potentially
in-house templates). Once the new standard was imple-
mented, almost immediately, STP rates picked up as the
MT564 notification message was structured and format-
ted. Therefore software houses could target certain fields
of the message to expect particular data items.
Farrell: There is nothing else in the same league as ISO
15022. It is the largest industry initiative for automation of
corporate actions so far. The real issue is keeping up to
date with the market driven user changes to the way the
ISO standard is interpreted and used, and of course edu-
INVESTOR SERVICES JOURNAL 57
 Panel Discussion - Corporate Actions
cating the global custodians. Many European market play-
ers now realise the need for an ISO compliant solution.
Femia: Standardisation of corporate actions is an evolu-
tionary process of continuous improvement towards the
ultimate goals of achieving STP and reducing risk. These
are goals to which DTCC, as an organisation, is fully com-
mitted. In the US, we co-chair the Corporate Actions
Working Group of the International Securities Association
for Institutional Trade Communication - International
Operations Association (ISITC-IOA). We also have repre-
sentatives on national and global Securities Market
Practice Groups (SMPG) working to harmonise industry
standards. We are also fully committed to the industry
goal of “at source” standardisation, targeted to address the
integrity of the corporate actions announcements at the
point of origin.
“Overall European financial institutions are
ahead of their North American counterparts”
Lott: I believe they are closer. I would say that when you
look at the European community, they are ahead of the
North American community primarily because of the
standards that have risen from SWIFT ISO 15022 initia-
tives and the level of participation from the European
market. When you look at what people have done to inte-
grate the new standards you will find that many software
vendors have already achieved compliance with others not
very far behind. Overall European financial institutions are
ahead of their North American counterparts. I would say
that North America remains somewhat behind because for
the most part they are heavily “US-oriented” in terms of
their interfaces with US clearing agents, which are some-
times more automated than some of the European clear-
ing houses and therefore already have proprietary stan-
dards that are widely adopted and used . Is there standard-
isation? Yes. What SWIFT have done for the financial serv-
ices industry is very good. Can they go a little further? Yes
they can. I think they are moving in that direction, but for
other reasons its does not appear to be forefront.
Patel: This is a slow moving ship that is at least now head-
ing for the correct port rather than drifting in the ocean.
There are a number of issues to consider here-
Firstly corporate events has always been seen by the busi-
ness world as the poor relation to trading. It doesn’t make
profits for the business and therefore comes down the list
of priorities. In too many cases the answer to the question
of standardisation is - “we have a system, it works, why
change?”
Secondly, the players who really matter in this arena – the
custodians - found themselves wrestling with trying to get
their clients and counterparties onto automated platforms
through the upheaval of ISO 15022 implementation at the
same time as managing a downturn in the global markets.
Thirdly, the concept of allowing vast variety within the
SWIFT messages for corporate events caught out a num-
ber of IT software departments and suppliers in that con-
siderable additional programming was needed to cater for
58 INVESTOR SERVICES JOURNAL
the variations in the message data.
However, the custodians and buy side firms have now
realised that message standards are needed if costs are to
be reduced through automation. It is now only a matter of
time whilst firms catch up with the software developments
required, and for the business guidelines, such as those
from ISITC and the SMPG to percolate down internally
within the marketplace.
Smart: The industry has demonstrated its belief in open
standards by its commitment to initiatives such as ISO
15022. The major data vendors, including FT Interactive
Data, have undertaken significant work to map global cor-
porate actions data from their proprietary formats to the
MT564 event types specified within the industry data
standard. This represents a significant step towards realis-
ing the desire to automate. The next steps involve the con-
sumers of the data (our customers) investing
resource in adopting the new standards themselves.
What are the current barriers to automation and the
latest moves to automate the industry?
Colborne: If you look at the market for reconciliation soft-
ware four to five years ago, there was a surge of activity
which remained relatively consistent from the start. This is
very different to what we have seen in the adoption of cor-
porate action processing solutions. What we have wit-
nessed, is that practitioners, being acutely aware of the
complexity of corporate action processing, have been
holding back and watching the systems mature. During
this time there have been some serious and adverse market
conditions, like 9/11 and the dot com market re-valuation,
which have also caused further slow down in the sector.
Now with a return to profits for the budget holders, we are
starting to see more movement in general.
Farrell: The major barriers to automation include the lack
of broad adoption of ISO 15022, the perceived notion that
corporate actions can not be automated, and the lack of
funding within organisations to take on a technology proj-
ect of this kind – until they are hit with a costly error due
to manual processing. We do see that in many cases the
client is just too busy with not enough qualified/experi-
enced staff in place. The client realises the need for
automation and process efficiencies but can often not
afford to release the ‘experts’ from the day-to-day to exe-
cute the project for automation effectively. At Xcitek, we
continue to see a growing trend to automate. With over 50
clients utilising XSP, financial institutions benefit from a
proven, ‘turnkey’ solution that can be implemented
between 90 to 120 days. Firms will only entrust their cor-
porate actions processing to stable and solid providers
with excellent implementation track records. Advanced
technology, research & development, and a team backed by
strong and dedicated business and technical resources
allow Xcitek to continue leading the industry with the
most widely-implemented solution in the marketplace.
Femia: The increasing sophistication and complexity of
corporate actions definitely presents a challenge. When it
 How far can you
go with corporate
comes to voluntary corporate actions, there are so many
actions?
different variations. There are all kinds of terms, condi-
tions, participation rights and holding restrictions. The
complexity and the deadlines mean there is a much greater
chance of making a mistake. And as we know from
Oxera’s corporate actions risk study last year, the losses
from mishandling a single, complex corporate action event
for an individual securities firms have the potential to run
into tens of millions of Euros.

Lott: When you look at the life cycle of corporate actions

the most important aspect is gathering the information.
Then there are subsequent downstream account and firm
management pieces that require attention since many
actions require firms and clients to manage their positions
and cash flows). We have seen that most of the software
vendors are equal when it comes to their ability to accept
and manage the data from various sources, whether they
be Bloomberg, Reuters or custodian sources. We are seeing
more vendors start to close the gap on the account side
where more management of account and account instruc-
tions are required, specifically when communicating those
instructions to the custodian network. That's why we are
seeing more of the corporate actions systems vendors
moving towards the account management and tracking
function. The other development we are seeing, which is
helping standardisation, is the creation of an industry util-
ity, for example what the DTCC has done and what the > Event Calendar
Deutsche Borse has done with their PROPRIS offering.
These initiatives will help improve the standardisation by
centralising the corporate action process. These initiatives > Proxy Voting
will also help close the gap between the industry's reliance
on the many data sources by bringing the user community Workplace Portal
closer to the issuing and agent community. In so doing,
the people who announce the corporate actions will
become participants in a utility that actually becomes the > Voluntary Action
central hub from which users can go to in order to get
information. That is what we are seeing, particularly with Workplace Portal
the DTCC. We think we will continue to see traction as the
concept continues to grow. We are also seeing similar
offerings develop in other countries. If there are multiple > CAES Utilities
hubs set up in different countries, we can see them sharing
their corporate action data whereby each player will
become the distributor in their local market of world-wide
corporate actions. We are some years away from that but Our answer is: really far. And what’s more, you can go really far
we think the foundation is just already starting to form. without leaving your desk. For instance, you can proxy-vote
Patel: Most of the barriers are centred on three issues – with your Internet browser, no matter where the General Meet-
a) Non standardised use of SWIFT- ing is. You can rely on high quality corporate event messaging
This relates to the custodians not using the message struc- and streamline your notifications workload with multilingual
tures of the MT56x series correctly. A lot of information text blocks. And there’s so much more to CAES, Corporate
that could be used in the automation of corporate actions Actions Enhanced Services, by SIS SEGAINTERSETTLE AG. Go for it.
is still supplied as narrative within the messages rather
than as tag data, or in some circumstances for complicated
events narrative messages only are issued. Now you’re working state-of-the-art.
In answer to this the SMPG has worked to provide mes-
sage standards and SWIFT are investing in expanding the
range of corporate event message types available to cover
the forgotten corners of CA processing, such as Proxy
Voting. One real issue is that even when there is SMPG
defined standards, because there is no enforcement of

Member of the SIS Group

SIS SEGAINTERSETTLE AG, Brandschenkestrasse 47, CH-8002 Zurich, Phone: +41-44-288-4511
Fax: +41-44-288-4512, office@sisclear.com www.sec.sisclear.com
 Panel Discussion - Corporate Actions
standards say by SWIFT, the same message for the same
event can be presented differently by multiple custodians.
This will cause really STP issues for the Asset Managers.
In essence to implement an Automated Corporate Actions
environment is very complicated. Only when proper
resources are dedicated to this type of implementation
project can it deliver benefits to about 80 per cent of the
current activity.
b) Buy-side firms investing in automated links to 3rd
parties
Whilst the bigger players in the buy-side arena have identi-
fied the advantages of automation for corporate events a
large number of mid and small sized investment houses
are still relying on paper based systems to handle corpo-
rate events. The main barrier to these market players are
the cost of automation and the business benefits it may
offer. A lot of these mid and smaller sized organisations
were caught out in the late nineties and early part of the
new millennium with the automation of trading processes
through the introduction of middleware. In many cases
the projects had limited success and, with consideration to
the downturn in global markets, many firms were not pre-
pared to get their fingers burned again.
However with the industry in general raising the profile
of corporate event automation, and better product fits
becoming widely available these smaller buy-side firms are
beginning to identify the cost savings that can be made
through automation of Corporate Event processing.
c) Data Vendors
Data vendors have been guarded so far with regard to the
availability and data coverage of information provided in
SWIFT standard format. The commercial and political
issues are obviously clear here. However without the data
vendors standardising with the rest of the industry true
straight through automation and exception handling will
continue to be held up by the need for multiple
proprietary feeds.
“A lot of these mid and smaller
sized organisations were
caught out in the late nineties
and early part of the new
millennium with the
automation of trading
processess through the
introduction of middleware”
Smart: Automation could be held back by the resource
requirements taken up by various regulations and direc-
tives such as the EU Savings Tax Directive, Basel II, UCITS
111 or Sarbanes-Oxley. And now there’s MiFID… In
comparison to some of these projects, the bottom line is
that achieving a decent level of corporate actions automa-
tion has often been seen as a ‘nice to have’ as opposed to
being of real stand-out benefit. It could be true to say that
many investment firms will only wake up to the true bene-
60 INVESTOR SERVICES JOURNAL
fits of automation upon suffering major losses through
failure to act upon a corporate event.
Comment on the latest regulatory developments/direc-
tives which are affecting the corporate actions landscape.
Do you foresee further regulatory involvement in this
area of the securities industry?
Colborne: One of the main regulatory drivers on every-
one's lips at the moment is the BASEL II accord. The main
theme for operational risk is capital adequacy. I.e.
Practitioners may have to put aside a certain amount of
capital in advance of potential losses. The practitioners can
reduce this amount by improving processes, auditing,
implementing new software control systems etc. etc.
Fortunately for practitioners, unfortunately for vendors,
BASEL II was initially supposed to come into force in
2005, but was postponed until 2007. Currently the main
questions I hear are, 'Is it going to happen? When? Will it
be regulatory, or a set of guidelines?'
Farrell: Regulatory directives such as the Basel II Accord,
Sarbanes-Oxley, and other industry drivers geared towards
minimising operational risks and fulfilling compliance
obligations further the need to automate the corporate
actions process.
Femia: One of the most challenging and visible areas sur-
rounding our business today is the assessment and man-
agement of operational risk. Sarbanes-Oxley introduced
basic foundations in 2002, and the proposed Basel Capital
Accord (Basle II), for example, place the spotlight clearly
on the concerns of operational risk. Financial firms must
more actively manage their operational risk to effectively
reduce their capital reserves. It is clear that the effective
management of the corporate action process, together
with its mitigating strategies and control functions, are,
and will become even more essential in helping firms run
their business.
Lott: The EU Savings Directive is an attempt to address
the problem that seems to have existed forever, which is
“who is the underlying owner of the investment in the first
place and are countries losing out on taxable income that
they could be charging these investors?” Typically, many of
the custodians maintain omnibus (un-named) accounts.
We know mutual funds are in fact omnibus account driv-
en where a single fund is a recordkeeper for a number of
investors that could be located anywhere in the world.
Because of tax treaties you never really know the underly-
ing beneficiaries of the income. I think countries are get-
ting smarter and more aware that there is revenue out
there they should be entitled to. You will see more regula-
tors making sure they understand who the underlying
holders of the income are.
Patel: The changes to the landscape are likely to be busi-
ness driven as corporate events are a by-product of securi-
ty trading. With greater regulation of trading business, in
particular hedge funds and derivative trading, there is like-
ly to be a knock-on effect to corporate actions regulation
In addition the operational risk strategies of organisations
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 Panel Discussion - Corporate Actions
are likely to change over the coming year to reflect the
requirements of the Basel II accord. In some cases this will
mean greater automation to cover the risk elements related
to corporate action processing.
“The operational risk strategies of organisations
are likely to change over the coming year to reflect
the requirements of the Basel II accord”
Smart: The impact that regulation is having on the
corporate actions landscape is less about direct regulation
of corporate actions than how regulations on other aspects
of the industry – as mentioned above – are affecting the
ability to automate corporate actions.
Which buyside firms in the securities industry are most
proactive about automating corporate actions? Which
firms are falling behind?
Colborne: I think both asset managers and private client
broking houses appear to be on the move at the moment.
Their business model is to have more clients under man-
agement which if achieved leads to higher volumes of
processing and an increase in operational risk. Although
having said that, there does seem to be more interest
shown from all corners of the market.
Farrell: The firms that are most proactive about
automating are those that process corporate actions on
their clients’ behalf – i.e., custodians, asset managers,
investment managers, hedge funds. Aside from the cost
factor associated with misinterpreting or mishandling a
client’s instruction due to manual processing, an error can
also threaten the reputation of the institution involved in
their processing.
Femia: Mutual funds, hedge funds, insurance companies
and other money managers are all discovering the benefits
of automating corporate actions processing. They’re
sharing with their front office as well as their back office
the consistent, accurate and enriched information that
data repositories such as DTCC’s Global Corporate
Actions Validation Service provide. Our customers have
been able to reduce expenses significantly and better
manage risks by having a single source of corporate action
information globally.
Lott: I would say the largest buyside firms are the most
active in resolving corporate actions issues. Looking at
Fidelity and AXA, they are somewhat further ahead than
many other firms, especially many for the tier-two or
tier-three buyside firms. Firstly the largest firms have the
money to do it. Secondly the smaller firms have more
well-defined investment strategies and therefore - when
you look at the size and nature of their portfolios - tend
to be focussed on mature markets so they don’t perceive
automation to be a big issue. Also software has typically
been developed and priced towards larger firms, making it
62 INVESTOR SERVICES JOURNAL
uneconomical for smaller firms to automate their
corporate action processing. However we are starting to
see more of the software vendors creating out-of-the-box,
affordable packages for the smaller firms.
Patel: The buy-side contingent who are
proactively seeking or improving on
corporate action automation are the bigger
players in the market-place. These businesses
already have the budgets, technology and,
most importantly, SWIFT integration into
their systems available.
The mid and smaller players in the security business are
the ones falling behind. In most cases they either haven’t
identified the merits of automation and/or do not have the
budget available to implement the changes. In a lot of
cases these size business do not have SWIFT links and rely
heavily on traditional proprietary point-to-point
communications for their automation.
Please comment on latest industry efforts to seek har-
monisation within the corporate actions landscape.
Colborne: Data vendors decided to deliver their feeds in
the ISO15022 format. This has helped practitioners
thinking of implementing a corporate action solution as
they can now rule out the costs of having to finance the
build of API's to bring the data into their systems. This
also helped vendors trying to sell processing solutions as
not only does this make their proposal look cheaper, it
means they're effort is significantly reduced to map and
match the data to the relevant corners of their databases
where it will make sense to the user viewing the data
through the GUI. For instance, a data vendors proprietary
feed may have 200-300 corporate event types. ISO 15022
has 66. So straight away at event level, those 200-300 have
to be matched down to the 66 (or vice versa). When you
then consider the underlying qualifiers to these events all
then have to be mapped as well, it becomes very
interesting.... Imagine taking 5 or 6 family trees going back
over 10 or 11 generations and trying to pair them off in
similarity to each other, then imagine repeating the
process again 200-300 times.
Farrell: With the introduction of SWIFT ISO15022 in
1998 the Capital Markets started on the long road to
standardisation. However, with various interpretations
fields within the messages allowable and significant use of
the text and extended text fields, mapping the data to and
from the required formats for corporate actions has
become more of an issue than should have been the case
and indeed has been the case for more straightforward
markets such as foreign exchange and cash transfers. As
more end user firms take up ISO15022 as the standard for
both Corporate Action information and notifications,
custodians and information vendors are being forced to
move towards a single standard. The next generation of
messages, ISO20022, is still very much “in the pipeline”
and the market is waiting to see whether any significant
progress can be made towards the hope for
standardisation. However, even with convergence by all
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 Panel Discussion - Corporate Actions
the parties involved is likely that, once again, corporate
actions will lag behind treasury and securities settlements.
Femia: The Securities Market Practice Group strives to
harmonise corporate actions to create best practices,
however, it does not have the power to dictate confor-
mance to the standards and market practice that has been
agreed to. The aim of developing market practice is to
provide guidelines on the use of ISO 15022 corporate
action messages, from notification to payment, regardless
of where the event originates. The key benefit of the ISO
standard for corporate actions is the existing database and
the facility to maintain and update the data elements,
definition and business rules as they evolve with no cost to
the industry. This allows the industry to focus and build
upon its knowledge and strengths.
“Currently there is a lot of focus on risk management,
particularly around market and client risk, and
consolidation and adoption of data, which again
redirects funds from corporate actions initiatives”
Lott: In my opinion I have seen the efforts slow down a
little bit, for a couple of reasons. One is Basel II. The other
is Sarbanes Oxley, which firms are still trying to address.
Consequently, there is more energy being focused on client
data as opposed to corporate actions. If you look at user
groups such as FISD, REDAC and RDUG, their current
focus is still on standardisation of securities reference data.
Unless there is some regulatory reason for people to put
corporate actions on the front-burner it will continue to
receive less attention. There was a time when it got a lot of
attention and that was primarily driven by SWIFT and the
industry to begin to create standardisation plus it was
always one of these areas that was highly manually
intensive. Currently there is a lot more focus on risk
management, particularly around market and client risk,
and consolidation and adoption of data, which again
redirects funds from corporate action initiatives.
Smart: Somewhat surprisingly a group of traditionally
fiercely competitive vendors is working together for the
betterment of the industry. The Market Data Provider
User Group’s published ‘Principles’ document serves to
demonstrate that mountains can be moved when leading
vendors buy into the concept of standardisation. Vendors
might be at slightly different stages of implementation, but
the core of their corporate actions offerings should now
look very similar indeed. Software vendors have com-
mented favourably on the progress that has been made –
and in most cases, ISO 15022 files that have been tested by
the leading software vendors have reportedly been
processed with little or no manual intervention. What a
difference from the proprietary formatted world!
Will utilities such as SWIFT help to standardise the
industry or will the securities industry come to rely on
64 INVESTOR SERVICES JOURNAL
commercially driven solutions when processing corporate
actions?
Colborne: As mentioned earlier, SWIFT has definitely
helped to increase automation through standardisation.
The new ISO standard has been a breakthrough for STP. It
is now possible to have mandatory events achieve
extremely high, and previously joked about, rates of
straight through processing.
Farrell: SWIFT’s initiative to standardise corporate actions
provides some relief for institutional clients because they
provide and act on information. However, SWIFT does
not process corporate actions. Institutions must rely
on software providers like XSP to deliver proven
solutions that automate the end-to-end processing for
corporate actions.
Femia: Sure, message standards go a
long way to improving communications
and processes associated with corporate
actions. But even with message stan-
dards, content is still disparate and can
cause, extensive mapping and makeshift,
work-around solutions. For standards to
be successful, it will require the efforts of
all participants – including issuers of corporate actions,
their downstream recipients, and organisations like
SWIFT. The challenge for developers of commercial solu-
tions for processing
corporate actions will be to continue to find ways to add
value as the landscape for corporate actions evolves.
Lott: SWIFT has the potential to do something very big
for the industry in terms of corporate actions. The issue
may be that they are struggling with how to move this
forward and how to become a utility for corporate actions.
This is why you are seeing all of the other players like the
DTCC and Deutsche Börse provide their own niche mar-
ket offerings. SWIFT definitely has the potential, especially
since they are a driver of industry standardisation. Could
they be a utility, which becomes the information hub for
issuers and users? Certainly they could. We know there
have been conversations about it, but we also know they
haven’t gone anywhere.
Patel: SWIFT will only help to standardise the industry if
their services become more prevalent in the mid to smaller
buy side firms and if the range of messages for corporate
events is refined to better reflect automated solutions.
In the short term Custodians, the biggest influence on
this marketplace, are likely to stick with proprietary solu-
tions as the path of least resistance.
Adoption would be greater if some form of enforcement
was implemented. This will create pure standards which
will leave very little room for interpretation.
There is also the issue where the Standard itself does not
lend itself to complete business situations. For example
Securities Lending activity to be incorporated in the actual
Corporate Action event notification can be very difficult.
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 Panel Discussion - Corporate Actions
Without complete business coverage of the standard there
will always be limitations to the levels of automation that
can be achieved through the use of SWIFT.
Smart: Market feedback shows that there is significant
interest in receiving ISO 15022 formatted corporate
actions data over the SWIFTNet network – FT Interactive
Data considers this approach to be a natural progression
of open standards adoption within the industry. SWIFT
has an excellent record of promoting standardisation
across the industry and will clearly be a key industry
facilitator in this initiative.
“financial institutions can no longer ignore
automation in their quest for maximum
operational efficiency”
What are the key challenges and opportunities for the
corporate actions landscape over the next two years?
Colborne: The main challenges facing the industry cur-
rently are; to utilise the web more, either making their
whole product available as a web service or at the very
least to offer elections for voluntary corporate actions over
the web. The benefit for buyers being mobility and ease of
deployment. For the vendors that don't currently have
modular switching a move into this level of flexibility, I
believe, will become imperative for selling into larger
financial institutions. Finally, the common goal of increas-
ing STP rates. This is something that most vendors will
work on continuously in the hope of providing a system
that can cope with all types and levels of corporate actions
with minor human intervention.
Farrell: Global financial institutions that have not fully
embraced the need for automation are faced with ever-
increasing volumes, complex offerings, securities class
actions, staffing issues, multi-market processing, and
losses stemming from errors due to manual processing.
Automating the process with a solution like XSP man-
ages the peaks in volume because it is insensitive to the
increase in activity, thus allowing staff to be reassigned
to more complex issues. Securities class actions are
becoming another global issue for the industry requiring
a solution to manage the process.
Xcitek’s market data group recently launched Xcitek
Class Actions™ to allow financial institutions to identify,
track and ultimately collect from positions held in the
ever-expanding list of securities class actions. The serv-
ice includes information and features to assist in the
process of claiming and collecting funds to which the
investor may be entitled. XSP plans to deliver a new
module to address full back-office automation of the
class action data by leveraging the existing functionality
of XSP to manage the class action lifecycle for complete
end-to-end processing.
In today’s global marketplace, financial institutions can
no longer ignore automation in their quest for
66 INVESTOR SERVICES JOURNAL
maximum operational efficiency and reduced cost
in the processing of corporate actions.
Femia: The business of processing corporate actions is
nothing if not challenging. From a global perspective,
perhaps the most significant challenge is for all firms to
commit to supporting industrywide efforts to develop
standards that will bring greater harmony to what
remains one of the most complex, labour-intensive and
risk-filled processes. Other challenges include keeping
up with the continuing sophistication of instruments
and new corporate actions event types that the creative
minds of investment bankers and other
advisors devise.
Lott: The first challenge is for firms to
recognise that corporate actions processing,
including the collection and
communication, can best be done by a utility. We will see
more adoptions of the utility services, which could also
mean that these utility services will start to share data
with each other. This will help the industry overall. The
question is, how much will adoption of the utility model
occur over the next two years to provide what the
industry needs? Quite frankly it is still a slowly evolving
proposition. I think you will still see basic levels of
functionality from the industry utilities in the next
couple of years. In the longer term, there are pretty good
prospects for utility models to move the industry for-
ward in terms full processing or corporate actions, like
we saw with payroll and other outsourced services. I also
think you will see steady deployment of market and
country specific utilities.
Patel: The landscape is likely to be market driven. With
the upturn in the global economy there is a greater
chance of corporate activity – companies coming to
market, take-overs, mergers, etc. and this should fuel the
argument to automate to deal with volume.
Further expansion of the global marketplace for trading
should have a knock-on effect to corporate activity and
automation of this line of business.
The challenge will be to get the message standardisation
right in the global marketplace to ease the passage to
automation. This can only be achieved if all the players –
custodians, security houses, data vendors and system
suppliers – work together with a common purpose of
producing a global automation solution.
Smart: We as an industry need to decide now how
important automation really is. There is currently a
window of opportunity to get this project completed, but
regulations such as MiFID are bearing down on the
industry. Implementation of MiFID is due in 2007;
project work will need to be conducted during 2006 and
budgets have to be set very soon. MiFID looks as though
it will be a massively resource-greedy project, so how
much will be left for corporate actions automation if it is
not completed by the end of 2005?
ISJ: Thank you.

Beyond Borders
David White analyses
technology that
supports cross-border
distribution
Europe is a diverse, multi-language, multi-
currency and multi-jurisdictional conti-
nent with complex distribution models.
The leading systems providers supporting
the vast array of financial services compa-
nies have all invested heavily to update
legacy systems to try to keep up to date
with the sophisticated needs of today's
industry leaders. But the truth remains that
cutting edge developments in technology
and the emerging opportunities of interna-
tional markets are rarely synchronised, and
that one always seems to be ahead of the
other.
So what medicine can companies take to
relieve the headache of providing efficient
and effective cross border technology?
One often used remedy is outsourcing.
Looking forward I believe there are seven
key challenges that financial services com-
panies will face that will accelerate use of
an outsourced model for the technology.
THE SEVEN CHALLENGES
Open Architecture
First is the evolution of open architecture, whose
growth continues throughout Europe and beyond; com-
panies can no longer rely on systems that only support
one product range. They need to be able to support
multiple product ranges offered by multiple providers.
To accommodate and add value for customers, by
reducing their need to go elsewhere for products, lead-
ing European platforms, such as FundsNetwork, are
leveraging technology that allows their customers to
choose how they make contact – via post, the call cen-
tre, a branch or the web. All must be catered for and
cross matched to maintain contact history.
Legislation
Second is the need for technology to keep pace with
developments in legislation and regulation. The EU
Savings Directive, UCITS III and market timing initia-
tives are just some of the laws and approaches to car-
rying out business that companies’ systems and infra-
structure must be able to handle. And for every juris-
diction that a system supports, there is a requirement
that it must keep pace with any legal, taxation and
compliance changes that take place.
Multiple Jurisdictions
Third is the need to service a multi-jurisdictional
customer base. For example, in the case of a customer
in the UK who invests in products from the UK, Dublin
and Luxembourg. There is a strong desire for systems
to be able to promote a single customer view across all
markets, thereby enabling companies to offer a premi-
um service. By providing client-servicing staff with a
total view of the customer’s relationship, it empowers
them to deliver a first-class service providing informa-
tion and updates to customers at a touch of a button.
Costs
The fourth challenge is balancing the need to reduce
total cost of ownership, with the need to continue to
invest in state of the art systems. Only the largest
players in the marketplace (and these are now typically
the providers of outsourced services) will be able to
achieve the appropriate economies of scale that will
enable them to sustain this balancing act.
Systems
A fifth area is system proliferation, where numerous
technologies need to be eliminated, or at least reduced.
The more widespread the systems and technologies a
company has, the greater the cost and complexity.
Therefore maintaining and managing legacy systems
puts increasing pressure on IT Directors and
Operations staff alike, and so the aim is to have a
small number of modern, flexible platforms that will
provide an efficient and cost effective operating model,
an argument that makes the attraction of outsourcing
even greater.
System proliferation is also at the heart of the con-
tinuing debate around industry consolidation. Take the
fund management industry as an example. With over
1,000 fund companies servicing over 13,000 funds in
Europe alone, consolidation is inevitable and this will
drive the need to reduce the number of systems and
amount of software as companies are taken over and
merged.
Scalability
Scalability is the sixth challenge, with the needs of
Europe’s largest companies requiring ever increasing
depth and breadth in technology provision. Companies
can be faced with trading volume peaks during the
business year. For UK fund managers there is the tradi-
tional First Quarter ISA (Individual Savings Allowance)
season peak. To effectively handle transaction peaks a
system must be able to deal with spikes in volumes,
maybe up to ten times that normally handled.
Automation technology, such as integrated workflow
and straight through processing, is a must for any
modern platform.
Skills
The seventh and final challenge is the continuing
shortage of skills in our industry. Companies are find-
ing that many specialist skills are scarce and insuffi-
cient. Ensuring that you have the right people in the
right place and with the appropriate skills is becoming
more and more of a challenge.
So that’s the theory, but how does it stack up
in practice?
One practical example within the financial
services industry that has successfully over-
come these challenges through outsourcing
technology is the fund management indus-
try, specifically in the area of transfer agency.
Over the past three to five years we have seen
a shift in the number of companies out-
sourcing their technology requirements,
Technology
largely with great success. This has resulted
in the development and introduction of
modern and sophisticated technologies. For
transfer agency this has meant that the busi-
ness has become much more than just a way
of record-keeping. In Europe, transfer
agency technology providers can now offer
scalable solutions, offering multi-currency,
multi-product, multi-jurisdiction systems
including workflow, call centre, web and
straight through processing capabilities.
TA technology
Transfer agency technology can now be
purchased in a variety of ways – system only
outsourcing, where fund managers outsource
the system solution but retain control of the
operational staff – or system and operational
outsourcing, where fund managers outsource
system solution and outsource the opera-
tional staff and resources.
Today, we see the need for fast, scalable,
flexible transfer agency platforms that can
easily be integrated with other surround
technologies. To become a high-profile pan-
European transfer agent requires the ability
to service multi-jurisdictions on a single sys-
tem whilst keeping pace with the evolving
tax and regulatory requirements of many
countries, the EU Saving Directive being a
case in point. Customers demand state of
the art systems and technologies that are fast,
scalable and reliable, and all at a cost effective
price.
Through the use of system solutions, trans-
fer agents can now carry out their processing
in the most efficient location, wherever in the
world that might be. The global back office
has become a true reality, offering more
stringent, automated processes around audit
and compliance, significant reduction in
errors through better automation, integra-
tion and information, massive cost savings
and improvement in productivity and effi-
ciency.
In conclusion, financial services companies
are faced with a number of key challenges in
relation to technology provision. These chal-
lenges can all be overcome, as has been
proven in the transfer agency arena. If we
can succeed as an industry in meeting these
challenges across all areas, our customers will
enjoy an efficient and enjoyable experience
when interacting with us – and that way, we
can banish the headaches once and for all!
David White is Head of Customer Relations at
Mutual Fund Technologies
MFT is a specialist transfer agency software,
services and consulting company. Today, its
platforms and services support over
$250 billion of assets for over 60 fund groups
in 15 countries.
INVESTOR SERVICES JOURNAL 67
Conference Digest - Fund Forum, Monaco
Forum for
Change?
As a people once obsessed with mutual
funds, the fund industry’s attitude has
changed considerably over the last few
years, to account for the rapid growth in
alternative investments. Hedge funds,
hedge funds and more hedge funds, was a
key topic of discussion at this year’s Fund
Forum event in July.
Evidence of the rising popularity of structured and alter-
native savings products became apparent when KPMG
partner Tom Brown took to the Grimaldi Forum podium at
Fund Forum to deliver a seminar about hedge funds to a
capacity audience.
"A hedge fund is very much a loaded
weapon and you have to be careful
who has their finger on the trigger.”
Citing a recent European fund buyer survey, Brown said
that 66 per cent of respondents would always find
absolute return strategies attractive. However, “a large
percentage of those who responded to the survey per-
ceived hedge funds to be for high net worth investors
only,” he said. “By 2050, about 60 per cent of the Italian
population will be in old age dependence mode. The same
statistics hold true for most of the rest of Europe (except
Denmark, Switzerland and Luxembourg). The demograph-
ics will drive investors towards absolute return products.”
In contrasting the investment cultures of the US and
Europe, Brown pointed out that 42 per cent of the US popu-
lation has a personal pension. In Spain, on the other hand
just four percent of the population is invested in personal
pensions, while the rest is reliant on a State pension. Figures
such as these served to highlighted the massive cultural
divided between the two Continents and the amount of work
that needs to be done by financial institutions in Europe. “A
transfer of responsibility, from the State to the individual is
urgently required,” said Brown. On a positive note, Brown
added that the European investment market place will
become increasingly cross-border in scope. “Similarly,
investors are looking at their fund managers’ performance,
to a greater degree than they would look at the brand.
Mutual funds and structured products will be equally impor-
tant going forward. In order to be successful, one has to
have a range of structured products. These come up trumps
in Germany and in France for example. A focus on traditional
asset management and traditional products only mean that
your business will decline. Being close to the local market is
important but having a global product is even more impor-
tant, as is state-of-the-art risk management.”
In addition to his funds foresight, Brown predicted that
the advisory business, including companies who advise on
asset allocation, will become critical to the success of the
funds industry. “The key success factor in the funds indus-
try is the ability to take products and adapt them to the
local market. Personal pensions will be the products for
growth over the next 20 years. Alternatives are becoming a
core asset class, including commodities and real estate.
We are definitely seeing a move from relative return to
absolute return.”
68 INVESTOR SERVICES JOURNAL
STP
In addition to fund managers and advisors, providers of
securities order-routing and settlement platforms are also
gearing up for opportunities occurring within the
European funds landscape. Clearstream, for example is
settling over 200,000 transactions per month. Vestima+
its new order routing service launched in January 2005, is
gaining increasing acceptance by the market with rapidly
rising volumes. "We knew other providers would try to do
something similar to what we are doing with Vestima+,
but this is good for competition," says Bruno Zutterling,
head of investment funds services at Clearstream.
Vestima+ is a new version of the original Vestima service,
which was originally launched in November 2000. Clients
now include distributors and transfer agents and over
13,000 investment funds in Europe are on Vestima+. "The
Fax machine does not bring any value to the investment
funds industry says Zutterling so our service ensures all
of our connections are fully STP with Service Level
Agreements,".
Clearstream marketing manager
Graham Cope notes that signifi-
cant processing efficiencies have
already been achieved across the
investment funds space. "What
we have achieved in equities and
bonds in terms of processing effi-
ciencies should and will be extended to investment
funds," he says. According to Cope, any settlement plat-
form should have the ability to provide seamless order
routing and deliver an open choice of settlement routes,
which is no easy task. Vestima+ enables full clarity on
positions once fund transactions have been executed,
including the value of the shares and any post-transaction-
al follow-up. "Investment funds incur the most costs in
terms of transaction costs relative to other asset classes
and they are the least reliable in STP terms," adds Cope.
"We have a role to play in bringing investment funds with-
in the same level of settlement efficiency as other asset
classes. We can apply our expertise acquired in equities
and bonds processing and settlement to the investment
funds arena."
Clearstream seizes on events like Fund Forum in order
to achieve its ambitions, "We are always working with the
market in order to design solutions," says Zutterling.
"This open and ongoing dialogue begins with events like
Fund Forum. As a result we will continue enhancing
Vesdtima+ functionalities . The next step is to target the
settlement efficiency of the investment funds arena now
that the order routing problem has been solved.
Customers are settling in multiple markets and they have
to be able control their settlement functions better that
they do today."
Euroclear also seized on Fund Forum 2005 to announce
the development of an automated processing solution for
the investment-fund sector in France. This new Euroclear
initiative represents part of a broader strategy that will
ultimately be rolled out across the other central securities
depositories (CSDs) in the Euroclear group.
Due for launch during the first quarter of 2006, the new
service will combine the order-routing functionality of
FundSettle – Euroclear’s cross-border fundprocessing plat-
form – with the custody and settlement services of RGV
/Relit+, Euroclear France’S securities processing system.
This will enable the French CSD to offer a fully integrat-
ed fund-processing solution, allowing investment-fund
transactions to be processed on a straight-through basis.
The initiative has been developed in close consultation
with Euroclear France’s users and with two of the
country’s leading trade organisations, AFTI (the
Association of Financial Intermediaries) and AFG (the
French Asset Managers Association). Commenting on
today’s announcement at Fund Forum 2005 in Monaco,
Brigitte Daurelle, Director of Product Management,
Euroclear SA/NV Paris, said: “This novel solution for the
French funds market could not have been developed with-
out the full support of our users, with whom we have been
working very closely. It will enable us to offer a full STP
service for French investment funds, from order routing
through to custody and settlement, thereby reducing con-
siderably the risks and costs currently associated with the
manual processing of fund transactions.”
Alternative
As one of Europe's foremost asset managers, Henderson
manages retail, institutional, open and closed ended
funds and has £2bn in alternative assets. Speaking on Day
Two of the Fund Forum event, Stephen Peak, Head of
Henderson's Pan European Equities Team, the most
important challenges facing asset managers wishing to
enter the alternative investment fund management space
include business, clients and staff. "The pros include
diversification and attractive potential fees," he says. "We
are challenged to increase returns before even thinking
about the fee structure. On the downside,failure has the
potential to damage one's franchise."
Demand
To meet the growing demand for hedge fund strategies,
Peak maintains an alternative asset management capabili-
ty can be internally built or acquired. "We built an internal
alternative fund capability, which is run out of our London
offices. Client reaction to a move like this is important.
Clients can become sensitive when you start to expand
into other business lines, but you should be transparent
about your expansion strategy, by letting them know you
are committed to their business line too."
When selecting staff for an alternative asset manage-
ment business, Peak says, the capacity of the manager is
an issue and track record is important. "We look at the
individual's track record and take a view on the relevance
of their history," he said.
The danger with alternative strategies, Peak said, is that
managers get different returns on different structures. "We
have a common structure where every manager shares in
the return of the fund. Alternative asset managers should
also have a grip on their costs. You have to be transparent
with your costs and about what your fund is doing. Not
every manager is made for the alternative investment
world. But more people will get into this space."
Retail
Asked whether more retail investors will enter the hedge
funds arena in future, Peak said: "It seams to be heading
in that direction but there is nothing too powerful about
this yet. It appears the interest is coming from family
offices and fund of funds. Retail investors should begin
with low volatility. You cannot get reward without risk. If
my fund were made available to the retail market, I should
make the extent of its volatility known." Peak concluded
his presentation by suggesting that control of what an
hedge fund manager does on a third party basis is impor-
tant. "Transparency and openness with clients is very
important," he said. "A hedge fund is very much a loaded
weapon and you have to be careful who has their finger on
the trigger. You must let clients know when times are good
as well as when times are bad."
ISJ
 &
A LFI
A s s o c i a t i o n o f t h e
The National Investment

Company Service Association

nicsa
Luxembourg Fund Industry

13 & 14 September, 2005

Hemicycle of the Kirchberg Conference Centre, Luxembourg

THE 14TH ANNUAL EUROPE-USA

Investment Funds Forum

For a conference programme with registration details and exhibitor information,

please refer to the following websites:
www.alfi.lu and www.nicsa.org
Stay Tuned
Find the facts,follow the It’s a Deal
trends and connect the October 10-11 2005, 2 days Funds are looking to appoint
networking. Securities IMN Conferences
services events, forums Beneficial Owners' Securities Lending & Repo
Summit (Europe)
one provider to fulfil all of their
and seminars. Stockholm, Sweden middle and back office needs
Tel: +1-212-768-2800
September 13-14 2005, 2 days Web: www.imn.org Despite the onset of the holiday season, global
ALFI & NICSA custodians managed to use the time to sign off multi-
The 14th Annual Europe/USA Investment Funds October 18-21 2005, 3 days million dollar mandate deals with major pension funds
Forum RMA Conference on Securities Lending and family foundations. The latest deals indicate that
Luxembourg Boca Raton, Florida pension funds and other institutional investors are eager
Web: www.alfi.lu / www.nicsa.org Tel: +1 215 446 4035 to consolidate their custody and asset servicing with a
Web: www.rmahq.org single provider.
September 5 2005, 5 days
SWIFT The most significant announcement came at the
October 24-26 2005, 3 days beginning of August, when JPMorgan Worldwide
Sibos 2005 IMN Conferences
Copenhagen, Denmark Securities Services clinched a £6.5 billion mandate
Plan Sponsor & Pension Consultants Circle
Tel: +32 2 655 4228 California, USA
from the ICI Pension Fund in the UK. JPMWSS was
Web: www.swift.com Tel: +1-212-768-2800 reappointed by the trustees of the Pension Fund to pro-
Web: www.imn.org vide global custody and fund accounting services.
September 18-20 2005, 3 days JPMWSS has acted as a global custody provider to the
The ISITC-IOA September 2005 Conference October 24-26 2005, 3 days ICI Pension Fund since 1998 and also delivers fund
The Ritz-Carlton, Chicago IMN Conferences accounting, compliance reporting and futures clearing
Alternative Investment Management Summit services. The ICI Pension Fund also participates in
September 13 2005, 2 days California, USA JPMWSS' securities lending programme.
14th Annual Europe-USA Investment Funds Forum Tel: +1-212-768-2800 "The ICI (Main) Pension Fund is one of the largest
ALFI / NICSA Web: www.imn.org and most complex pension schemes in the UK and we
Luxembourg City are delighted to have been reappointed by the trustee
Tel: 001 781 416 7200/00 352 22 30 26 October 24-25 2005, 2 days board. We see this win as confirmation of our ability to
Web: www.alfi.lu World Research Group consistently deliver a strong level of performance. We
Algo Trading 2005 look forward to the continued prospect of working with
September 18 - 20 2005 Best Practices in Algorithmic Trading
Opal Group the fund trustees," said Ramy Bourgi, Business
Ritz-Carlton, New York Executive for JPMorgan Worldwide Securities Services in
Endowment & Foundation Forum Tel: +1 (866) 742-9763
Boston, USA Europe, the Middle East and Africa.
Fax: +1 (646) 742-9610
Tel: +1 212 532 9898 In a separate move, The Bank of New York was also
Web: webmaster@worldrg.com
Web: www.opalgroup.net appointed global custodian for the pooled assets of the
October 26-28 2005, 3 days £230 million ICI Specialty Chemicals Pension Fund.
September 21-22, 2 days Opal Group ICI selected The Bank of New York as custodian
MIS Training Europe European Alternative & Institutional Investing because of the Bank's superior accounting service and
th Annual FinSec 2005 - Enterprise Security For Summit industry-leading custody capabilities. ICI also cited the
Financial Institutions Monte Carlo, Monaco Bank's strategic commitment to further strengthen its
London, UK Tel: +1 212 532 9898 market leadership by establishing new custody relation-
Tel: +44 (0) 20 7779 8153 Web: www.opalgroup.net ships.
Fax: +44 (0) 20 7779 8293 Benjie Fraser, managing director at The Bank of New
Web: www.mistieurope.com October 26-28 2005, 3 days York, said, "Our appointment by an ICI-group pension
Opal Group fund, a big name in this sector, is testimony to the
September 26 2005, 1 day European CDO Summit strength of our global custody offering. We are continu-
Hedge Funds World Asia 2005 Monte Carlo - Monaco ally investing in new products and better technology to
Hong Kong Tel: +1 212 532 9898
Terrapinn Pte Ltd
enable us to provide tailored products and services that
Web: www.opalgroup.net meet the specific needs of each of our clients."
October 5 2005, 2 days Investment managers have also found favour with UK
Pensmart - The 7th Annual European Pensions local authorities in the last two months. A case in point
IIR Finance Market Forum (ICBI)
Indian Securities Infrastructure & Operations is the selection of State Street Global Advisors, the
Date to be announced Autumn 2005
Forum ICBI
investment management arm of State Street
Taj Mahal Palace and Tower Hotel, Mumbai Tel: +44 (0) 207 915 5103 Corporation, to manage a £340 million global passive
Tel: +44 (0) 207 915 5055 Web: www.icbi-uk.com equity mandate, on behalf of the Staffordshire County
Web: www.iir-conference.com Council. The transition of assets was managed by State
November 8 2005, 2 days Street Global Markets.
October 10 2005, 2 days IIR Finance State Street Global Advisors has more than $581 bn in
IRC PARM13 - Performance Attribution Risk passive equity assets under management globally. Its
Hedge 2005 Management Forum customised passive equity approach seeks to maximise
London, UK Venue to be confirmed client wealth in a risk-controlled environment, while
Tel: +44(0) 870 777 4144 Tel: +44 (0) 207 915 5055 minimising portfolio turnover and transaction costs. ISJ
Web: www.irc-conferences.com Web: www.iir-conference.com
 Mandates Table

Month Winner Client Location Assignment Mandate Size

August JPMorgan ICI UK Global Custody £6.5bn

July State StreetGA StaffordshireC. UK Passive Equity Investment £340m
July Northern Trust HOOPP US Global Custody CAD22 bn
July Northern Trust Weingart F. US Custody $700m
July BNY ICI Spec Chem UK Global Custody £230 million
July BNP Paribas Money Portal UK Distribution Platform -
June State Street PPF UK Custody New Fund
May State Street West Sussex UK Custody £740 m
May Bank of NY Suncorp-Met. US Clearing Services -
May State Street AMEC UK Investor Services £950 m
May State Street Oregon US Investor Services $60bn
May PFPC Superfund CM US Investor Services
May RBC GS Mavrix US Fund Valuation 25 funds
May JPMorgan Aviva Funds Luxembourg Fund Accounting EUR3bn
May IFDS F&C AM UK Transfer Agency UK Funds
April BNP Paribas F&C AM UK Custody & Inv. Services -
April JPMorgan Old Mutual New York Global Custody $14bn
April SimCorp Kas Bank UK Technology/Software EUR300bn
April ABN / Mellon Institutions Asia Pac Global Custody EUR16bn
April BNP Paribas AberdeenAM London Fund Admin -
March ADP Wilco Lupus alpha Germany Technology/Software -
March ABN / Mellon Derbyshire EnglandGlobal Custody £1.45bn
March Kas Bank TNOPension Netherlands Asset Admin. EUR1.5bn
March Mellon Golden Leaf US Custody & Inv. Services $400m
March State Street BofAmerica US Investor Services $224bn
February Bisys JO Hambro London Administration Services $4bn
January BNP Paribas B. Sabadell Spain Global Custody EUR5.8bn
January N. Trust Insight IM UK Outsourcing -
January N. Trust KBL UK Fund Accounting £325m
January State Street ChevronTex. UK Investor Services $2 bn
January BNY ING IM UK Outsourcing EUR 67bn
January BNY NBP France Global Custody EUR 80bn
January BNY Abbey UK Global Custody £30bn
December Fidelity TextronInc. US Investor Services -
December CIBC Mellon Manulife Toronto Custody $60 bn
December BNY New Smith London Custody New Fund
November JPMorgan Sun Micro. US Record Keeper $2,300
November State Street BA London Investor Services £10bn
November Butterfield Liontrust Guernsey Fund administration £32m
November IFDS Investec London Transfer Agency New Facility
November State Street OAC Singapore Fund acc./Reporting $2bn
November RBC Hermes Channel Is. Custody/Fund admin £500m
November RBC ARC Canada Custody $1bn
November BFSG INVESCO Channel Is. Fund administration £100m
November Dresdner OPERS Ohio Securities Lending $4bn
November Key Bank OPERS Ohio Securities Lending $4bn
November BNY JO Hambro London Investor Services New Fund
October ING-BHF BNY Germany Custody Services -
October N. Trust Michigan CC US Global Custody -
October BNP Paribas Master Sup, Australia Global Custody $400m

INVESTOR SERVICES JOURNAL 71

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Letters continued from page 4
BPM First ...all the while improving
internal and external customer service.
Outsourcing is often raised as a
potential option. Yet there has been a
growing perception in recent times that
outsourcing is not delivering the major
cost savings previously hoped for.
“BPM enables companies to
understand exactly which
processes are unique to
them, and how these
can be optimised”
So, does that mean financial compa-
nies should abandon outsourcing alto-
gether?
Absolutely not but before going down
the outsourcing route, they first need to
understand their business.
A large (and growing) number of
financial services companies are using
Business Process Management (BPM)
tools to get under the skin of their
processes, allowing them to make
informed decisions about what to out-
source. More importantly, BPM enables
companies to understand exactly which
processes are unique to them, and how
these can be optimised, in house, to
generate real competitive advantage.
Andrew Bailey, Snr. VP Worldwide
Marketing, Commerce Quest
The MiFID Test Begins
Under the joint auspices of FIX
Protocol Ltd, ISITC Europe, the
Reference Data User Group and
SIIA/FISD, a MiFID (Markets in
Financial Instruments Directive) joint
working group has been established to
look at the implications of the directive
for firms. The group consists of five sub
groups – Reference Data, IT, Real-Time
Market Data, Best Execution and
Standard Protocols. More information
on the groups can be found at
http://www.MiFID.com
As with other European Directives,
Telekurs Financial aims to provide the
highest level of support to all of its
clients. The company is taking an active
role in all the meetings of the sub groups
of the MiFID joint working group and has
been in consultation with the Financial
Services Authority on the matter.
The implementation date for the
Directive is 30 April 2007. Telekurs
Financial will of course continue to
update its clients with its planned
response to MiFID and the Directive will
become the subject of Breakfast
Briefings later in 2005 or early 2006.
Telekurs Financial is playing an active
role in a number of industry groups
examining the Markets in Financial
Instruments Directive (MiFID) in order
to help assess the impact of the direc-
tive and to formulate a response to it. As
always, the company is looking to pro-
vide a robust, client focussed solution ,
which will help clients meet the
demands of the directive.
Product Development Department,
Telekurs Financial (U.K.) Ltd
Managing Risk
Today's prolonged low interest rate
environment has forced investors into
exploring non-traditional asset classes in
their never-ending quest for greater yield.
As a result, buy-side institutions are now
exposed to a much greater variety of
market, credit and liquidity risks than
ever before. Last spring I spoke with
Rekha Menon about the increased focus
on risk management by buy-side firms.
Since then, I've witnessed significant evi-
dence of this important trend.
Increasingly savvy clients are insisting on
greater returns from institutional investors
yet, at the same time, are demanding
preservation of their capital in volatile
markets. Buy-side firms now see signifi-
cant competitive advantages in demon-
strating proficiency in risk management.
The middle office is increasingly required
to capture and report risk at the enter-
prise level, spanning all funds, risk fac-
tors and asset classes. At the same time,
the front office is now beginning to fully
engrain risk into its decision support and
portfolio construction processes. This
penetration of risk analytics into the over-
“The penetration of risk ana-
lytics into the overall invest-
ment process will provide
portfolio managers with a
robust portfolio modelling
environment enabling them
to do risk optimisation and
what if analyses”
Letters (continued)
all investment process will provide portfo-
lio managers with a robust portfolio mod-
eling environment enabling them to do
risk optimization and what-if analyses, to
compare and organize different strate-
gies, and finally, to send routing instruc-
tions to order management systems
The key driver in our recent strong
growth in this market is the value our
clients have placed on leveraging a sin-
gle risk infrastructure to support all of
their combined front- and middle-office
risk requirements. This has enabled
buy-side firms to dramatically reduce
their support costs by replacing multiple
technology solutions with a single con-
sistent risk platform.
Andrew Aziz, Managing Director, Market
Risk and Buy-Side Solutions
Algorithmics Incorporated
SEPA settings
There is an ever-increasing amount of
material on SEPA - the Single Euro
Payments Area. One can only expect
that below the waterline this particular
iceberg will keep growing as we move
closer to the deadline of January 2008.
However, a worrying pattern is emerging
most of the material is either about the
bank or the payments infrastructure.
Isn’t there someone missing from all of
this – the customer? The European
Commission has defined “SEPA for
Citizens” to address the consumer mar-
ketplace. But so far there is no “SEPA
for Business”. Is the business market-
place assumed to be such an obvious
beneficiary that it’s not worth spelling it
out? It is anticipated that the business
and corporate customer will have most
to gain from SEPA. But apart from some
fairly obvious “requirements” many
business groups have yet to participate
in SEPA and certainly yet to understand
what it means. Without acceptance and
buy-in from businesses, no matter how
much regulation is introduced, a pro-
gramme of this size and complexity will
not meet expectations. If, as widely pre-
dicted, SEPA has a dramatic effect on
banks’ payments revenues and mar-
gins, then in order to recoup lost
income they must answer the forgotten
customer’s needs.
Jerry Norton,Director, Strategy, Global
Financial Services, LogicaCMG
Letters to Janet.duChenne@isjforum.com
INVESTOR SERVICES JOURNAL 73
People Moves
Moving & Shaking
Deutsche Bank has appointed Jon Hitchon as
Head of Global Prime Services effective immedi-
ately. Hitchon has served as Co-Head of
Deutsche Bank's Equity Prime Services business
between 2001 and 2003. During this time he
played a vital role in helping Deutsche Bank
become a leading player in the industry. For the
past two years, he has been COO of Deutsche
Bank's equity proprietary trading business. "We
are confident that Jon has the industry expertise,
client contacts and management skills to main-
tain the growth momentum within Prime
Services and Hedge Fund relationship manage-
ment", said Alan Cloete, Head of Global Markets
Finance at Deutsche Bank. "Prime Services is a
business that Deutsche Bank's Global Markets
division is totally committed to, and one that
plays to our strengths in derivative structuring,
innovative financing solutions and traditional
broking. Deutsche Bank believes that the quality
of our Prime Services platform is vital to the
partnerships we enjoy with hedge funds around
the world today." Hitchon will be based in
London and will report directly to Alan Cloete,
Head of Global Markets Finance and Yassine
Bouhara, Head of Global Equity Derivatives.
Mellon Financial Corporation has appointed
George McKay as Executive Director, Investment
Manager Solutions (IMS) International.
Reporting directly to vice chairman and presi-
dent of IMS Jack Klinck, McKay will have over-
sight for Mellon IMS businesses internationally,
with specific management responsibility for
Mellon’s transfer agency, fund accounting and
fund manager outsourcing businesses outside
North America.IMS also comprises fund manag-
er software provider Eagle Investment Systems
and the world’s leading performance analytics
firm Russell/Mellon. Formerly business develop-
ment director for Mellon European Fund
Services (a sister company), McKay will chair a
new IMS Europe Executive Committee, including
representation from all IMS businesses in
Europe, as Mellon looks to bring a more cohe-
sive, integrated outsourcing and fund adminis-
tration offering to the market for fund managers
and large financial
institutions.
Commenting on his
appointment, Jack
Klinck said: “George
will bring to bear his
many years’ experi-
ence working across
the funds industry
to grow our interna-
tional services. We
see rising demand
in Europe for the
George McKay results we are able
to bring to this mar-
ket through the combination of such leading-
edge technology and a data-centric approach to
our processing systems that produces rich intel-
74 INVESTOR SERVICES JOURNAL
ligence for our clients. Through these powerful
ingredients, Mellon will offer a world-beating
service for leading asset managers and other
global financial institutions. With his deep
knowledge of fund management, George is the
ideal choice to lead this area.” McKay has more
than 30 years’ experience in the fund manage-
ment industry. He was previously managing
director of JP Morgan Fleming’s pan-Asian
mutual fund business (1994 - 2002) and joined
the Flemings group in 1975.
Northern Trust has appointed two new sales
directors in Asia to support its continued expan-
sion and growth strategy for its institutional
asset servicing business in the region. Bibianna
Man has been appointed Sales Director for
North Asia based in Hong Kong. Man joins with
a strong background in global institutional asset
servicing, having held different business devel-
opment, relationship management and opera-
tional management roles with State Street in
Boston, Hong Kong and Taiwan, Bankers Trust
and Deutsche Bank in Hong Kong, and most
recently as Head of Business Development for
Standard Chartered Bank's Greater China
Securities Services business. Alex Tobing has
been appointed Sales
Director for South
Asia based in
Singapore. Tobing
joins with a strong
background in cash
management and
related services for
institutional clients
in the region, having
worked with ABN
Amro Bank
Singapore and
Citibank Jakarta and
Bibianna Man Singapore in sales,
product development
and client management roles. Previously, he was
a business consultant with Arthur Andersen.
"We are very pleased to have Bibianna and Alex
joining us and bringing with them strong and
diverse financial industry experience and expert-
ise. Their appointments further enhance our
coverage of, and support to, potential clients in
the region," said Lawrence Au, General Manager,
Asia Pacific, for Northern Trust. "By appointing
such high calibre individuals with proven track
records and an industry profile, we are able to
continue to differentiate Northern Trust as a pre-
mier financial services provider in the region.
Both Bibianna and Alex's approach will be in line
with Northern Trust's consultative strategy in
supporting institutional investors to formulate
and implement high value-added, technology-
driven information and asset servicing solutions
for their increasingly sophisticated global invest-
ment strategies," added Au.
"Northern Trust has been actively expanding its
client base and support capabilities in the Asia
Pacific region as part
of its long-term
strategic plan to
grow its business in
the area," continued
Au. "We opened a
Representative
Office in Beijing in
March this year to
complement our
existing offices in
Singapore, Hong
Kong and Tokyo. Our
Alex Tobing Singapore hub
moved to a newer
and bigger office space in May to provide the
infrastructure to support our business growth.
At the same time, earlier in 2005 we enhanced
our alternative asset servicing capabilities by
acquiring Baring Asset Management's Financial
Services Group."
Northern Trust has also appointed Michael
Blake as Vice President, Business Development,
within the Global Fund Services (“GFS”) unit.
Based in Chicago, Blake will report directly to
Ann Zeiler, Senior Vice President of Business
Development for Global Fund Services. Blake
will be responsible for new business develop-
ment for the group serving investment man-
agers, fund sponsors and other entities that
manage money in-house. Before joining
Northern Trust, Blake was Director of Financial
Markets for Business Logic Corporation in
Chicago, responsible for sales and marketing of
enterprise software for financial planning and
managed accounts to institutional clients.
Previously, Blake was a manager in the compen-
sation and benefits practice of Grant Thornton,
LLP, in Chicago and an officer of Northern Trust,
holding several positions within Worldwide
Operations and Technology in the Chicago
office. “Mike’s depth of experience in institu-
tional financial services and skill in generating
new business opportunities will benefit our team
at a time when demand for Northern Trust's
global asset administration capabilities is grow-
ing rapidly,” Zeiler said. “He has re-joined
Northern Trust in a role that will help drive busi-
ness growth in Global Fund Services.”
Griff Ehrenstrom, Senior Vice President,
Corporate and Institutional Services (C&IS), has
been appointed Head of North American Sales
for institutional asset servicing at Northern
Trust. Ehrenstrom will be responsible for North
American sales of institutional asset services to
institutional funds, large corporate ERISA plans,
public funds, Taft-Hartley funds, insurance com-
panies, and the foundation and endowment
market segments. “Northern Trust is one of the
premier asset servicing institutions in the world,
and we will continue our focus on external sales
and strategic marketing, building on our long-
standing reputation for client service and indus-
try-leading technology,” said Ehrenstrom. “This
is a tremendous opportunity for me to help”.

A selection of the appointments
updated daily at WWW.ISJFORUM.COM
Northern Trust fur-
ther grow our busi-
ness in North
America, and I look
forward to advancing
our longstanding tra-
dition of offering
best-of-breed client
solutions.” A 21-year
Northern Trust veter-
an, Ehrenstrom was
most recently respon-
sible for new business
Griff Ehrenstrom development for large
corporate ERISA
retirement plans. Before moving into sales ten
years ago, Ehrenstrom was a product manager
and on-line delivery consultant within the
Corporate and Institutional business unit. He
holds a master’s degree in management informa-
tion systems from DePaul University and an
undergraduate degree in finance from
Northwestern Illinois University. He will be based
in Chicago and will report directly to Jean
Sheridan, Executive Vice President and Deputy
Business Unit head for C&IS.
BNP Paribas Securities Services has appointed
Steve Percival as Global Relationship Manager
covering UK Financial Intermediaries. Percival is
based in London and reports directly to Jason
Nabi, Business Development for UK Financial
Intermediaries.
Percival joins BNP Paribas from HSBC Securities
Services (HSS), where he worked for eight years. He
was most recently a Vice President within the
European Sales and Relationship Division, where he
was undertaking marketing and relationship man-
agement duties for institutional clients in the UK
and Europe. Prior to HSS, Percival spent ten years at
Merrill Lynch, where he was responsible for the
development of private banking services to Merrill
Lynch private banking clients and financial consult-
ants in Switzerland, Germany and Italy. In his new
role, Percival will focus on the strategic growth of
BNP Paribas’ Mid-Tier client relations in the UK.
BP2S has also apppointed Paul Scully as a
Transaction Manager for structured debt transac-
tions, within the UK Corporate Trust team.
Starting on Monday 18th July, Scully is based in
London and reports directly to Sue Lawrence,
Head of Global Corporate Trust Product in the UK.
He joins a London based corporate trust team
that is increasingly visible in the structured debt
market, with a number of recent high profile man-
dates on structured transactions. In recent
months the London team has grown through the
appointment of highly experienced personnel, who
have served to complement the existing profes-
sional team.
Scully joins the firm from Bank of New York,
where he was most recently a Relationship
Manager within the Global Structured Finance
Unit, a position he held since 2004. During his
time at BoNY, Paul gained experience in the nego-
tiation of trustee, agency and custody documenta-
tion for structured finance transactions. Prior to
this, Paul spent three years at Bank One, where he
worked as a Manager in the Documentation and
Implementation department, from 2001 to 2004.
Omgeo has hired John Burchenal as managing
director to lead Omgeo’s Asset Class Expansion
strategy. Burchenal will serve as a member of
Omgeo’s Executive
Team, reporting to
president and CEO
Adam Bryan.
Burchenal will accel-
erate Omgeo’s efforts
to expand into addi-
tional asset classes
on a global scale,
beyond equity and
core fixed income
trade processing.
This drive began
John Burchenal three years ago with
the launch of
Omgeo’s fixed income initiative. The initiative
included the formation of a Client Working Group
designed to provide a forum for cooperation with
and feedback from Omgeo’s client community.
Leveraging the success of the fixed income initia-
tive, Burchenal will spearhead the expansion into
other asset classes to provide clients with access
to a wider variety of instruments for their post-
trade, pre-settlement efficiency strategies.
Burchenal brings with him 18 years’ experience
in the financial services industry, including expert-
ise in product management, sales and business
strategy. Most recently at Thomson Financial
TradeWeb, he served as director of Straight-
Through Processing Services and was responsible
for AccountNet and TradeXpress. He also man-
aged TradeWeb's connectivity partnerships with
third-party financial software providers.
Previously, Burchenal held management positions
at Citibank, DLJ and Lehman Brothers. He holds a
B.A. in Economics from Trinity College in Hartford,
Connecticut.
Virt-x, the London-based securities exchange and
subsidiary of SWX Group, has appointed Patricia
Lynch to the newly
created position of
Market Relations
and Sales Director.
She will also sit on
the Executive
Committee of virt-x.
This expansion of
the senior manage-
ment team follows
the recent promo-
tion of Jim Gollan to
CEO and Emma Vick
Patricia Lynch to Deputy CEO. In
her new role Lynch
will build on and expand virt-x’s philosophy of in-
depth consultation with market participants to
continue the growth of the business - both in the
core trading of European blue-chip securities and
in newer products including the successful trade
People Moves
reporting service. She will be responsible for mar-
ket relations and sales within virt-x’s client base of
the London banking and trading community.
Prior to joining virt-x, Lynch was founder and CEO
of Financial Solutions to Market Group (fs2m), a
company focussed on helping technology compa-
nies grow their business. She had previously
worked as Director of both Securities Transaction
Solutions and Straight Through Processing at
Reuters, as well as Head of Business Planning and
Marketing for the LSE’s Sequal product, and has
acted as a Consultant in a variety of business
development roles within the financial and trading
technology sector.
Jim Gollan, CEO of virt-x said: “We are delight-
ed that Patricia is bringing her extensive industry
knowledge and experience to virt-x. We recently
celebrated virt-x’s fourth anniversary, as well as
record volumes in both our trading and trade
reporting services. Patricia’s appointment illus-
trates our commitment to the London marketplace
and the emphasis that we place on consultation
with clients and the broader market as we contin-
ue to grow our business.”
Telekurs Financial has hired Edward Busk to the
London Sales Team. Busk previously worked for
Telekurs Financial between 1993 and 1999 in vari-
ous roles from Sales Executive to Sales Director.
He has now been appointed as Sales Director
focusing mainly on third party business and is a
Member of Management.
Over the past seven years, Busk spent some
time working for Reuters as a European Sales
Director and also travelled extensively.
Also joining Telekurs Financial is Kuldip
Sandher, who has been appointed as a Sales
Executive in the London office. Sandher joins from
MYOB (formerly Solution 6) where he worked as a
Sales Executive. He also brings with him five years
of experience from Financial Times Information as
a Senior Sales Executive. Reto Baumann, formerly
Sales Manager, Partner Business, is leaving
Telekurs Financial after seven years to explore new
opportunities abroad.
‘With these new appointments, Telekurs
Financial is well placed to continue its growth and
expansion in the UK market.’ said Beat Koch, CEO
of Telekurs (U.K.) Ltd. ‘They bring with them excel-
lent knowledge of the industry and sales expertise,
which will support our business goals; dedicated
to providing flexible, innovative and high quality
services to the market.’
PFPC has hired Edward Mills as a vice president
and senior director, managing the sales of
advanced output solutions and investor
processing services within the global business
development team. Mills reports to Bill Salus,
executive vice president and head of global
business development.
Prior to joining PFPC, Mills led the Insurance
Strategy Practice of DST Output, managing mar-
keting and strategy management for the P&C
(property and casualty), annuity and life insurance
market verticals. He also directed product man-
agement for numerous Internet investor products.
INVESTOR SERVICES JOURNAL 75
ISJ Directory of Services Custody, Clearing & Settlement
Australia and New Zealand Banking Group Limited (ANZ) is one of the leading finan-
cial institutions in the Australian and New Zealand markets. We provide an extensive T: +61 03 92733563
range of Retail, Corporate, Institutional and Private Banking services in addition to a
range of specialised functions including Custody Services through ANZ Custodian
F: +61 03 92732650
Services. ANZ Custodian Services is committed to our home markets and continu- Contact: Philip Dowman
ously seeks to provide our clients with highly competitive service through our cus- E: dowmanp@anz.com
tomer-focused and experienced teams, extended business hours and ongoing invest- Address: Level 25, 530 Collins
ment in technology. Our capabilities incorporate core Custody and Clearing of securi- Street Melbourne Victoria VIC
ties, Investment Administration Services, Cash, Foreign Exchange and Securities
Lending.
3000 Australia
W: www.anz.com
Assets under Custody: AUD$90 billion

BHF-BANK is one of the leading German commercial banks which operates as an

advisory, service and commercial bank on the areas of Asset Management &
Financial Services, Financial Markets & Corporates and Private Banking. Financial T: +49 69 718 3738
Services comprises the bank’s custody services, investment company (depotbank) F: +49 69 718 6050
services and its securities and derivatives clearing business. Contact: Cornelia Keth
Through the combination of its local market know-how with an in-depth product E: cornelia.keth@bhf-bank.com
expertise it aims to serve its clients in an individual and flexible way. The bank’s Address: Strahlenbergerstraße
longstanding experience in the German securities services market goes hand 45, 63067 Offenbach a.Main
in hand with a corporate culture that values prompt acknowledgements and short
Germany
decision-making channels.
W: www.bhf-bank.com
Assets under Custody: EUR 160 bn
No of funds: 244

Crédit Agricole Investor Services is the Securities and Financial Services arm of
the Crédit Agricole Group, providing a whole range of products and services to
institutional clients including Depositary/Custody/Trustee, Fund Administration,
and Corporate Trust. Innovation, technology, local expertise and strong T: + 33 1 43 23 84 68
commitment to clients enable our European network to be a leading player in the Contact: Patrick Lemuet (Paris)
European industry and to excel in servicing Institutional Investors, Banks and T: + 352 47 67 24 13
Corporate clients. Our position in the market place is reinforced by a strong local
presence, particularly demonstrated by the specialised subsidiaries, set up in Contact: José-Benjamin
Paris, Luxembourg and Dublin. The Group also operates a European network of Longrée (Luxembourg)
fund administration centres, the Fastnet network, with local operations in
Luxembourg, France, Ireland, the Netherlands and Belgium. The Fastnet network
is a joint venture with the Fortis Group.
Assets under Custody: EUR 616 bn

DnB NOR is the largest and leading provider of Custody, Clearing and
T: +47 22 94 92 95
Remote Member Service in Norway In addition, DnB NOR provides a wide
F: +47 22 48 28 46
range of value added services to both Foreign and Domestic clients.
Contact: Bente I. Hoem
Through an Alliance solution with banks in Sweden, Finland and Denmark,
E: bente.hoem@dnbnor.no
DnB NOR can offer seamless regional products, which can be customized to
our indiviual client's needs.
W: www.dnbnor.com

T:44 207 7420102

Contact: Dick Feehan
JPMorgan Worldwide Securities Services, a division of JPMorgan Chase Bank, N.A., E: dick.j.feehan@jpmorgan.com
is a global leader in providing innovative products and services to the world's largest T: +1 718-242-7555
institutional investors and debt and equity issuers. JPMorgan Worldwide Securities Contact: Chris E. Lynch
Services leverages its scale and capabilities in more than 80 markets to help clients E: chris.e.lynch@jpmorgan.com
optimize efficiency, mitigate risk and enhance revenue through custody and investor T: (61-2) 9250-4833
services as well as securities clearance and trust services. C: Laurence A. Bailey
E:laurence.bailey@jpmorgan.com
www.jpmorgan.com/wss

RBC Global Services is the corporate and institutional custody arm of RBC Financial T: +44 (0) 20 7653 4096
Group. We are the largest custodian in Canada and rank among the world's leading
F: +44 (0) 20 7248 3946
providers. We have been serving institutional investors for more than 100 years,
Contact: Tony Johnson
including 23 years in the global custody business. RBC Global Services, along with
Global Head, Sales &
RBC Global Private Banking, provides a broad range of value-added services and tai-
Relationship Management
lored solutions to institutional investors internationally. RBC provides the full range
E: antony.johnson@rbc.com
of fund administration and global custody services.
Assets under Administration: US$1.4 trillion Address: 71 Queen Victoria
Number of sub-custodians: 78 Street, London, EC4V 4DE, UK

76 INVESTOR SERVICES JOURNAL

T: +33 1 53 05 45 09
C: Etienne Deniau, Mathieu
Maurier, Marion
Hovhannessian, Eude
Nitoumbi, Marilyne Stiegler,
Pierre Pointet, Jean-François
Marchand, Gwennael Leblanc
A: 50, boulevard Haussmann
75431 Paris Cedex 09, France
W: www.sg-gssi.com
T: + 33 1 43 23 84 68
Contact: Patrick Lemuet (Paris) Services, Private Equity, as well as Communication and On-Line Transaction
T: + 352 47 67 24 13
Contact: José-Benjamin
Longrée (Luxembourg)
T: +1 (441) 295-1111
Contact: Andrew Collins
E: contact@bntb.com
W: www.bntb.bm
T: +1 732.563.0030
F: +1 732.563.1193
Contact: Lisa Cohen
Address: Two Worlds Fair Drive, solve complex administrative needs and improve operational efficiency. DPM Mellon has
Somerset, New Jersey,
NJ08873, USA
W: www.dpmllc.com
T: +44 (0) 127720 1222
F: +44 (0) 127720 0975
A: 77a High Street, Brentwood,
Essex, CM14 4RR, UK
C: Adam Hodgkins
E: adam@phoenixadmin.co.uk
W: www.phoenixadmin.co.uk
T: +44 (0) 20 7935 1503
F: +44 (0) 20 7935 7242
A: 7 Welbeck Street, London,
W1G 9YE United Kingdom
C: Robin Harris
E: rharris@tridenttrust.com
W: www.tridenttrust.com
SG GSSI offers a complete range of value added securities services for all institutional
investors: clearing, custody and trustee, fund administration, transfer agent and registrar
services. Societe Generale ranks 4th securities custodian in Europe and 10th worldwide
with USD 1,500 billion in assets held. SG GSSI provides custody & trustee services to
2,175 funds and its subsidiary Euro-VL provides valuations for over 3,460 funds
representing assets of USD 346 bn. The quality of these services is acclaimed by the
world’s leading agencies: - Trustee and custody – Paris: Aa2 (MQ) (Moody’s); CU2 rating
by Fitch Ratings: Global Custody Paris and TR2+ rating by Fitch Ratings: Trustee Paris.
SG GSSI also provides collateral management and securities lending services.
Fund Administration
Crédit Agricole Investor Services is the Securities Services arm of the Crédit
Agricole Group, servicing Institutional Investors and Corporate Clients. CAIS pro-
vides a full range of services including Product Structuring, Accounting, Portfolio
Valuation, NAV Calculation, Third Party Distribution Platform and Shareholders
Services, Corporate Trust and Employee Saving Schemes, Capital Markets
Tools. Specialising in the provision of the above services, CAIS is well known for
its expertise in asset and liability allocation and globalisation techniques such as
multi-manager and multi-class structures, Funds of Funds, Pooling, Master
Feeder and Cloning. Some of the above services are outsourced to the Fastnet
network, a partnership with the Fortis group. The Fastnet network, operated by
Crédit Agricole Investor Services, is present in France, Luxembourg, Ireland,
Belgium and The Netherlands. Assets under Administration: EUR 446 bn
Butterfield Fund Services (Bahamas) Limited boasts a team of experienced
professionals dedicated exclusively to serving investment managers.
Fund administration is Butterfield Fund Services’ sole business, allowing us to
demonstrate our commitment to fund administration.
Derivatives Portfolio Management provides onshore and offshore alternative asset fund
administration, back and middle office outsourcing, portfolio valuation, daily NAVs, risk
administration and portfolio transparency solutions for fund managers, asset allocators,
institutional investors and proprietary traders. DPM Mellon’s services are designed to
the systems, infrastructure and experience to handle your toughest administrative chal-
lenges. DPM Mellonhas 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. A
Mellon Financial Company.
Phoenix Administration Services is a leading third party administration group of compa-
nies targeted at the investment industry. Within the Phoenix group of companies, there
are two sperate organisations:
Phoenix Administration Services Limited
Phoenix Financial Services Limited
The Phoenix offering is comprehensive. If you are looking to:
Outsource your back and middle office administration
Purchase or lease a systems solution
Get advice and guidance on fund administration
Trident Trust Fund Services offers a full range of back office administration services tai-
lored for hedge, private equity and closed-ended funds. We offer flexibility in structur-
ing administration which allows us to work closely with accounting firms and other serv-
ice providers. Services include full fund accounting, NAV calculations, registrar and
transfer agent, corporate secretarial including company formation, due diligence compli-
ance and internet reporting.
Other features: Fees not linked to the size of the fund. Free fee estimates provided.
Jurisdictions: Bahamas, British Virgin Islands, Cayman Islands, Guernsey, Jersey
Assets Under Administration: $13 billion * No. of Funds Administration: 185
77 INVESTOR SERVICES JOURNAL
 UBS Fund Services offers comprehensive fund administration services including fund
set-up, registration and support around the world (currently 28 countries), fund account- Jean-Paul Gennari,Luxembourg
ing, NAV calculation, compliance management, risk control and reporting. T: +352-44-1010 1
We provide a flexible offering from the full range of services, including Private Labelling, Markus Steiner, Switzerland
to selected functions. Services are based on leading fund administration architecture, T: +41-61-288 4910
multi-source pricing and powerful compliance tools. Mike Marsh, UK
Capabilities also extend to services for hedge funds through our teams in Cayman and T: +44-20-7901 5000
Ireland. In times when management attention is increasingly focused on value creation, W: www.ubs.com/fundservices
it may be rewarding to re-evaluate whether asset administration remains a strategic core
business to you.

Securities Lending
eSecLending is a global securities lending manager servicing large institutional T: US- +1 617 204 4500
lenders, including pension funds, mutual funds, insurance companies and T: UK- +44 (0)207 002 7600
investment managers. eSecLending's model is based on the premise that Contact: Dan Ahern
exclusive principal relationships generally offer greater value and significantly E: info@eseclending.com
higher returns to a lender than traditional custodial or third-party agency lending W: www.eseclending.com
programs. The firm, which has auctioned over $450 billion since inception, Addresses: 175 Federal Street,
awards principal business through an auction process to ensure greater 11th FL, Boston, MA 02110, US
competition and price transparency. eSecLending is majority-owned by Old Old Mutual Place, 2 Lambeth
Mutual plc and maintains offices in Boston, London and Burlington, Vermont. Hill, London EC4V 4GG, UK

T: +41 (0)44 218 14 14

IFBS offers the financial industry a wide range of consulting services as well as F: +41 (0)44 218 14 18
individual and standard software solutions. The firm supports clients along the entire E: info@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
W: www.ifbs.com

T: +44 (0) 20 7153 1082

4sight Financial Software is a world leader in the provision of innovative software solu- F: +44 (0) 20 7153 1182
tions to the Securities Finance and Settlement markets around the globe. As the technol- Judith McKelvey
ogy partner of choice for many leading European, North American and Asian financial W: www.4sightsoftware.com
organizations our successes speak for themselves. Address:: No.1 Ropemaker
Street, London EC2Y 9HT, UK

Technology
ADP Brokerage Services Group is an industry leading outsourcing vendor for global
transaction processing systems, desktop productivity applications and investor
communication services to banks and brokerages worldwide. T: +44 (0)20 7631 9240
-Proxy Edge – comprehensive solution for institutional global proxy voting management. F: +44 (0)20 7631 9256
E: emea@advent.com
-Gloss – leading international STP system which automates the trade processing
Address: One Bedford Avenue,
lifecycle from trade capture through confirmation, clearing agency London WC1B 3AU, UK
reporting and settlement. W: www.advent.com
-Tarot - a UK retail and private client stockbroking, custody and fund management solution.
-Securities Data Management – outsourced data services for securities operations.

Advent Software EMEA, established in 1998, provides trusted solutions for the front
through to back office operations, based on a true real-time fund/portfolio account- T: +46 8 566 30 800
ing platform, to the investment management community throughout Europe, Middle F: +46 8 34 15 44
East and Africa. Advent has an established network of offices across the region serv- A: CMA Small Systems AB
ing a growing client base of asset managers, hedge fund managers, prime brokers, P.O. Box 6463
fund administrators, wealth managers, private banks and family offices who continue
to improve their businesses using Advent’s suite of integrated investment manage- Gävlegatan 22
ment solutions. Advent Software EMEA is part of Advent Software Inc. (Nasdaq: S-113 82 Stockholm
ADVS), a global organisation that has been providing solutions to the world's leading Sweden
financial professionals since 1983. Firms in more than 50 countries using Advent W: www.smallsystems.cma.se
technology manage investments totaling more than US $8 trillion.

78 INVESTOR SERVICES JOURNAL


T: +44 (0)20 7464 8407 / +1
212 445 1076
F: +44 (0)20 7464 8746 / +1
212 265 6402
Contacts: Pascal Guignabaudet
(EU), Belinda Hamer (US)
Address: 60 Lombard Street,
London, EC3V 9EA, UK
E: pascalg@asset-control.com
bhamer@asset-control.com
W: www.asset-control.com
P: +46 8 566 30 800
F: +46 8 34 15 44
A: CMA Small Systems AB
P.O. Box 6463, Gävlegatan 22
S-113 82 Stockholm, Sweden
W: www.smallsystems.cma.se
T: +44 (0) 20 7614 9696
F: +44 (0) 20 7614 9697
Contact: Sue Hillwood
Address: 6th Floor Mercury
House, Triton Court, 14 Finsbury
Square, London EC2A 1BR UK
E: shillwood@fmco.com
W: www.fmco.com
For more information visit
www.fundsoft.co.uk or call
T: 0870 2000443
F: 020 7959 3030
Contact: Mark Culham
E: mark@fundsoft.co.uk
Mobile: 07980 912649
Address: 288 Bishopsgate,
London, EC2M 4QP, UK
W: www.fundsoft.co.uk
T: +44 (0) 207 247 3094
C: Stephen Everard or Saghar
Bigwood
A: 10, Earl Street, London,
EC2A 2AL, UK
E: severard@goalgroup.com /
sbigwood@goalgroup.com /
info@goalgroup.com
W: www.goalgroup.com
T: +44 (0)29 20402200
F: +44 (0)29 20402213
A: No 1 Poultry, London,
EC2R 8JR, UK
E: info@peterevans.com
W: www.petervans.com
Technology
Data Solutions You Can Bank On
Asset Control's Total Data Management offers seamlessly compatible in-house
software and out-sourced services. Asset Control solutions manage prices, reference
data, risk factors, credit risk data, corporate actions and research data. The solutions
support market risk, Basel II, portfolio management, trading and enterprise-wide
operational coherency.
Asset Control is the only firm in its class offering turnkey solutions with guaranteed
delivery dates. These ready-to-work solutions eliminate development time and risk.
As a future-proof technology investment, Asset Control has been certified by a
unique track record of long-standing customer implementations in leading financial
firms around the world.
CMA's mission is to help its clients from the financial services industry increase their
competitiveness through the supply and integration of value-creating IT-solutions and
infrastructure. Each solution and implementation is individually tailored to a cus-
tomer's specific requirement in order to ensure maximum system effectiveness for
financial institutions such as national banks, depositories, clearing and settlement
centers, retail banks, stock exchanges and brokerage houses. CMA Small Systems is
represented with offices in Sweden, Russia and France. Market activities focus on
Europe (Nordic, Baltic, Central/Eastern Europe and CIS countries), Middle East and
Africa.
Financial Models Corporation (FMC) is a leading provider of high quality software
and services to the investment management community. With 28 years experience,
six offices worldwide and supporting over 500 clients, FMC can justly claim to be
one of the true, global providers to the industry. FMC prides itself on its
comprehensive range of front to back office products, its high quality client service
and its commitment to innovation through advanced technology solutions. FMC
provides solutions on both an integrated (front-to-back) as well as "best-of-breed"
(standalone) basis.
FUNDsoft: With offices in London, Glasgow, Jersey and Luxembourg; FUNDsoft
provides one of the most technically advanced Fund Administration platforms
available. The COBAS range of solutions are designed exclusively for Fund and
Investment Managers, BPO providers and TPA’s. Various acquisition models are
offered covering the following areas;
European Unit Trusts; Offshore Funds; PEP, ISA, OEIC & SIPP's; Pooled
Pensions; Property Funds; Fund of Funds; Multi Manager Funds; Wrappers;
Fiduciary portal; Funds Automation; Funds Supermarkets; Reporting ; Hedge
Funds; Investment Trusts.
GOAL is the widely-acknowledged industry leader in providing creative products,
services and solutions to automate and optimise the reclamation of withholding
tax on cross-border securities dividend income and royalties. Our research has
shown that in excess of US$6 billion of withholding tax remains unclaimed each
year by the rightful owners and beneficiaries.
To establish your potential ability to reclaim over-withheld taxes GOAL provides a
free analysis of income entitlements. We simply require details of the income
entitlement(s) together with the type and domicile of the underlying beneficiar-
ies. We do not need the name(s) of the beneficiaries.
Our Products include GTRS, GQI, e-Reclaim, GOAL TaxBack, DMS and Bespoke
Software Development.
peterevans is a leading independent provider of front to back office systems to the
financial services sector, providing both global solutions to major institutions and
highly-focused technology to smaller organizations.
The Company's creative, high-end solutions integrate seamlessly with existing infra-
structures to ensure business performance is optimised.
peterevans’ flagship products TRACS and Axim support end-to-end straight through
processing for the full range of back office automation and transaction requirements,
including SWIFT messaging. Tira, the company’s front to middle office system, links
effortlessly with the back office, providing fund and investment managers with one
of the most comprehensive tools on the market.
79 INVESTOR SERVICES JOURNAL
 Princeton Financial“ Systems, a wholly owned subsidiary of State Street Corporation,
is a leading provider of investment management and accounting systems and ASP
services for global institutional investors. Its flagship PAM® investment management T: +1 609-987-2400
systems provide comprehensive STP-ready functionality that can be licensed for in- F: +1 609-514-4794
house use or accessed via the Internet. PAM systems are currently used worldwide Contact: Kelly O’Neill
E: info@pfs.com
by over 350 leading investment managers, insurance companies, mutual funds and
Address: 600 College Road East,
unit trusts, pension funds, hedge funds, endowments, banks, and corporations, Princeton, New Jersey,
which manage combined total assets over US $3 trillion. Princeton Financial has 08540 USA
offices located in the United States, United Kingdom, Belgium, Australia, Singapore, W: www.pfs.com
and Canada. For more information, visit Princeton Financial’s website at
www.pfs.com.

Redi2 Technologies is an investment management software products and services

company headquartered in Oakland, Calif., Redi2 Technologies, Inc. is a premier
provider of fee billing and revenue management solutions to institutional investment, T: +1 510 5507334 ext 1
private wealth, custody and general asset management firms. A: 1904 Franklin Street, Suite
Asset management firms implement Redi2 Revenue Manager to improve cash flow, 203 Oakland, California, CA
reduce global operating costs, improve client service and advance compliance initia- 94612, USA
tives. C: Seth Johnson, CEO
Redi2 Revenue Manager 4.0 can be deployed on Oracle, Sybase, MS-SQL Server, E: seth.johnson@redi2.com
and IBM DB2 relational database platforms, and Sun Solaris, IBM AIX, HP-UX, MS W: www.redi2.com
Windows Server, and Linux operating systems.
News and other information about Redi2 is available at www.redi2.com

SimCorp Dimension is a powerful, comprehensive and truly seamless investment

management system. It can handle NAV and other calculations, with complete
related accounting, for a huge variety of fund structures and product types, including T: +44 (0) 20 7651 8800
regional specialities. Support for broader functions, such as performance attribution F: +44 (0) 20 7651 8811
and risk management, are particular strengths of the system. Contact: Ian Crompton, sales
director, SimCorp Dimension
E: ian.crompton@simcorp.co.uk
SimCorp Dimension has been designed from scratch as a total straight through pro- London EC4N 8DQ, UK
cessing system, handling all aspects of the investment management process, consis- W: www.simcorp.com
tently. Data is recorded into a single database so that reporting is made easy, there
is no reconciliation of data and no duplication of procedures.

Prime Brokerage
Dresdner Kleinwort Wasserstein (DrKW) launched its Prime Brokerage platform
in June 2002 and now offers services across all asset classes from
traditional Equity Prime Brokerage to Fixed Income and Credit, FX and Listed T: +44 207 623 8000
Products to single manager and fund-of-fund clients of various sizes and Contact: Hamish Anderson and
Angela Osborne
strategies. The core package of services provided by DrKW's Prime Brokerage E: hamish.anderson@drkw.com /
unit includes: margin lending/portfolio financing; securities lending; angela.osborne@drkw.com
custody services; account risk / margin management; execution and W: www.drkw.com
consolidated reporting; and cross-product margining. For more information see
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Training & Educational Services

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largest business school in Europe. BI was the first academic institution in Norway to Address: BI Norwegian School of
receive international accreditation when awarded the EQUIS accreditation by the Management, 0442 Oslo, Norway
European Foundation for Management Development in 1999. The school is W: www.bi.edu
constantly improving and expanding its course offerings for international students
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T: +358 (0)9 431 33 213

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E: henrika.franck-moller@hanken.fi
and research operations of internationally high standard. Hanken has 2400 stu- Address: PB 479 (Arkadiagatan
dents, and offers programmes in both English and Swedish leading to a 22) FIN - 00101 Helsinki,
Bachelor’s, Master’s or Doctoral degree. Finland
W: www.hanken.fi

80 INVESTOR SERVICES JOURNAL

 GLOBAL ORGANIZERS OF INSTITUTIONAL
FINANCE & INVESTMENT CONFERENCES

THIRD ANNUAL
A LT E R N AT I V E
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Email: mail@imn.org Call: (212) 768-2800 Ext.1 Fax: (212) 768-2484