VOLUME 4 No. 20 - 2007 ISJFORUM.

COM
£ 25 - UK, ROW

INVESTOR $ 43 - America
EUR35 - Europe, Mid-East, Africa

S ERVICES
JOURNAL

LET’S REGULATE!
BRINGING INNOVATION TO PAYMENTS
FUND DOMICILES SPECIAL REPORT
IRISH QIF DEVELOPMENT
THE CHANNEL ISLANDS
CARIBBEAN LEGISLATION
BACK TO THE FUTURE? - UK CUSTODY
REACHING CAPACITY - SECURITIES LENDING
NORDICS - REGIONAL PROFILE
STPLEASE - REGULATION & STP

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL

 HARD COPY

INVESTOR Get the dusters out...

S ERVICES Feeling under nourished through lack of
funding, lack of innovation, and to some
JOURNAL degree lack of internal belief, the back office
has often played second fiddle to the front
office virtuosos.
VOL 4 No. 20 - 2007 For a number of years a lot of back office
processes have been deprived of the true
care they deserve and have been pushed
into a corner, forgotten about and left to just
gather dust.
With regulatory shake-up, higher expecta-
tions from clients and an increasingly com-
petitive market the dustsheets are now
beginning to be pulled away.
Our cover feature on payments explores
how, for many years, the payments industry
has been the back office of the back office,
not getting the recognition it has recently
enjoyed as a separate business line and very
stable operation. ISJ looks at how regulation
has been the catalyst for driving change in
the payments space and the opportunities
this presents for employing new
technologies and more innovative strategies
across the UK and Europe.
Our article on UK custody looks at the
development of custody and securities
services over the past decade and includes
insight from some of the major custodians
operating out of the market. Brian Bollen
analyses how, despite there being a greater
demand than ever for UK-based financial
service providers, the UK custody market is
dominated by non-UK players.
As an extended section this month, ISJ
focuses on funds. Alison Ebbage discusses
the coming changes to the Irish Qualified
Investor Fund (QIF) structure and how
these are likely to impact on the fund
administration industry.
Looking further at the British Isles, Brett
Allen of RBS International considers the
Channel Islands as a fund domicile and
some of the regulatory tacks that are being
employed to try and make the Islands the
jurisdiction of choice for fund managers.
We also speak to administrators in the
Caribbean about how legislative change is
paving the way for domicile development.
With a mixture of self-inflicted problems
and further institutionalization of the global
industry, hedge funds have been feeling the
heat over the last twelve months. Our panel
discussion this month tackles the evolving
nature of the hedge funds market, covering
issues to do with institutional investment,
the emergence of a ‘two-tier’ market,
regulation, and the broadening of choices
for investors.
The technology revolution marches on
with firms are realising that technological
innovation and STP can not only improve
efficiency and reduce costs but also allow
compliance requirements to be met. In this
issue, Rekha Menon looks at how the desire
for STP has developed from the need to
achieve settlements faster to now being
driven by regulatory change.
Finally, we also have our regular array of
treats for you to enjoy with our company
profile looking at the recent Bank of New
York/Mellon Corporation merger, the
Analyse This section covering prime
brokerage, and, of course, your letters.
Enjoy!
Alan Duerden

Editor: Alan Duerden (Alan.Duerden@ISJforum.com)

Reporters: Giles Turner (Giles.Turner@ISJforum.com), Andrew Warburton (Andrew@ISJforum.com)
PPA MAGAZINE AWARDS Contributing Editor: Brian Bollen. Contributors: Christine Senior, Alison Ebbage
PUBLISHER OF THE YEAR
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MEMBER - PERIODICAL PUBLISHERS ASSOCIATION Monique Theart (Monique.Theart@ISJforum.com)
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Analysis for the Audit Issue Vol 3, No 14 distributed June 2006. Managing Partner: Mark Latham (Mark.Latham@ISJforum.com) intelligence partners
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INVESTOR SERVICES JOURNAL
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 CONTENTS

VOL 4 No. 20 - 2007

Special Report Technology
19 Basking in the Sun 58 STPlease
- Caribbean Funds - Regulation is the
catalyst.
20 The Flying Scotsman
- Channel Island Funds 60 Completing the Puzzle
- Cross-border proxy
24 Pension Profile voting.
- This is not just any
Regulars
ordinary pension
62 Meet the Future
fund...
38 Payments
83 Disaster Recovery
A rare regulatory 41 UK Custody
26 Panel Debate - Back to the Future
regime brings innovation
and advances to the - Transfer Agency 64 Mandates
Payments sector.
66 People Moves
Custody
1 Hard Copy
41 Back to the Future?
- Editors Letter 68 Letters
- UK custody is
4 Letters
changing amid demand
Dear Sir... ISJ Directory
for financial services.
69 The Directory of
News Securities
44 Analyze This
6 Global Snapshots Services Providers
- Prime Brokerage
- Roundup of securities
services headlines Hindsight/Foresight
48 Team Effort/Going Solo
from ISJforum.com 80 Fortis looks back into
- The complex, 54 Securities Lending
the future
competitive and ‘over- - Reaching Capacity
10 News Analysis
banked’ Nordic cus-
- Reading between the
tody market.
lines.

52 ‘BoNY M’
Funds
- Topping the charts
12 Domicile Reports
again.
- Jersey, Luxembourg
and Mauritius give us
Sec Lending
the lowdown.
54 Reaching Capacity
- Market growth
Special Report
14 Fund Regulation
Statistics
- The changing face of
56 Sec Lending & Hedge 18 Irish Funds 60 Proxy Voting
the Irish QIF structure. - Luck of the Irish - Completing the Puzzle
Funds Roundup

2 INVESTOR SERVICES JOURNAL

 www.bhf-bank.com

How can we help you navigate

the challenges of custody business?

Your expectations are high. We meet them. BHF-BANK – your sub-custodian for
German securities.

For further information please contact Cornelia Keth on +49 69 718-3738 or

at cornelia.keth@bhf-bank.com
 LETTERS TO THE EDITOR
If you are affected by,
or have an opinion
on, any aspect of
investor services
please write to us...
Alan.Duerden@ISJforum.com
The Impact of FX Trading by
Hedge Funds
Asset owners are increasingly searching for
two things which have historically been
viewed as being mutually exclusive: asset
protection and enhanced returns. These
requirements are driving a sharp increase
in both the use of over the counter (OTC)
derivatives and investment in alternatives.
Both of these strategies have a significant
impact on the role the global custodians is
being asked to play. The market mechanics
are very different in transactions involving
derivatives and alternatives, in particular in
regards to automation and the settlement
process. Central depositories, technology
and standardisation have allowed the mar-
kets to move a long way towards automat-
ing the settlement of standard investment
instruments. Straight through processing
(STP) is now the norm and along with
delivery versus payment (DVP), many of
the operational risks involved in the settle-
ment of regular investment instruments,
such as shares and bonds, have been
removed.
“Neither STP nor DVP
are phrases that can
currently be associated
with many OTC
derivatives or altternative
instruments.”
Additionally, many investors take comfort
from the involvement of a global custodian
in the safekeeping of their assets. In partic-
ular the independence of the custodian to
the investment manager in respect of func-
tions such as asset reconciliation and
accounting are areas that add to the securi-
ty of the asset owner in respect of the non-
investment risks.
Neither STP nor DVP are phrases that can
currently be associated with many OTC
derivatives or alternative instruments, nei-
ther are there any central depository as yet.
In many cases the custodians are not even
aware of the transactions undertaken and
their only role is to make cash payments to
4 INVESTOR SERVICES JOURNAL
cover interest or margin, against an
instruction. As well as the increased settle-
ment risks, it is often the case that there is
no actual asset for the custodian to cus-
todise and sources of valuation are often
limited.
Asset owners need to be aware that whilst
these investments may improve their risk
profile from an investment perspective,
they are creating additional non-invest-
ment risks. Non-investment risks such as
settlement, asset security and valuation
require a greater amount of attention from
the asset owner, in respect of derivatives
and alternatives than is required for invest-
ments in equities and bonds.
Ted Hall, Managing director
The Bank of New York.
A call for action
Corporate action processing is one of the
major areas of securities operations yet to
undergo significant automation. Despite
market acceptance of the need for stan-
dardisation, implementation of the agreed
market standards are still causing
headaches for many organisations trying
to automate corporate actions. In simple
terms, the generic nature of the message
format still remains open to interpretation
and highlights the need for standardisa-
tion and global market practice harmoni-
sation. Institutions receive data from a
number of sources and aggregating this
information remains a highly complex
task, as many market data vendors use
proprietary messaging protocols.
What is also vital is market practice har-
monisation to ensure each participant
deploys the standards in a consistent man-
ner. Most institutions want to see a combi-
nation of defined standards from inde-
pendent Securities Market Practice
Groups, together with existing SWIFT for-
mats. To achieve this, institutions will need
to be either linked to SWIFT or make
other compatible connectivity invest-
ments. Significant steps are being made in
the industry to create a framework for cor-
porate actions information exchange. The
next few years will see an investment focus
in workflow solutions to make this frame-
work a reality and to deliver automation to
the internal processes that rely on this
information. Forward looking banks such
as HSBC are already gaining the benefits
from the early adoption of this approach.
While the progress is encouraging in
terms of market practice harmonisation,
SWIFT does not process corporate actions,
leaving institutions to rely on their soft-
ware partners to deliver proven solutions
that automate the end-to-end processing
for corporate actions. The challenge for
developers of commercial solutions will be
to continue to find ways of adding value to
the evolving corporate actions landscape.
Naren Patel, Director Securities
Business Development, CheckFree.
ALD Experience Will Facilitate
Basel II Implementation
Securities finance industry participants
have been anticipating, with some appre-
hension, the capital adequacy requirements
to be brought about by Basel II. Yet the
framework might already exist for not only
meeting the deadline, but also bringing
about a unified approach to worldwide
securities finance risk management that
will satisfy regulators and risk-sensitive
clientele.
The Agency Lender Disclosure (ALD)
framework already established for U.S.
entities enables counterparties to under-
stand their exposures by detailing parties to
the transactions. Although European lend-
ing is typically principal-to-principal,
extending ALD to Europe will nevertheless
enhance participants’ ability to calculate
more effectively the overall credit exposure
for securities finance operations. European
firms will have to devote human and finan-
cial capital to integrate their technology
and standardize counterparty, borrow and
loan data, and they will have to do so with-
out a single regulator guiding the way; the
industry will have to devise its own method
for bridging U.S. and E.U. mandates.
The explosive growth experienced by the
securities finance industry over the last few
years, and the extensive points of compari-
son on which securities finance contracts
can differ, drove the need to automate the
control of operational risks. EquiLend, a
securities finance platform, automates
comparison procedures between borrowers
and lenders. While EquiLend’s comparison
tools do not offer the ability to fully quan-
tify operational risk, they could assist banks
by tracking loan volumes, recalls and collat-
eral changes over time to help optimize
their capital adequacy requirements for
securities finance.
Reducing the number of breaks between
counterparties has lowered operational risk
for the securities finance business line. The
ability to customize tolerances for compar-
isons takes on greater importance when
applied to non-cash collateral transactions
with numerous shifting components, as are
common in Europe. Effective daily com-
parison tools can free operations depart-
ments to focus on higher-level risks.
EquiLend is an integral part of the solution.
(Letters continue on page 68)

Spot-on custody services.
Do you need custody services in the Nordic region?
Or are you looking to take advantage of market
conditions in Denmark, Finland, Sweden or Norway
individually? Then it pays to talk to Nordea.
We are the leading financial services group in these
countries and provide you with in-depth knowledge
and custody services in each market as well as the
entire region.
Our comprehensive services include extensive
reporting, corporate actions services and proxy
Nordea Bank AB (publ)
voting, securities lending and borrowing services,
issuer services and market information covering the
whole region. We also offer a single point of entry to
the Nordic region through a dedicated relationship
manager supported by a Nordic team of specialists.
We currently have assets under custody twice
as large as our nearest competitor. If you want to
capitalise on our experience, please contact
tel +47 2248 6238
Ms. Anne-Lise Kristiansen ,
anne-lise.kristiansen@nordea.com
email:
Making it possible
 NEWS
FUNDS &
ADMINISTRATION
New York - JPMorgan
announced it has agreed to
acquire from Western &
Southern Financial Group,
the fund services business of
one of its affiliates –
Integrated Investment
Services (IIS). IIS is a fund
accounting, fund administra-
tion and transfer agency serv-
ices business. The acquisi-
tion is expected to close in
the second quarter of 2007.
Chicago - Morningstar has
entered into a definitive
agreement to acquire
Standard and Poor’s mutual
fund data business for $55
million in cash.
Standard and Poor’s fund
data business consists of
data and products covering
more than 135,000 managed
investment vehicles, includ-
ing mutual funds, exchange-
traded funds (ETFs), hedge
funds, and offshore funds.
Under terms of the agree-
ment, Standard and Poor’s
will license fund data from
Morningstar after the acquisi-
tion is completed. The com-
panies expect to complete
the transaction in March,
subject to customary closing
conditions.
Oaks - SEI announced that is
has been selected by
Aberdeen Asset Management
Inc. to provide a turnkey
operations or "umbrella
trust" solution for its new
US-focused mutual fund
offering. The deal points to a
6 INVESTOR SERVICES JOURNAL
growing outsourcing trend
where fund managers are
turning to turnkey solutions
as a way to reduce critical
time to market, gain scale
and efficiencies, and
focus on their core com-
petencies. SEI is one of
the industry's leaders in
the umbrella trust space
with more than 15 years
of experience and over $15
billion in assets.
Chicago - Lake Shore
Institutional & Dealer
Relations have announced on
behalf of Lake Shore Group
of Companies that it has
launched the Lake Shore
Alternative Financial Asset
Fund IV (Lake Shore IV).
Lake Shore IV gives investors
exposure to nine global equi-
ty indexes, along with treasur-
ies, currency derivatives, gold
and oil via it's weighting in
Lake Shore's three
'Alternative Class' funds.
Diversification across three
uncorrelated strategies leads
to lower volatility and the
potential to enhance returns
through increased margin to
equity ratios.
London - Mercer Investment
Consulting (Mercer IC) and
Invensure have entered into a
co-operation agreement to
provide manager research
and selection services to the
Danish institutional invest-
ment market. Nicolai Berg,
Nordic head of Mercer
Investment Consulting, com-
mented: "We have developed
a strong position among
large clients in the rest of the
Nordics and we strongly
believe that, together with
Invensure, we will establish a
similar position in Denmark."
MARKET INFRASTRUCTURE
London - The London Stock
Exchange and Tokyo Stock
Exchange have announced
details of an agreement
aimed at enhancing their
international presence
through co-operation on
access arrangements and the
development of new prod-
ucts. This is the first time
that the two exchanges have
agreed to work together, and
it is expected that the co-
operation will bring benefits
for investors, issuers and
member firms. A Task Force
composed of senior staff
from both exchanges will
shortly begin a series of regu-
lar meetings to consider
development opportunities in
several key areas and identify
the areas in which the
London Stock Exchange and
Tokyo Stock Exchange will
work together over the long
term.
Paris - NYSE Euronext, NYSE
Group and Euronext N.V.
have announced an exchange
offer through NYSE Euronext,
for all the outstanding shares
of Euronext. The exchange
offer will close on March 21,
2007 and the settlement and
delivery of the offer, as well
as the admission of the
NYSE Euronext shares on
Euronext Paris and on NYSE,
is expected to take place on
April 4, 2007. "We are com-
mitted to bringing these two
great businesses together to
form the world’s first truly
global financial marketplace
group," said Marshall N.
Carter, Chairman, NYSE
Group.
London - The Board of
LCH.Clearnet Group Limited
announced that it has
reached agreement in princi-
ple regarding the repurchase
of the majority of the shares
held by its largest sharehold-
er, the pan-European
exchange Euronext.
London - Abbey Financial
Markets has signed a new
market data management
contract with Business
Control Solutions plc, the
business control solutions
provider (BCS), its supplier
since July 2004. Abbey
Financial Markets originally
signed up BCS for a two and
a half year contract to provide
on-site market data manage-
ment and administration.
When this came to an end at
the end of 2006, they were
keen to continue the relation-
ship and extend the service
provided by BCS into 2007.
London - Global Operations
and Administration Limited
(GOAL) has completed the
acquisition of Magenta One,
a securities class actions spe-
cialist. The strategic move
enables GOAL to extend the
range of securities services
that it provides to a global
client base of financial insti-
tutions, building on its solid
reputation for solutions that
automate complex, labour-
intensive fiscal and legal
processes.
CUSTODY
London - LCH.Clearnet has
announced reductions in
clearing fees. The reductions
will come into effect on 1 July
2007. The tariff restructuring
programme began in
November 2006, seeing
LCH.Clearnet’s EquityClear®
service reduce its clearing
fees to its members by an
average of 11.5% for trades
executed on the London
Stock Exchange SETS and
SETSmm platforms and by
6% for trades executed on
virt-x.
Tokyo - Mitsubishi UFJ and
The Bank of Tokyo-
Mitsubishi, subsidiaries of
Mitsubishi UFJ Financial
Group, are revising the
framework and systems infra-
structure of their
Luxembourg subsidiary and
further promoting their glob-
al custody business. BTMU’s
wholly-owned subsidiary,
Bank of Tokyo–Mitsubishi
UFJ (Luxembourg), which is
involved in asset administra-
tion businesses such as glob-
al custody and fund adminis-
tration, will become a jointly
capitalized subsidiary of
MUTB and BTMU through
investment by MUTB. By
combining BTMU’s accumu-
lated expertise and track
record with MUTB’s asset
administration know-how,


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 NEWS
MUFG aims to further devel-
op its activities in the global
custody business.
London - Northern Trust
reports that over the last 12
months it grew its direct UK
pension fund custody rela-
tionships to 54 of the top 200
schemes. Sally-Anne Callick,
UK and Irish pension fund
business development man-
ager at Northern Trust, says,
“We have strengthened our
presence in the local govern-
ment pension scheme
(“LGPS”) market and now
have approximately one third
as clients, and we also
retained 100 percent of UK
corporate pension clients’ re-
bids in 2006.”
New York - The Bank of New
York has doubled the assets
for which it provides global
risk services from $500 bil-
lion to more than $1 trillion
in just two years. The rapid
growth has been driven by
the introduction of new risk
and analytics services, such
as daily factor-based attribu-
tion, security characteristics
and other risk measures.
Debra A. Baker, managing
director and head of global
risk services, said, “We’ve
reached this milestone by
anticipating the emerging
risk management needs of
our institutional clients and
delivering best of breed ana-
lytics into our custodial
reporting capabilities.”
TECHNOLOGY
London - Optial has
announced the latest release
of its Operational Risk
Management software. Based
on customer feedback, indus-
try best practice and the
changing regulatory environ-
ment, Optial has launched
the new release with a suc-
cessful upgrade at SEB, one
of the major Scandinavian
international banking groups.
Milan - SIA will launch, by the
end of the year, two new tech-
nological services to enable
each investor to identify the
8 INVESTOR SERVICES JOURNAL
best financial market on
which to carry out its invest-
ment transactions and man-
age the relationship with the
broker by means of an “elec-
tronic contract”. The “execu-
tion navigator” and the “elec-
tronic contract” integrate the
features of SIA-EAGLE, the
European technological plat-
form in Europe dedicated to
the monitoring and control of
financial markets transac-
tions, MiFID compliant.
Brussels - Euroclear, with the
support of fund promoters
and transfer agents, is intro-
ducing an investment fund
‘quality label’ programme to
accelerate automation and
STP in fund-transaction pro-
cessing. Beginning in April
2007, transactions in funds
carrying the FundSettle
Premier quality label will cost
significantly less to process,
while receiving superior serv-
ice levels.
Chicago - Aleri, Inc., develop-
er of high performance event
stream processing software,
announced it has partnered
with Microsoft to deliver
solutions addressing the
technology requirements of
the Markets in Financial
Instruments Directive
(MiFID) in the European
Union.
The Aleri Streaming Platform
is part of a comprehensive
suite of products and tech-
nologies that make up
Microsoft’s MiFID solution
suite. “Aleri’s technology
gives them the perfect combi-
nation of performance, flexi-
bility and rapid deployment,”
said Don DeLoach, CEO of
Aleri.
California - SunGard
announced that it has
acquired California-based,
Aceva Technologies, a
provider of receivables man-
agement software solutions.
The acquisition of Aceva
extends SunGard's
AvantGard solution suite for
Collaborative Financial
Management into the On
Demand, Software as a
Service (SaaS), hosted solu-
tions and business process
outsourcing spaces.
London - 'royalblue', provider
of Fidessa, announced that
Goldman Sachs has selected
Fidessa as an additional dis-
tribution platform for buy-
side listed derivatives flow.
Fidessa’s global connectivity
network provides a highly
resilient solution for routing
buy-side order flow to broker
destinations. Through
Fidessa’s network, users will
now have the capability to
route listed derivatives, cash
equities and algorithmic
orders, across 60 exchanges
& 23 countries, to Goldman
Sachs.
London - Vodafone and
Citigroup Corporate and
Investment Banking's Global
Transaction Services business
announced their plan to
launch a Vodafone-branded
mobile-based international
money transfer service target-
ing the global remittance
market worldwide. The new
service will provide senders
and receivers of money with
a superior method for send-
ing money home that is con-
venient, cost-effective,
secure, transparent, and easy
to use.
London - Mellon Financial
Corporation is the latest par-
ticipant to utilize the transac-
tion history and client details
request functionality through
the EMX Message System.
Mellon’s international asset
servicing business provides
services to six asset manage-
ment firms using the EMX
Message System, having
joined in June 2000.
London - SmartStream
Technologies announced that
UBS Investment Bank will
extend its usage of TLM
Reconciliations and adopt
TLM WebConnect in an enter-
prise-wide implementation.
FREE NEWS DAILY AT WWW.ISJFORUM.COM
The Investment Bank will
expand its use of TLM
Reconciliations to implement
a Collateral Management
Reconciliation solution and
replace its existing Securities
Reconciliation System. TLM
WebConnect, SmartStream’s
web portal, is being adopted
to enable easy deployment
across the firm’s global user
community and provide
greater operational visibility
to users through its intuitive
dashboards.
London - Rhyme Systems
announced that Fairbairn
Private Bank has signed a
new rhymeSIGHT Back Office
contract to satisfy increasing
client demand for existing
portfolio management servic-
es and enhanced reporting
and performance measure-
ment functionality.
rhymeSIGHT Back Office is a
key module of rhymeSIGHT,
a multi-currency, multi-com-
pany investment manage-
ment and accounting system.
It delivers a broad range of
functionality to support an
extensive range of investment
instruments, including per-
formance measurement,
dealing and settlement.
New York - The Depository
Trust & Clearing Corporation
(DTCC) announced plans to
launch its new Mutual Fund
Profile Service database in
July. The redesigned database
will provide the fund commu-
nity with an automated, cen-
tralized repository for a range
of information contained in a
fund's prospectus.
"This initiative will deliver
major efficiencies to the
industry by providing a single
central resource for the
dissemination of fund
information and offering
greater operational flexibility,"
said Ann Bergin, managing
director and general
manager, DTCC Distribution
Services. 
Wherever You Look, Interactive Data
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info@interactivedata.com.
 NEWS ANALYSIS

lower quality services, fewer choices and

From Hoover higher prices? Or will a new, larger field of
competitiveness emerge, forcing us to

to Paulson redefine what ‘competitive’ means? What

must we make, for instance, of the BoNY /
Mellon merger, destined to create a verita-
ble ‘Jupiter’ of the custody world? The very
name is intimidating – The Bank of New
York Mellon Corporation – bringing to
mind some Gotham City monopoly,
heinously planning to take over the world.
Have you got your eyes “There’s no doubt,” says Managing
peeled for Risk? Director Tim Keaney in this month’s ISJ,
“the Bank of New York Mellon merger is
H erbert Hoover, the Republican
President during the Great
tals of those prepared in the financial
industry will remain steady. The reason
getting a lot of time in the boardrooms of
a lot of companies.” Indeed, the sound of a
Depression, did not believe the economic why the dot com crash in 2000 affected so thousand CEOs holding their breath
misfortune that began in 1929 would last. many is because not that many investors resounds across the industry as time ticks
“Prosperity is just around the corner” is predicted it or were prepared to deal with by before ‘Bony M’s’ big move.
what he told businessmen in 1932 when such an eventuality. Today, the back office In this increasingly global industry, size is
living conditions for the masses were just is prepared to deal with a multitude of an advantage but substance is important.
about at their worst. Interestingly, after various situations. In the early 1930s, the BoNY Mellon may be the ‘Jupiter’ of this
our March mini-crash, many investors nick-name of the soup given out by chari- system, but by no means is it full of hot air.
have been echoing this same sentiment. Of ties for the unemployed was "Hoover The word ‘consolidation’ comes from the
course, relatively speaking, prosperity is stew.” Mr. Paulson is safe for now.  Latin consolidare, meaning ‘to make solid
still here, and the seven-day fall is seen by together’: an apt
many as just a blip on an otherwise definition for
healthy radar. The US Treasury Secretary
Henry Paulson, in Tokyo recently for a
timely Asian tour, smiled in the face of the
Among this particular
merger. Its serv-
ice, when
spooked markets and stated that the glob-
al economy is as strong as he's ever seen
and that reforms in China would help
Giants announced, will
not only be solid
but substantial
lessen market volatility. too; it will have
Judging by the reaction of the press, it the widest range
would seem that Mr. Paulson is right. A of state-of-the
week and a half after the beginning of the art products on
tumble, it no longer justifies a place on the display and the
BBC Businesses page, and is relegated to Consolidation is ability to deploy
page 15 of the Financial Times. Is this creating a them 24/7. The
because businesses are becoming more benefits to its
efficient at understanding risk, therefore custody universe clients are unde-
putting in place the suitable measures and made of giants. niable, but not
channels necessary to stem the damage of so attractive that
a market crash, or was the bubble that it will be able to
burst was only minor in size? n the global custody universe, ‘consoli- do what it likes. A plethora of smaller
In theory, the market acts as a precursor to I dation’ refers to the gravitational
the grander economic picture. If the mar- attraction of large or small organisations.
banks will hover, gull-like, in the wings,
forcing it to keep its prices consistent.
ket falls, it is because those involved are When their various orbits meet, mergers, Whether this is a situation that can be
reacting early to shifting fundamentals alliances and acquisitions take place; large extended indefinitely is uncertain. As
that numerous analysts have worked to banks swallow their ill-fated brothers, BoNY Mellon wins clients from its com-
pick up. However in today’s western small banks partner to form larger wholes, petitors, perhaps we’ll see mergers on a
economies, unlike 1929, it is the banks and and more recently (as with the Bank of similarly mega scale. To argue that this
financial sector that are the fundamentals, New York / Mellon merger) large banks lacks competitiveness is to cling to an
rather than manufacturing or other areas join to form super powers. While the glob- out-dated view of the market. When the
of industry (especially in the UK). As a al custody market may be varied as a market changes, we must change too.
result, the risk management systems the result, uncertainty remains as to the com- Current developments could well intro-
custodians and pension funds have in petitiveness of the environment going for- duce a new era of competitiveness, charac-
place have to be increasingly sophisticated ward. As with any on-going process, the terised only by giant players. Resist this
and able to deal with a market crash. The nature of the phenomenon can’t yet be and you display that most dreaded of
stock market may fall, but the fundamen- determined. Will consolidation result in things: protectionism. 

10 INVESTOR SERVICES JOURNAL

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 DOMICILES REPORT
Mauritius
The use of offshore structures featuring
innovative product enhancements as an
alternative means of achieving the multiple
goals of investment appreciation, asset pro-
tection and tax planning is already well
known among international businesses
looking for a variety of structures and vehi-
cles suitable for fiscally efficient trade and
investment activities.
Mauritius has been fortunate in playing
host to a growing number of significant
investments in India, China, and Africa.
Many of the companies have been formed
by large institutional players, attracted by
Mauritius’s well-established reputation as a
centre of excellence, innovation and as an
outstanding international financial centre.
In keeping with its longstanding commit-
ment to “keep out the unscrupulous”,
Mauritius enacted sweeping Anti-Money-
laundering legislation in 2003 (the “Ant-
Money-Laundering Act”). The Financial
Intelligence and Anti-Money Laundering Act
2003 complies with the recommendations
of the Financial Action Task Force estab-
lished by the G7 countries in 1989.
Mauritius has embraced the passage of the
Ant-Money-Laundering Act and its subse-
quent codes issued by the Mauritius
Financial Services Commission.
Compliance has not proved difficult for
most client companies as Mauritius has
always had a deep-seated “know your
client” culture .
Mauritius has always been a unique bilin-
gual platform for trade and business and its
legal system is a fusion of both French and
English sources. Mauritius enjoys a fused
legal system combining both the civil and
common law practices. Mauritius is an
independent sovereign nation (Republic),
yet still remains a member of the
Commonwealth and the right of appeal to
the Privy Council is preserved.
Mauritius has never sought to be a lead-
ing contender among offshore jurisdictions
in the area of “asset protection”. In terms
of protection from creditors, Mauritius has
taken a more business friendly approach,
attempting to establish a reasonable bal-
ance between the interests of the business
and those of that business’s legitimate
creditors. The legislation is viewed as fair
and sensible in international circles, and
underscores the advantages of the selection
of Mauritius as a suitable jurisdiction for
the sophisticated structures required for
international transactions.
Mauritius has gained international recog-
nition including through the UN Forum for
12 INVESTOR SERVICES JOURNAL
its regulation of its offshore sector due to
the strong regulatory framework and due
diligence practices.
Malcolm Moller, Managing Partner of the
Mauritius office of offshore law firm Appleby
Hunter Bailhache.
Luxembourg
On 13 February 2007, the Luxembourg
Parliament adopted the law on
"Specialised Investment Funds" (SIF).
This law, which entered into force the same
day, replaces the law dated 19 July 1991 on
undertakings for collective investment the
securities of which are not intended to be
marketed to the public.
All the provisions of the 1991 law are to be
found in the new law, so existing institu-
tional investment funds will not find that
their legal base has disappeared. Existing
1991 funds automatically became SIFs on
February 13, 2007.
Among the main features of the new law
is the widening of the definition of “eligible
investors” to include both professional and
private “well-informed” investors. These
are investors who either invest a minimum
of 125.000 euros in the SIF or who qualify
as “sophisticated” investors, having
obtained positive assessment from a credit
institution, an investment firm or a man-
agement company confirming their ability
to make an informed judgment on invest-
ment in the SIF.
The law allows vehicles created under its
regime to invest in all types of assets. This
flexibility allows for the creation of, inter
alia, transferable security funds, money
market funds, real estate funds, hedge
funds and private equity funds. The princi-
ple of risk spreading has been maintained,
but there are no quantitative investment
restrictions, given that such vehicles would
be reserved to sophisticated investors.
The law requires that the directors
(dirigeants) of a Specialised Investment
Fund, as well as the directors of the custo-
dian bank and the auditor, be approved by
the supervisory authority CSSF. However,
the promoter is not subject to CSSF
approval. Last but not least, no prior
approval is required for the launch of an
SIF. Application for approval may be filed
with the CSSF within the month following
the creation of the SIF.
ALFI is convinced that this innovative
new legal framework will open up new pos-
sibilities for fund promoters in the area of
alternative and institutional investment
funds
Jean-Jacques PICARD,
Director Communication, ALFI.
Jersey
Having finished 2006 on a high, a hat-
trick of developments announced already
this year has boosted Jersey’s funds
industry.
In January, Jersey got the green light
from the Dutch Financial Markets
Authority (AFM), who decided that the
Island’s regulation was sufficient for the
Dutch regulator to adopt a light touch
approach towards it. As a result, Jersey
funds can be listed on the Euronext
exchange without the need for a licence in
the Netherlands – a privilege enjoyed by
only a handful of other jurisdictions.
With private equity funds and other
alternative investment vehicles already
showing considerable interest in listing on
Euronext, the timing of the AFM’s recog-
nition of Jersey is ideal.
The eagerly awaited Listed Fund Guide
was also introduced by the Jersey
Financial Services Commission in January.
The Guide sets out new measures to
enable a swifter 72-hour approval process
for closed ended investment funds that
are listed on leading stock exchanges.
Alternative funds, including hedge funds
and funds of hedge funds, are able to take
advantage of these new guidelines, as are
private equity and property funds.
In a third recent development, an
amendment to Jersey’s Income Tax Law
means that Jersey is likely to be a more
attractive domicile for certain fund and
investment structures, including UK
REITs. The approved amendment ensures
that Jersey companies can be treated as
non-resident for tax purposes if certain
conditions are fulfilled. The move will
enable Jersey’s funds industry to compete
directly with other jurisdictions when a
structure requires a non-UK incorporated
but UK tax resident company.
These developments provide Jersey with
a number of new funds options that can
make Jersey an even more attractive option
for fund promoters seeking the appropriate
location for their funds business.
Graeme McArthur, representative of the
Jersey Funds Association and Managing
Director of Northern Trust in Jersey.
 /PSEJD
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Custody Services is the leading provider of custody and clearing

services in the Nordic region.
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 IRISH FUNDS

QIF Structure Overview

Luck of the
Qualifying investor Funds (QIF) have
no parameters set by the financial reg-
ulator on investment objectives, invest-
ment policies, diversification limits or
leverage and borrowing. The funds
Irish
have a minimum subscription require-
ment of Euro 250,000 and do not
allow for grouping of individual
investors. All investments in sub funds
The Changing Faces of the QIF
are also taken into account. The
qualifying investor criteria are for an
individual to have a minimum net
worth of Euro 1.25m or an institution
to own or invest at least Euro 25m on
a discretionary basis.
The new process means that there Alison Ebbage reports on
will be no review of documentation
before authorization by the financial
the changing face of the
regulator provided that the promotor
and investment managers are already
Qualified Investor Fund (QIF)
approved. The fund documentation will structure in Ireland.
be prepared and negotiated with the
service provider and the fund’s board
will approve the documentation before
submitting it to the regulator who will
approve it the next day. But promoters
beware; any application that is
subsequently found to be missing

information or containing inaccuracies
will mean that the promotor will not be
allowed to use this fast track process
again.
Immediate effects will be that there
will be no need to list valuation
providers in the articles or the trust
deed. It will no longer be mandatory to
state that the difference between the
sale and repurchase price of units
means that the investment should be
viewed as medium to long term. In
addition there is no need to provide a
worked example of performance fee.
Future changes are yet to be
discussed but include the need for an
independent custodian for hedge
funds, a limit of investment in
unregulated funds, risk spreading for
investment companies, amending the
investment criteria, giving a separate
prospectus for share classes and the
need for semi annual accounts.
14 INVESTOR SERVICES JOURNAL
F
unds for experienced investors - be
they high net worth individuals or
institutions, have been around for
some time now. The Irish version,
Qualified Investor Funds, (QIF) have been
very popular. But in a market where it is
impossible to stand still, tweaks to keep
such products up to date are inevitably
required. In Ireland the latest move is to
introduce a fast track approval process
where fund promoters can get next day
approval for these investment vehicles.
The aim is to attract more funds to both
domicile and be administered in Ireland,
thus increasing the breadth of business. It
is hoped that by having a competitively
fast time to market, plus a flexible struc-
ture in a regulated environment, Ireland
will be able to capture some more of the
interest in alternative structures.
The QIF is currently on offer to individ-
uals with Euro 1.25 or more in net assets
excluding principle residence and house-
hold goods or institutions with more than
Euro 25 under discretionary management.
Prior to the introduction of next day
approval all parties involved in the launch
of a new fund would need to be approved
by the Irish regulator and the relevant
fund application documents would be
filed by a lawyer for examination by the
regulatory authorities. On average the
time between filing the application and
receiving authorisation was 6 to 8 weeks.
Under the new arrangements once the
fund promoter, administrator and lawyer
have been pre-authorised by the regulator
they are entitled to apply for next day reg-
ulatory approval for a QIF.
Gary Palmer, chief executive at the Irish
Funds Industry Association (IFIA) com-
ments: “Where the regulator receives an
application for of a QIF before 3pm, a let-
ter of authorisation will be granted the
next day. An application for authorisation
will be deemed complete on the basis that


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 IRISH FUNDS
the parties to the fund, the promoter,
directors and relevant services providers
are all approved and that the fund reflects
the agreed parameters.”
He expands saying that the promoters
will prepare and file the paperwork and
the regulator will take the promoter’s
expertise as being able to indicate to the
regulator where the disclosures are. The
regulator will authorise the product and
then look at the paperwork; legal agree-
ments, memorandum of criteria, prospec-
tus and material contracts.
Indeed the move stems from industry
consensus that the benefits of being a reg-
ulated domicile and a part of the EU were
being outweighed by the time it took to
actually get products to market.
“The QIF amendments are basically trying
to get the best combination of a regulated
environment plus a fast time to market.”
Donnacha O’Connor, partner in
financial services at Dillon Eustace com-
ments: “This was a perceived problem for
investors and The Cayman Islands and
Jersey were gaining advantage over us so it
was thought best to do something
about it.”
The move is a canny one. Ireland, indeed
no jurisdiction, can hope to challenge the
dominance of The Cayman Islands when
it comes to funds that prefer a less regulat-
ed approach; current estimates say that the
Cayman Islands have between 50 and 80
per cent of qualified investor type busi-
ness. But institutions are a fast growing
segment of investors in alternatives assets
and they do tend to prefer the comfort of
regulatory protection. And this is precisely
where Ireland hopes to gain.
Feargal O’Reilly, director at KPMG in
Dublin comments: “This move should be
seen as evolutionary rather than a new era
in its own right. It’s not only attractive to
institutions but also to funds of funds
managers who are often not permitted to
invest in non regulated funds. Both are
huge growth areas.”
But Ireland is not alone. Indeed
Luxembourg has also moved to attract
more domiciled business and in addition
Jersey, Guernsey and the Isle of Man all
have similar structures in place. Indeed
what is often termed as ‘ healthy competi-
tion’ between the various European juris-
16 INVESTOR SERVICES JOURNAL
dictions looks set to continue.
Palmer is diplomatic stating, “I am
loathe to say that we want to attract x per
cent of business more that we aim to be a
domicile that 100 per cent of products
could use if they choose to.”
Indeed the case for either Dublin,
Luxembourg or elsewhere is still basically
down to language and culture. It is often
difficult to find hard differences so it’s
often the cultural experience or a historic
relationship with a particular jurisdiction
that decides.
Ian Headon, vice-president in product
management at Northern Trust com-
ments: “Industry surveys indicate that
Dublin, Luxembourg, Guernsey and Jersey
all have about 5 per cent of the total mar-
ket and in terms of assets under manage-
ment the business is thriving but in terms
of relative market share then the numbers
appear flat.”
He says that this goes against the percep-
tion that institutions are instinctively
more comfortable with a regulated envi-
ronment and adds: “You could speculate
that institutional managers are sophisti-
cated enough to make investment deci-
sions based on a wide range of factors,
including manager quality, headline and
operational risk, as well as any perceived
additional investor protection arising
from so called ‘regulated jurisdictions’.”
Indeed on this basis it’s hard to see where
Ireland can challenge the well trodden
Cayman domicile, Delaware partnership
or London managed, Irish administered,
Cayman domicile path.
But others are more optimistic.
O’Connor states: “I think that although
fund promoters not already involved with
the Irish authorities might take some time
to warm up to the idea of domiciling there
but the comfort factor of being in a juris-
diction that has ongoing supervision and
the pre vetting of principle service
providers will win out. We have seen sub-
stantial interest from existing clients who
previously shied away purely on the
grounds that 6 to 8 weeks was just too long
to wait. ”
David Claus, managing director at Bank
of New York (BNY) meanwhile thinks that
in recent years the value of a decently reg-
ulated jurisdiction has been appreciated
more and more: “The QIF amendments
are basically trying to get the best combi-
nation of a regulated environment plus a
fast time to market. And by attracting the
domiciled business as well you could argue
that the regulator, the fund manager and
the investor are all reducing their regulato-
ry risk by having a single body; the Irish
regulator oversees the full picture and not
just the administration.”
Indeed might it be that the initial work
involved in getting pre-authorisation from
the Irish authorities for the fund manager,
administrator and the like may well be a
little tedious, but well worthwhile in the
context of fund managers aiming to set up
more than one fund over a medium term
time frame?
O'Reilly certainly thinks so, commenting
that a speedy time to market is so para-
mount that managers will invest in the
time needed to approve their first fund for
the guarantee of next day approval for
subsequent fund launches.
But what of the work involved for the
lawyers and the service providers in all
this. How will the relevant parties gain
pre-authorization from the authorities
and when it comes to getting approval for
a fund, will the workload be basically the
same but just in a different order?
Don McClean, head of UBS Fund
Services in Dublin, interviewed in early
February, says that until a pre-authorized
fund is actually launched it is difficult to
know exactly how the process will work.
He thinks that fund services providers will
almost certainly need more input when it
comes to completing documentation but,
with the authorities allowing service
providers to do their job on trust, this
should facilitate a speedier time to market
which will be positive for the fund indus-
try in Ireland.
To get that trust in the shape of pre
authorisation promoters, service
providers and lawyers will need to fill in a
comprehensive application form that will
no doubt be time consuming. On the plus
side it’s a one-time-only process.
On the actual application for approval
for a fund launch, meanwhile, it seems
that instead of a lawyer sending in docu-
mentation in dribs and drabs, that the
future requirement will be for it all to be
sent in together.


 anagement
l p r oject m
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t of fe
rt o f our s
a a
e ss who’s the o vi d e r th s as p
Gu ices nly pr o d
v f w fun
se r or the launch of n e

Word·s Getting Around…

For more information on our services please contact:

Fearghal Woods (Dublin) at +353 1 670 0300 or visit www.boiss.ie

Bank of Ireland Securities Services Limited is authorised by the

Financial Regulator under the Investment Intermediaries Act 1995
 IRISH FUNDS
Administrators too will need to examine
how to make the most of this
legislative amendment.
O' Reilly comments: "Clearly there will
be more work for the lawyers in making
sure everything is in order; that the right
agreements are in place, and that the
prospectus is complete. In addition the
QIF application forms cover many of the
questions the regulator are likely to ask
during the formal QIF authorisation
process, so these questions are answered
up-front. Overall it's a similar work bur-
den in a more concentrated format, allow-
ing the fund to get to market quickly."
The most adjustments will need to be
made in the legal community, but admin-
istrators too will need to examine how to
make the most of this legislative amend-
ment. Not only will they need to get to
grips with new processes but also the pos-
sibility of increased business volumes.
Claus comments: “ Service providers will
need to ensure that they can run with a
new product in a shorter time frame.” He
says that the bank has business implemen-
tation teams specialising in custody,
accounting and transfer agency for just
such a purpose. “In reality we forsee that
any initial delays will be no more than a
couple of days and that is still positive
when compared with the time it would
take to gain regulatory approval prior to
this latest move,” he says.
Headon agrees saying that service
providers tend to be domicile-neutral and
typically have in place a standard culture
of control and governance when it comes
to producing net asset values and liasing
with clients. “Obviously we observe the
local regulations when it comes to filing
and reporting but our culture of control is
the same, irrespective of the domicile. We
make whatever adjustments are required
to facilitate local requirements,” he says.
Indeed rather than looking at procedur-
al complications to be absorbed, both
Claus and Headon are thinking in terms of
new business. Headon thinks that the
trustee side of the business should be pre-
pared for a busier life in terms of monitor-
ing and Claus meanwhile is eyeing future
discussions on the separation of the custo-
dian from the prime broker. 
18 INVESTOR SERVICES JOURNAL
Property and other Alternative
Asset Classes
The Qualified Investor Fund structure,
although primarily associated with
hedge funds can also be used for
other alternative asset classes. And
some of the growth in funds investing
in property, private equity or
venture capital could certainly go
Ireland’s way.
However the relative newness of
these asset classes means that certain
regulatory questions will need to be
resolved. A good example is the trans-
parency of property funds. Headon
explains: “There are many ways of get-
ting exposure to property including
directly, via Special Purpose Vehicles
(SPVs) and via property funds.”
It seems that the central issue here
is around the way in which property is
accessed and a debate is currently
running over the best way to improve
tax efficiency on property investment.
The industry as a whole seems sup-
portive of attracting all alternative
assets; Palmer admits that although
property funds do have specific issues
in relation to the title of the assets
and with regard to tax that the under-
lying issue is technical. “Efficiencies
can be made by making a number of
special purpose vehicles that can be
structured within a single property
fund. Some engagement is now need-
ed on this to clarify the number of lay-
ers that are actually needed. It’s a
technical issue over the separation of
NAV and how property is defined and
how gross asset value is defined as
well. Venture capital Trusts and Private
Equity have similar layering issues.”
Clearly then in such a complicated
market Ireland has done well to have a
structure capable of catering to all
alternative investments. And newer
alterative asset types such as curren-
cies or infrastructure type products in
emerging markets are also starting to
become popular according to
Claus:“It’s about creating a legal
framework so that the complexity of
the administration comes from the
underlying asset and not the legal
structure,” he says.

Alison Ebbage
reports on how
legislative change is
paving the way for
Caribbean fund
domicile
development.
Basking in
the Sun
T he Caribbean is often viewed as a sin-
gle jurisdiction as far as funds servic-
ing is concerned and certainly the
Cayman Islands seems to be the dominant
player with some 80% of the world’s hedge
funds.
But to counter the Cayman Islands, the
Bahamas, Cayman, BVI and Bermuda are all
tweaking their regulatory regimes and
fronting up to try and attract some of this
still massively expanding asset class.
And key to success of all is the ability to
service both small and large funds in an
industry that is truly global. Indeed one of
the biggest trends is the widening of the
hedge funds market with institutional
investors now being one of the largest mar-
ket participants.
In response regulators such as the FSA and
SEC were rumoured to be looking at ways to
take a more proactive approach to hedge
fund regulation. In fact despite last year’s
overturn of the SEC registration rule, the
SEC is still looking at options to limit access
to hedge funds.
Philip Gee, manager at Dundee Leeds in
Bermuda comments: “ The SEC has recently
proposed raising the accredited investor
standard from US$1million to $2.5million of
net investable assets but as yet, nothing con-
crete has been forthcoming.”
And Greg Bennett, manager of client rela-
tionships at the Butterfield Bank in the
Cayman Islands comments: “Feedback from
our local regulator in this regard has been
that both the SEC and FSA are satisfied with
our regulatory regime. Specifically we see
nothing on the horizon that would jeopard-
ize our ‘quick to market’ framework.”
Gee thinks that more significant is the
updated Basel II Standard. This indirectly
affects fund administrators as it establishes
new capital requirements for banks and pro-
motes consistency in approach towards risk
management. Both these factors feed
through to institutional investors and thus to
the service providers and jurisdictions
involved in their investments.
So how are the fund administrators based
in the Caribbean looking to take advantage
of this widespread institutional interest in
hedge funds? Clearly the Cayman Islands still
reign supreme; its sophistication and critical
mass of expertise continues to serve it well
leaving others to play catch up.
But catch up they may for other jurisdic-
tions have been busy putting into place reg-
ulatory regimes and tweaks to ensure that
they can compete with the Cayman Islands
and elsewhere on a level playing field.
In Bermuda, for example, there are over
1,200 registered funds, and the recent
Investment Funds Act will continue to
enhance Bermuda’s reputation by further
streamlining turnaround processes for fund
incorporation. Under the new Act,
Bermuda’s fund administrators will be for-
mally licensed for the first time.
Cheryl Packwood, CEO at the Bermuda
International Business Association (BIBA)
says: “Recent changes to Bermuda’s frame-
work proved a revelation to many who had
not changed their opinion on doing business
in Bermuda in years. Bermuda’s competitive
edge has been greatly enhanced by elimina-
tion unnecessary administrative procedures.
In fact while many funds register in other
jurisdictions, Bermuda is one of the leading
choices for companies to administer their
funds, regardless of where they choose to
domicile and in fact, Bermuda administers a
substantial proportion of the funds which
register in Cayman, for instance.”
The Bahamas is also looking to modernise.
Wendy Warren, chief executive at the
Bahamas Financial Services Board com-
ments: “The Bahamas is constantly review-
ing its legislative and regulatory environ-
ment to ensure the jurisdiction meets the
needs of the international market.” Indeed
the Securities Commission of The Bahamas
(SCB) is authorised to license all classes of
funds and Unrestricted Fund Administrators
(UFA) are authorized to license Professional
& SMART funds, and administer them,
without an independent director, on the
basis of the Offering Memorandum and
Bahamian law.
The SCB is also committed to a two weeks
turnaround time to new administrators
wanting to set up in there. In addition a new
fast track process will guarantee a response
within 72 hours of receipt of application for
funds targeting accredited or high net worth
investors.
But far from sitting on its laurels, Cayman
CARIBBEAN FUNDS
is also seeking to keep up with issues created
by the globalisation of the industry. Funds
domiciled elsewhere but administered in
Cayman no longer have to register with the
authorities.
Wayne Ross, director at Spectrum Global
Fund Administration, Cayman Islands com-
ments: “This move has removed a layer of
administration and created a level playing
field. In addition the Cayman Islands
Monetary Authority (CIMA) recently took
away the significant registration fee previ-
ously charged to administrators to allow
them to provide services to funds based in
other jurisdictions.”
So what does this mean for administrators?
Without doubt operating in a regime that
allows for speed to market gives not a com-
petitive advantage but more a level playing
field these days. How can firms that do, after
all, operate in multi-jurisdictional manner
seek to capture new business in the
Caribbean?
Bennett says that one area where the
Cayman is leading the way is e-reporting,
where financial statements, including basic
financial and non-financial information
contained within the financial statements,
will be e-filed with CIMA, the Cayman
Islands Monetary Authority, is one area in
which the Cayman Islands is leading the way.
“While fund specific information will obvi-
ously be confidential, e-reporting will mean
that more comprehensive and statistically
significant aggregate information will be
available. Such information could include
gross industry inflows, total assets, average
performance by strategy etc.”
Improving information flows is both a
response to demand from investors and
competition from others. In this respect the
role of institutional investors demanding
more accessible information cannot be
underestimated.
But Cayman is not alone in seeking to
respond to this sort of investor demand.
Bermuda’s new Companies Amendment Act
allows organisations to use electronic com-
munications as a means of conducting busi-
ness with the aim of improving both effi-
ciencies and the cost of doing business in
Bermuda. “The Act should strengthen and
improve Bermuda’s viability in the
International business community. Both are
critical to remain competitive as an interna-
tional business jurisdiction,” says Ms
Packwood at BIBA
Clearly moves like this will allow fund
administrators to compete for new business
and effectively benefit from another global
trend resulting from institutional investors’
preferences; the move towards having sever-
al prime brokers and independent adminis-
trators to act as the central cog. 
INVESTOR SERVICES JOURNAL 19
 RBS INTERNATIONAL
Brett Allen, RBS International
Securities Services gives ISJ an
insight into the Channel Islands
funds industry.
The ‘Flying Scotsman’
T he train keeps coming as The
Channel Islands and the Isle of
Man continue to show significant
growth in the funds sector and offshore
functionaries deal with a variety of
schemes of both Institutional and quasi
retail nature. A head of steam is building
and the legislative shunt given to the sec-
tor in 2004 and 2005 is delivering ‘what it
said on the tin’ aided by a fast track autho-
risation process.
The Jersey Expert Scheme, the Guernsey
Qualified Investor Fund and the Isle of
Man schemes have helped deliver signifi-
cant growth in assets under management
and administration. With Jersey funds
reaching in excess of £169bn, Guernsey
£120bn and Isle of Man £42bn there is
clear evidence that with growth of well
over 30% per annum in each jurisdiction
the regulatory framework for fund
launches is proving attractive.
The Jersey Station
In Jersey, the Jersey Financial Services
Commission ( ‘’JFSC ’’) has issued
Consultation paper No 7 which deals with
proposed further enhancements and clari-
fication of the rules relating to Expert
20 INVESTOR SERVICES JOURNAL
Funds given the number of enquiries
being received. It covers :-
- Stock Exchange – the ability of an
Expert Fund to be listed on a Stock
Exchange where the exchange allows
restrictions to be imposed on who may
invest in the fund.Thereby ensuring only
sophisticated investors have access to such
schemes.
- Transfer of Interests – applying the
expert investor requirements to
transferees.
- Acquisition on behalf of non–expert
investors by professional advisors who
meet the criteria - emphasising that the
In Jersey the next hill climb is approaching
with discussions on the introduction of a
‘Super Expertt’ scheme.
investment so acquired is suitable for the
underlying investor.
- Minimum Investment – emphasising
the $100k minimum investment as an ini-
tial investment
- Location of the Investment Manager –
broadening the range of permissible juris-
dictions in which the investment manager
is established to include any state or juris-
diction with which the JFSC has a
Memorandum of Understanding ( MoU )
on investment and funds business ( This
to include any signatories to the IOSCO
Multilateral MoU ).
The Issue of a Classification Guide – fur-
ther clarification on the characteristics of
an Expert Fund
In Jersey the next hill climb is approach-
ing with discussions on the introduction
of a ‘Super Expert’ scheme to sit between
the existing expert scheme and Control of
Borrowing order Schemes. The scheme is
aimed at professional investors who are
considered to have a higher level of
sophistication than under the expert
scheme with less regulatory controls at
authorisation stage relying more on dis-
closure. Far more ‘caveat emptor’ with
higher entry thresholds to reflect its pro-
fessional status.
The Jersey Expert Scheme was a quan-
tum leap and discussion of a new fund is
evidence of an industry on its uppers, re-
energised, acting with confidence and
endeavouring to raise its profile globally.
The principle difference is relaxation of
the need to have an Island based adminis-
trator, with a physical presence, adminis-
tering or providing oversight to the fund.
The proposed model will allow the spon-
sor to have functionary duties carried out
in other jurisdictions giving them more
choice and flexibility in their service
provider. Something more akin to the
Cayman Island model where more
reliance is placed on how well the
functionary is regulated within its own
domicile.
Practitioners in Jersey feel this type of
structure will attract more business to the
Islands and thereby encourage sponsors
and investment managers to either physi-
cally locate or seek local service providers
despite the flexibility a new scheme would
bring to the outsourcing model. A virtu-
ous circle of business competing with
other global providers and schemes
through the provision of a ‘one stop shop’.
The Regulator will have one eye on the sig-





nificant volumes already being generated
under the expert scheme, will have issues
about regulatory reach, span of control,
cannibalisation of the existing fund base
and will need to rationalise the economic
benefits of a scheme, where potentially,
services could migrate out of the Islands
losing annuity income short term.
Perhaps the simple answer would be to
make the new fund unregulated so as not
to place the burden at the feet of the regu-
lator. As currently drafted in Jersey the
Collective Investment Law enshrines the
regulators responsibilities to the investor
so such a move would require statutory
amendment. There is no doubt that any
such variation would require a significant
leap of faith and will require a rounded
proposal that gives consideration to both
the regulator and practitioners vision of
business.
One Train different Carriages
Running along a complimentary track in
Jersey is the industry Consultation paper
number No1 ( 2006 ) which considers the
future regulation of funds and functionar-
ies of funds. Since 2003 the JFSC has been
implementing an initiative to integrate a
number of pre-existing regulatory laws
into the Financial Services ( Jersey) Law
1998 (‘’FS(J )L’’) which sit within the
Collective Investment Funds ( Jersey) Law
1988 (‘’CIF (J )L’’). Such actions are
designed to simplify the JFSC’s adminis-
trative and communication roles and
make it easier to understand and comply
with the legal framework. It also seeks to
distinguish between regulation of the fund
and the functionary.
The paper considers :-
- Moving authorisation and regulation of
functionaries of Collective Investment
Fund’s from the CIF(J)L into the FS(J)L.
- Removing the requirement for a func-
tionary to hold a separate permits under
the CIF(J)L in respect of each collective
investment fund for which it carries out
work.
- Amending the CIF(J )L so that unclassi-
fied funds established in Jersey or non-
Jersey funds that have ‘mind and manage-
ment’ in Jersey require a certificate (rather
than the functionary) and,
Leaving Recognised funds untouched
and the requirement for a functionary of a
recognised fund to hold a permit under
the CIF(J)L
This framework is then considered in light
of the types of fund structures available in
Jersey :-
a) Recognised Funds
b) Unclassified Funds
c) Expert Funds (as a subset of
unclassified funds)
d) Non–domicled funds administered
from Jersey
At present unit trusts and limited partner-
ships are controlled by permits issued to
functionaries with fund company’s issuing
units being issued with their own separate
permit. With over 1500 service provider
permits on issue for funds structured as
partnerships or units trusts and another
The Collective Investment Law enshrines the
regulator’s responsibilities to the investor.
359 permits as ‘Company Issuing Units’
that is a significant amount of paperwork
requiring ongoing amendment and con-
trol. Under the proposed regime circa 252
service providers will be registered replac-
ing the existing 1500 service provider per-
mits on issue
The new regime will allow the func-
tionary to be registered once under a
revised FSL(J ) for the services it is com-
petent to undertake and give them the
ability to act in respect of any collective
investment scheme. It is expected that
existing functionaries will be grandfa-
thered across to the FS(J ).The intention is
to then issue unclassified certificates under
the CIF(J ) L for each existing and new
unclassified fund.
It is intended that recognised funds will
be left alone as they are modelled on UK
legislation designed to give investor pro-
tection equivalent to that afforded under
the Financial Services and Market Act
2000. Given they carry Designated
Territory status which allows the distribu-
tion and marketing of the product to the
UK public any material change to the fund
or governance of its functionaries will
require HM Treasury approval. Given the
low demand and launch rates for these
types of fund this is an entirely sensible
approach.
It is also intended that the issuance of a
certificate will remove the need to seek
Control of Borrowing ( Jersey) Order 1958
( ‘’COBO’’) consent which can apply to
RBS INTERNATIONAL
some collective schemes. With regard to
non-domiciled schemes administered by
functionaries in Jersey the paper concen-
trates on the regulation of the service
provider through the amendments already
suggested.
Where ‘mind and management’ is
deemed to be within the jurisdiction then
regardless of the registration or domicile
of the fund a certificate will need to be
issued under the CIF(J)L and registration
by the service provider will need to take
place under the FS( J )L. The definition of
mind and management is not wholly con-
clusive and subject to interpretation but
the starting point is to look at the manage-
ment company, the composition of the
board and whether directors, trustees or a
general partner are Jersey resident and
how the balance of control and influence
is exercised.
Registration by a service provider under
the FS( J )L will bring about some other
significant changes. Codes of Practice and
Orders will be consolidated around the
FS(J )L that are common to all functionar-
ies, there may well be more prescription
around managers of managed entities, and
fund service business will be classified by
the specifics of the function e.g manager,
administrator, registrar, investment advis-
er, distributor, subscription agent and
then further split between specialist and
non-specialist funds. In short more pre-
scriptive in the initial registration process
of the functionary. The time periods for
the production of audited reports and
accounts may also be shortened and all
grandfathered entities will be given a tran-
sitional period to gain the necessary com-
petencies where they fall short of the new
Codes of Practice and Orders.
Hitching carriages to the same train
should lead to a more efficient journey
and issuing ‘tickets’ in the form of certifi-
cates for unclassified schemes with stan-
dard conditions to control the structure
and operation of the fund should deliver
more clarity, simplify the authorisation
process, ease administration and create an
integrated financial services framework. It
should also allow services to be marketed
to non-Jersey funds without having to
qualify those services being subject to
INVESTOR SERVICES JOURNAL 21
 RBS INTERNATIONAL
‘regulatory approval. ’
If you want to take a different class of
carriage then that option is available. The
competencies of those providing on board
services will be better defined and the
team driving the engine will know where
they sit within the authorisation process.
Given the success of Jersey fund business
one could hardly argue its not well con-
structed but laying new track and improv-
ing the signalling will deliver a better route
map for others to follow. By better defin-
ing functionary competencies it may allow
the regulator to be a little more relaxed on
scheme specifics leaving the regulated
practitioner to decide whether the busi-
ness is of sufficient quality to entertain.
Protected Cell Companies and
Incorporated Cell Companies
In Jersey we have seen revision in Jersey
Companies Law introducing the segregat-
ed cell company providing further flexibil-
ity in structuring umbrella or series funds
with statutory ring fencing of assets and
liabilities around the cells within each cell
structure. The protected cell company
Given the success of Jersey fund business one
could hardly argue it’s not well constructed but
layin
ng new track and improving the signalling.
structure has therefore been enhanced to
provide incorporated status for each indi-
vidual cell. So read the Jersey PCC and
ICC as interchangeable. This provides
additional statutory protections around
each individual cell which deals more
effectively with those issues of cross-con-
tamination and recourse. Incorporated
cells are not subsidiaries of the main cell
company and whilst they may share com-
mon board members they do not have to
have common shareholders providing
additional flexibility.
The Jersey ICC also delivers additional
benefits in the winding up or liquidation
process and its construct is likely to attract
funds that utilise higher levels of debt or
trading margin in derivative contracts. In
Guernsey the PCC structure has proven to
be robust dealing with segregation
through the administration and receiver-
ship provisions. Changes in Guernsey
PCC legislation in 2005 also facilitated
greater use of PCC’s, outside of captive
and reinsurance business, by encouraging
family offices to use these vehicles to sup-
22 INVESTOR SERVICES JOURNAL
port family offices and broader wealth
management strategies. A tweak on a
theme but it moves the proposition along.
Fast Track and Exchanges
Jersey has recently introduced the Jersey
Listed Fund Guide with the aim of allow-
ing closed–ended investment companies,
listed on a Recognised Stock Exchange,
such as London, New York, Dublin,
Channel Island Stock Exchange,
Alternative Investment Market, Euronext
or other Market to be fast tracked using
the streamlined authorisation process. The
JFSC aims to authorise Listed Funds with-
in 3 working days provided they meet the
requirements of the guide and are current-
ly considering other types of investment
vehicles such as limited partnerships and
unit trusts.
The regime is available to private equity,
property and other alternative investment
funds such as hedge funds and fund of
hedge funds. Additionally the Dutch
Financial Markets Authority (AFM) have
added Jersey to its short list of jurisdic-
tions whose regulation is considered
robust enough to allow light touch regula-
tion where funds can be listed on Euronext
without the need for a licence in the
Netherlands. This is now similar to offer-
ings that exist in Guernsey.
Lastly the Sates of Jersey have recently
approved an amendment in the Islands
income tax law which ensures that Jersey
companies are treated as non-resident for
tax purposes if certain conditions are met.
This may be attractive to certain UK struc-
tures: REIT’s for example, which require a
UK tax resident company that is not con-
sidered resident for tax in another juris-
diction.
The Guernsey Station
In 2005 Guernsey commissioned the
Harwood Report to review investment
legislation and regulation and the
Working Party reported its findings in
June 2006. It also touched on other issues
such as required infrastructure to support
a fast developing fund domicile and
attract intellectual capability to the Island
whilst allowing more flexibility in the
sponsor’s choice. Like Jersey there is a
desire to consolidate some of the legisla-
tion and draft new Prospectus and Fund
law and the reputational risk associated
with a liberalised scheme is also debated.
The conclusions make interesting read-
ing and the balance of opinion appears to
be that Guernsey domiciled funds should
be administered by a local functionary and
that the current outsourcing guidelines
provide sufficient flexibility. It recom-
mends clearer catergorisation of schemes
and bundles a number of the existing
schemes into a Regulated category to
include a new UCITS 111 equivalent
regime for better reach into Europe as well
as opening up more bilateral agreements
and memorandum of understandings. It
also recommended the establishment of a
Registered scheme, one that is not offered
to the Guernsey public but will have to
appoint a Guernsey administrator with
much clearer guidelines in the offering
memorandum and prospectus.
On the non-Guernsey domiciled funds
(e.g. Cayman registered funds) it recom-
mends that the obligation will be on the
functionary (administrator/custodian) to
deliver a certificate to the GFSC confirm-
ing they have done sufficient due diligence
on the sponsor and associated parties and
lodge the particulars of the fund with the
GFSC.This to be reviewed annually. This
places the emphasis very much on the
local functionary whose own licence could
be revoked if they consistently demon-
strate poor judgement and due diligence.
On the 1st February 2007 therefore a
new Registered Closed- Ended Investment
Fund came into being with many of the
features recommended by the Harwood
Report and outlined formally in guidance
notes issued by the GFSC. An unregulated
fund which requires a locally licensed
administrator and a high degree of self-
certification by the Guernsey licensed
service provider effectively certifying the
competence and integrity of the promoter
or investment manager and associated due
diligence on fund. On another matter
there is no longer a need to establish a
Guernsey based principal manager in con-
nection with an authorised open-ended
collective investment fund albeit existing
and new applications will need to be
licensed under the Protection of Investors
Law.
The Report also seeks to distinguish
between the oversight and monitoring
role required of a Guernsey regulated fund
and that of pure safekeeping and custody.





It recommends that only the former
should be undertaken by a licensed entity.
This may impact the revenues of existing
licensees who gain significant banking and
FX revenue as part of the overall relation-
ship. There is a suggestion that the mini-
mum capital requirement of £4m for a
Guernsey licensed entity might be
dropped albeit this will have to be judged
in light of international acceptance.
Real Estate Investment Trusts (‘’REITS’’
and Property Funds
The impact of REITs on offshore property
unit trust is a common discussion. Is the
demise of the offshore Property Unit Trust
(PUT) Imminent?
Unlikely albeit it may slow the establish-
ment of some structures a little in the
interim. With significant property already
domiciled offshore sponsors are not
encouraged to pay a conversion charge to
deliver property assets back into a newly
formed REIT structure particularly when
they have only just settled the establish-
ment fees! Their focus is now getting on
with business in hand. Other reasons for
holding fire relate to the fact that: -
- Tax exemption on qualifying income
may not extend to ancillary income.
- Conversion of offshore property unit
trusts will attract a 2% conversion charge
on the gross value of the fund.
- Distributions to shareholders will be
subject to 22% withholding tax subject to
reduced rates under double taxation
treaties. This will apply to distributions of
income and capital gains. Where investors
do not have double taxation treaties then
they could be exposed to higher tax
charges.
- Investor restrictions on ownership
(10%) may not suit a number of institu-
tional structures.
- Compliance monitoring on UK REIT’s
is fairly onerous.
- Transfers of units in offshore PUT’s do
not attract Stamp Duty Land Tax or
Stamp Duty Reserve Tax.
- The tax efficient and transparent struc-
tures delivered offshore accommodate a
wider investor audience and wider geo-
graphical spread of assets particularly as
funds look at hybrid structures and look
towards Europe and further afield for
their property stock.
So standing back from all the excitement
of REIT’s there are some practical issues to
be digested when deciding on the domicile
of the fund. With structures becoming
RBS INTERNATIONAL
ever more layered to allow better distribu-
tion of product the flexibility that the off-
shore regime can deliver would be a real
challenge as a first step in the evolution of
the UK REIT.
With UK recognition of the Channel
Island Stock Exchange (CISX) it expects
that some UK REIT’s will list on the CISX.
The exchange is also considering an index
of listed securities by sector to allow track-
er funds to track securities listed on the
exchange together with the provision of
CREST settlement for open ended invest-
ment companies (“OEICs’’) following the
introduction of facilities to trade in OEICs
last year.
There is much to consider offshore as the
islands consider next steps and seek to make
themselves th
he jurisdiction of choice for
European Fund Managers.
Summary
So there is much to consider offshore as
the islands consider next steps and seek to
make themselves the jurisdiction of choice
for European Fund Managers and non-
domiciled schemes without overheating
the sector. The adoption of a volume
based approach like Cayman would
require a significant change of policy by
the authorities and I am sure the reputa-
tional break will continue to be applied in
a measured way. The regulator acknowl-
edges that they can’t be all things to all
men and trying to define and classify the
variant characteristics of every product or
scheme is time consuming, resource hun-
gry and somewhat vacuous. Sitting as a
sort of ‘procurator fiscal’ over a partly reg-
ulated scheme would also leave them vul-
nerable.
The train is however determined to push
on into new territory with a flexible com-
bination ticket that provides good value
and an efficient way of reaching the spon-
sors destination. The regulator will con-
tinue to ensure the track is well main-
tained and if a few junctions and spurs are
inserted to provide sponsors and asset
managers a few more stop-offs then hope-
fully the mutual objectives of both will be
achieved. 
Any views or information expressed in this article are
by way of opinion only and are based on information
available within the public domain. You are strongly
advised to take specific independent Legal and Tax Brett Allen
advice when entertaining fund structures offshore.
INVESTOR SERVICES JOURNAL 23
 PENSION FUND PROFILE - MARKS AND SPENCER
This isn’t just any ordinary
pension fund... this is a Marks
and Spencer’s pension fund.
Brian Kilpatrick, Pension
Investment Specialist, Marks
and Spencer Pension Fund
speaks to ISJ.
Defying the
Deficit
24 INVESTOR SERVICES JOURNAL
THE FUND MANAGERS
Barclays Global Investors - Indexed equity and Indexed
bonds
NewSmith Asset Management - Active UK equity
Alliance Bernstein, Marathon Asset Management
- Active Global equity
Henderson Global Investors, Insight Investment
Management - Active core bonds
Goldman Sachs Asset Management, Rogge
Global Partners - High alpha bonds
CB Richard Ellis Collective Investor - UK property
manager
Barclays Global Investors - Swaps overlay manager
THE TRUSTEES
There are 12 Trustees in total. Two are independent, five are com-
pany nominated and five are member nominated.
The main Trustee Board’s work is supplemented by two Trustee sub-
committees. The Investment Committee oversees investment mat-
ters and a Management Committee oversees non-investment matters.
SECURITIES LENDING PROGRAMME
Participates in Securities Lending.
ALTERNATIVE INVESTMENT INSTRUMENTS
None. The fund’s assets are invested in equities, bonds and property.
INVESTMENT STRATEGY
The Scheme’s strategic asset allocation is forty per cent equities,
fifty-five per cent bonds and five per cent property. A swaps pro-
gram has been implemented to help manage inflation rate and
interest rate risk.
CORPORATE GOVERNANCE AND SOCIALLY
RESPONSIBLE INVESTMENT
Corporate governance is important to the Trustees and fund
managers are expected to comply with the Trustee policy in this
area. Socially responsible investment is an area that the Trustees
have planned to review this year.
DEFICIT
Marks and Spencer is contributing £500m to the pension scheme
via an interest in a property partnership.
This strategy was chosen because it enables Marks and Spencer
to make a substantial contribution to the Pension Scheme which
will immediately reduce the deficit by £500m, while ensuring that
the company’s cashflow obligations to the Scheme are spread over
a manageable period. From the Pension Scheme’s perspective, it
receives a significant income yielding asset, backed by a strong
portfolio of Marks and Spencer property. 
 PANEL DISCUSSION - HEDGE FUNDS
ISJ
Panel Debate
Hedge Funds
Metamorphosis.
Our panel of experts
debate the evolving
nature of the global
hedge funds
industry... Clare Flynn Levy
Linedata
Lord Graham, Advent. Calum Graham is a member of the
Advisory Board to Advent Software EMEA, having previously been
Regional Director for the UK and Ireland. Prior to joining Advent
he was European MD for Lexit, a Direct Market Access broker sub-
sequently bought by Neonet.
Maria Cantillon, Global Head of Business Development, BNP
Paribas. Based in London,Ms Cantillon is primarily responsible for
bringing Service Solutions to UK based alternative clients irregard-
less of Fund Jurisdiction. She has worked in the securities industry
for more than 10 years in multiple locations, covering Dublin,
Luxembourg, New York, Hong Kong and Singapore. Prior to joining
BNP Paribas, Ms Cantillon was Regional Head of Client
Management in Asia with JP Morgan, then Head of Sales with HSBC
South East Asia.
Adam Hopkin, Client Services Manager. Mr Hopkin joined Dundee
Leeds in January 2005. Prior to this, he worked for Arthur Morris &
Company, the Bermuda member firm of Grant Thornton
International, where he worked in the Alternative Investment
Department. Mr Hopkin qualified with Grant Thornton in England
where he was a Regional Prize winner at the Final Admitting Stage of
the ACA exams, he is a member of the Institute of Chartered
Accountants in England and Wales and has an Honors Degree in
Chemistry from the University of Durham, England.
26 INVESTOR SERVICES JOURNAL
Lord Graham Maria Cantillon Adam Hopkin
Advent BNP Paribas Dundee Leeds
Henry Smith Stephen Swindon Don McClean
Maples and Calder Rule Financial UBS
Clare Flynn Levy, President of Beauchamp Financial Technology, a
wholly-owned subsidiary of Linedata Services S.A. Prior to joining
Beauchamp in 2004, Ms Flynn Levy was Chief Investment Officer of
Avocet Capital Management Ltd, and manager of the Avocet
European Technology Fund.
Henry Smith, Partner, Maples and Calder. Mr Smith joined Maples
and Calder in 1994 and was made partner in 1999. He has advised on
all aspects of offshore finance transactions, focusing particularly on
private equity funds, hedge funds, CDOs and other structured
finance transactions.
Stephen Swindon, head of hedge fund practice, Rule Financial. Mr
Swindon has more than 20 years' experience of business analysis,
project and program management within the financial technology
industry. He joined Rule Financial in 1998, and has been responsible
for the successful delivery of a number of high profile assignments.
Don McClean, Client Services Director, Head of Fund Services,
Ireland, UBS. Mr McClean has responsibility for the development
and management of the business and is a member of the Fund
Services Management Board. Prior to joining UBS he spent nine
years at Fortis, culminating in the role of Director of Operations
Europe and has previously worked at Rudolf Wolf Fund
Management Ireland and Strachans Management Services.

How has the increased appetite of institutional investors in
using hedge funds as an investment instrument affected the
hedge funds market?
Graham: The obvious answer is that hedge funds have had
to address greater transparency if they have wanted to
benefit from this appetite. More to the point, the old
spreadsheets with their high manual input, while adequate
for the familiar and alert internal management, have not
been acceptable to the scrutinising institutions. More and
more hedge funds need robust, proven systems. Possibly
the biggest impact, however, was felt with the institutional
investors’ very first hunger pangs: armed with their trusty
actuaries they concluded that not everything on the festive
board was genuine alpha, blowing the whistle on “2 and
20” fees for many hedge funds that were being paid for lit-
tle more than beta. The easiest way in for many institu-
tional investors, though, has been to wash the risks they
perceived through diversification, with the resulting
increase in demand over the past three years in funds of
funds.
Hopkin: Due to the rapid growth in the industry, there is
now a growing readiness amongst institutional investors to
consider non-traditional strategies that utilize leverage and
derivatives within their investments strategies in order to
further diversify their portfolio; this is something that
wasn’t appealing or possible a few years ago as their invest-
ment committees and policies precluded such investments.
With such large investments by single investors, the indus-
try’s next challenge will be to provide the kinds of trans-
parent risk and return frameworks and operational flexi-
bility needed to serve the absolute return needs of institu-
tional fiduciaries, who are introducing more stringent and
detailed due diligence processes and risk research analysis
as part of their search and review of hedge funds for
investment opportunities.
Flynn Levy: Institutional investors are still, overall, the
biggest investors in the financial markets. They are
increasingly interested in allocating assets to hedge funds
and this has been a major source of growth for the indus-
try. But institutional investors are still typically only allo-
cating to hedge funds from a relatively small “alternatives”
portion of their total assets. Much more money is available
from the more general “equities” portion of institutional
portfolios and maximising alpha is equally relevant here.
Hedge fund managers can attract money from that “equi-
ties bucket” by offering other products tailored to the
institutional market, thus driving even greater future
growth.
Cantillon: Increased due diligence of the hedge fund man-
ager’s business. As a result, managers are having to invest
more in infrastructure.
Pressure on capacity i.e. manager’s ability to find invest-
ment opportunities and generate alpha, thereby preserving
performance.
Swindon: The increased appetite of institutional investors
for alternative assets has served to bring hedge funds more
PANEL DISCUSSION - HEDGE FUNDS
into the mainstream of the investment spectrum. This has
created significant growth in the size, number and diversi-
ty of hedge funds. In addition, institutional investors have
placed increasing demands on hedge funds to show that
their business processes and systems infrastructure are well
controlled and robust. This growth, along with increased
scrutiny, has driven hedge funds to move towards elec-
tronic trading services, to automate or outsource manual
business processes such as trade matching and reconcilia-
tions, and to establish workable business continuity plans.
Smith: The increase in institutional investment has cer-
tainly led to a significant growth in the number of hedge
funds being formed offshore and in the Cayman Islands in
particular. Hedge fund managers are seeking to establish
new funds with increasingly diverse alternative investment
strategies in the search for new alpha generating opportu-
nities – both in terms of geographic regional investment
There is now a growing readiness
amongst institutional investors
to consider non-traditional
strattegies that utilize leverage
and derivatives within their
investments strategies.
focus and in non-classic hedge fund strategies, such as pri-
vate equity type investments. Furthermore, we have seen
an increasing number of larger financial institutions seek
to develop their own alternative investment divisions and
hedge fund platforms and, in turn, to offer such products
to their institutional clients either as fund of fund prod-
ucts or growing their own in-house hedge fund manage-
ment capability.
As institutional investors continue to seek exposure to
hedge funds as an asset class, we have experienced an
increase in requests from potential institutional investors
for general background and diligence information in
respect of the hedge funds in which they are considering
investing.
McClean: Institutional investors are well established as
major investors in hedge funds. They tend to require more
frequent reporting, dealing and NAV calculations, along
with higher levels of compliance with greater regulatory
oversight, as well as increased transparency. This is being
driven by the demands of their own investors, who are
now performing far more comprehensive due diligence of
their investment managers and service providers.
The more risk-averse institutions might prefer a fund of
funds set up offering further diversification while more
aggressive investors might pursue single manager prod-
ucts. These single manager products vary across the spec-
trum of hedge fund offerings from the very complex funds
investing in complex, thinly traded hard-to-price instru-
ments, to the straightforward funds which invest in
exchange traded instruments. By investing in hedge funds,
institutions have not only accelerated the growth of the


INVESTOR SERVICES JOURNAL 27
 PANEL DISCUSSION - HEDGE FUNDS
industry, but have focused the attention of regulators. The
industry no longer operates a boutique-like set up, but as a
distinct and growing asset class.
To what degree is there a ‘two-tier’ hedge fund industry
emerging, between boutique managers servicing high net-
worth individuals and ‘supra’ asset managers servicing
institutional clients?
Flynn Levy: The big are definitely getting bigger amongst
both hedge fund managers and fund of hedge fund man-
agers. As investors become more sophisticated, they are
demanding more robust operational infrastructure and
controls from underlying funds – this means that the fixed
cost of doing business as a hedge fund manager is higher
than it used to be and economies of scale are emerging as
a competitive advantage. That said, there is still room for
boutique managers that are typically targeting higher risk
and return profiles.
The smart money follows
the smart managers whether
they are with a large institution
ue.
or a boutiqu
Cantillon: Not sure this is the case. The smart money fol-
lows the smart managers (and performance) whether they
are with a large institution or a boutique.
Hopkin: The hedge fund market is a very broad industry
that covers a lot of different investment styles and strate-
gies. As such, there is no true way to categorize or seg-
ment funds together into groups, especially when looking
at both high net-worth and institutional investors. More
appropriately, they can be viewed as two ends of a spec-
trum. There will be large funds that are able to provide
portable alpha solutions with customized risk and return
profiles that will appeal to institutional funds, and there
will also be more niche investment funds that have a high-
er risk profile that will appeal to, and also specifically tar-
get, high net worth individuals. However, there is a com-
plete selection of funds in the middle ground between
these investment styles; opportunities and risk tolerance
attract one or both types of investor.
Smith: The Cayman Islands have become an offshore cen-
tre of choice for the hedge fund industry, offering both a
strength and depth in numbers of legal, accounting,
administration, insolvency and other hedge fund profes-
sionals available to service client. We therefore see the
Cayman Islands continue to attract hedge funds whose
investor base is predominantly composed of institutional
investors, although the Cayman Islands do also offer a
more tailored regulatory regime for retail markets (e.g.
Japan). It is probably correct that there is a separation
emerging between boutique or ‘friends and family’ man-
agers on the one hand and asset managers servicing insti-
28 INVESTOR SERVICES JOURNAL
tutional clients on the other. Certain regulatory issues,
(e.g. ERISA in the US) may result in certain managers
being better equipped to build their fund management
infrastructure to comply with such regulations in order to
service certain types of institutional investors (such as
pension funds). Whereas other managers may position
themselves to service those types of investors which are
not affected by such regulations. Furthermore, with
onshore regulators considering the distinction as to who
qualifies as a high net worth investor and a retail investor,
there may be managers (particularly fund of funds man-
agers) who will gear themselves up to comply with regula-
tions in certain countries to market specifically to retail
investors. The cost of forming a new hedge fund manage-
ment business and creating the back office required either
by regulation or to satisfy investors due diligence require-
ments may also shape how many new managers are actual-
ly able to start up new hedge funds. More often than not a
new hedge fund manager will need a significant initial
strategic investor to provide it with sufficient capital to get
started.
Graham: From the perspective of a developer of hedge
fund management systems, we see the industry is divided
into these two tiers, but the constituents of the tiers are
very fluid, mainly upwards. It does not take long before
the good performers running their own money and that
of their high-net-worth friends see the marginal benefits
of added fees from institutional capital, especially if they
still can warrant “2 and 20”.
McClean: While there is a distinction between boutique
and supra asset managers, it is not necessarily drawn
along lines of investor-base. Boutique managers attract
institutional investment as well as high net worth individ-
uals. Likewise supra asset managers or large financial
institutions offering hedge fund products attract invest-
ment from both high net worth individuals as well as
institutions and pension funds. Regardless of whether the
investment manager is boutique, institutional or ‘supra’,
institutional investors tend to require more due diligence
relating to the investment manager as well as the service
providers.
Swindon: As with all investment markets, the hedge fund
market comprises niche, specialist managers who focus on
particular geographical, industry or other specific risk
profiles, along with larger asset managers who provide
investment opportunities across a range of markets and
risk profiles. Rather than a two-tier approach, there has
been a blurring of the distinction between the traditional,
long only asset managers and the more esoteric hedge
funds. This has been driven by market demand, as well as,
legislation such as UCITS III which has opened up previ-
ously closed asset classes, such as derivatives, to institu-
tional investors. This has presented significant challenges
to the traditional asset managers as they attempt to
accommodate the new requirements presented by alterna-
tive asset classes within their highly inflexible systems and
processing infrastructure. The new requirements present-
ed by these asset classes impact all aspects of the trade





lifecycle from pre-trade risk management through to
trade capture, matching and settlement.
With more institutional investment in hedge funds and
fund collapses such as Amaranth, how likely is increased
regulation in the hedge fund industry in the future.
Cantillon: Increased regulation is definitely likely. In the
short-term there’s more likely to be a lot more collabora-
tion between the industry and regulators which will result
in a balance of better industry practices (in essence, self-
regulation) and some additional regulation. Europe is
currently better positioned than the US, as evidenced by
the weight of fund collapses being on the US side. The US
hedge fund industry will see further regulation in place of
the recently repealed legislation.
Hopkin: There have been numerous attempts to regulate
hedge funds, and there is still much talk about hedge fund
regulation. Yet market forces are always going to be the
ultimate regulator in the financial industry and lessons
learnt from the historic examples of failed financial
endeavors - including failed hedge funds – only add sup-
port to this. Hedge funds are the most active investors in
new, more-complex structured financial products that
include both leverage and heavy investments in deriva-
tives. The collapse of large hedge funds will always high-
light the roles of hedge funds as providers of liquidity and
absorbers of risk through these new strategies. This, in
turn, will always lead to increased public concern about
investor protection. However, most investors can protect
themselves adequately from the risks associated with such
investments through established analysis and due dili-
gence. If there was to be increased regulation, this should
never been seen as a substitute to investor due diligence.
Flynn Levy: If anything, the Amaranth collapse demon-
strated that hedge funds themselves have created enough
liquidity in the markets to protect the world financial sys-
tem from a blow-up the size of Amaranth. Of course, reg-
ulators are certainly casting a closer eye over hedge funds
(that would be the case even without Amaranth) as more
assets flow into what is a largely unregulated sector. Thus
far, regulators appear to have recognised that hedge funds
are actually a good thing for free markets, on the whole,
and over-regulating them would be dangerous.
Graham: Regulation appears to be joining death and taxes
as the surest things on earth. Regulation is inevitable in
our society and its grasp will reach towards any shocking
event where anyone can cry foul. Having said that, the
PANEL DISCUSSION - HEDGE FUNDS
hedge fund sector has evolved through clever people on
both buy- and sell-sides finding anomalies around struc-
tures of markets within financial services systems and cre-
ating vehicles to exploit them. Adding regulation to the
mix simply adds another layer of structures around which
the same clever people will no doubt find a way to weave
their returns.
Swindon: The Securities and Exchange Commission (SEC)
has been actively trying to increase the regulatory frame-
work within the hedge fund industry for a while, with lim-
ited success. The Amaranth collapse will not dent their
enthusiasm in pursuing this approach.
If anything, the Amaranth collapse
demonstrated that hedge funds
themselves have created enough
liquuidity in the markets to protect
the world financial system from a
blow-up the size of Amaranth.
The Financial Services Authority (FSA) has tended to
focus on the structural aspects of the industry. It is more
concerned with the financial stability within the market as
a whole and is looking for “transmission mechanisms”
whereby a collapse could precipitate other potentially cata-
strophic failures. Their stance is that the regulatory
response should be directed at well defined risks rather
than a general “attack on hedge funds” which would seem
to indicate that, for now, increased regulation of hedge
funds in the UK is unlikely.
McClean: Active due diligence and transparency are key
drivers for the hedge fund industry particularly with the
increasing number of institutional investors investing in
hedge funds. High profile collapses in the industry have
reinforced the requirement for independence between
asset managers and third party service providers. In addi-
tion, investors are looking for stringent back office con-
trols within asset managers in order to control risk across
the fund. Although attempts to regulate hedge funds and
hedge fund managers in the US have been difficult, regula-
tors have hedge funds firmly within their sights.
Smith: Obviously, with the growth of assets under man-
agement in hedge funds and the increased amount of pen-
sion and insurance institutional investors, the onshore reg-
 PANEL DISCUSSION - HEDGE FUNDS
ulators and authorities are reviewing to what extent new
regulations may be required to monitor hedge funds.
Whilst there is no doubt that recent hedge fund collapses
have made for high profile media coverage, it should be
remembered that, as a percentage of the hedge fund uni-
verse, the number of serious hedge fund collapses is still
quite a small number. The regulatory approach in the
Cayman Islands basically recognises that, provided that the
investor meets a minimum investment threshold and there
is appropriate disclosure in the offering materials, sophis-
ticated investors should be free to determine the particular
hedge fund strategies and risk/reward profiles in which
they wish to invest. Indeed, with this approach in mind,
the Cayman Islands Mutual Funds Law has recently been
amended to increase the minimum investment amount to
US$100,000 for investors in a hedge fund registered under
s4(3) of the Mutual Funds Law of the Cayman Islands and
to introduce a new Key Data Elements filing requirement.
As hedge funds become increas-
ingly creative in their investment
approach, any regulation would
beccome more difficult and costly
both in terms of reporting and
the knowledge required to provide
adeqquate oversight.
In fact, the Cayman Islands Monetary Authority noted
that the overwhelming majority of hedge funds registered
under such law had minimum investment amounts well in
excess of this amount. Institutional investors who have the
means to make significant minimum investments should
be better placed to carry out their own due diligence and
risk monitoring of the hedge funds in which they choose
to invest. Institutional investors are increasingly focusing
their own due diligence review of hedge funds on the pres-
ence of internal controls and checks and balances within
the fund, such as checking for the presence of independent
directors and service providers (such as the administra-
tors) and robust valuation procedures. Arguably, an ele-
ment of self regulation by the hedge fund industry may be
a more cost effective way for the industry to proceed.
Initiatives volunteered by industry bodies such as the
Alternative Investment Management Association (e.g. see
the recent guidance notes on side letters) are useful
approaches in this regard.
To what degree should the hedge funds industry be
regulated?
Hopkin: This question remains a hot topic for those stake-
holders promoting dialogue, yet this raises a more salient
question: through which jurisdiction should funds be reg-
ulated? While recent events have seen Germany trying to
force the issue within the G7, other countries and bodies
including the UK’s FSA and the US’s SEC have taken a
softer approach – albeit in the same direction.
30 INVESTOR SERVICES JOURNAL
While many believe that regulation is inevitable in order
to provide some oversight and protection to the investor, a
prime time for regulation is at fund set-up, where it
should be incumbent upon the jurisdiction of incorpora-
tion to ensure that the fund is launched only after meeting
all the regulatory requirements. However, such regulation
should compliment the dedication of fund managers and
administrators and the continued due diligence by
investors.
As hedge funds become increasingly creative in their
investment approach, any regulation would become more
difficult and costly both in terms of reporting and the
knowledge required to provide adequate oversight, and
some contend that because hedge funds are designed to
act with maximum flexibility in the market place, this reg-
ulation is incompatible with hedge funds. However, both
sides provide strong arguments, and eventually an interna-
tional consensus and middle ground will be found.
Swindon: The FSA’s focus on financial stability is sensible.
It has stated that it is not appropriate for any regulator to
gather information such as large positions held by individ-
ual hedge funds. The FSA is in the process of defining its
approach to consumer protection but, again, the focus
appears to be structural and will look at issues such as the
functional separation between the manager of the fund
and custodian, or the pricing of the fund. Over regulation
will stifle creativity and potentially burden hedge funds
with unnecessary and costly bureaucracy which will not be
in the interests of their investors. However, it is important
that hedge funds can demonstrate that they have robust
processes and systems - whether this should be policed by
regulators or driven by investor scrutiny is an interesting
debate.
Smith: As noted above, in respect of hedge funds that are
marketed to sophisticated and institutional investors, the
Cayman Islands approach is that sophisticated investors
should be free to determine the particular hedge fund
strategies and risk/reward profiles in which they wish to
invest. Although the Cayman Islands tends to be a juris-
diction of choice when it comes to determining where to
establish a hedge fund vehicle, few investment managers
are actually resident in the jurisdiction, often being based
in the United States or the European Union. Hedge fund
managers and other key service providers such as admin-
istrators, custodians and prime brokers will often be reg-
ulated by and subject to the rules and oversight of
onshore regulators. Even if the fund manager itself is not
regulated onshore, there are plenty of existing securities
laws on the statute books in onshore jurisdictions to con-
trol the marketing of hedge funds to residents and
investors in those jurisdictions which will be relevant to
the way in which a hedge fund manager operates and to
the funds’ investment profiles. Furthermore, institutional
investors’ investment activities will often themselves be
regulated onshore or limited by their own internal con-
trols and policies. The Cayman Islands approach has
been not to add additional costly (and arguably not nec-
essarily helpful) layers of regulation on hedge funds gen-
erally and to recognise that fund managers and other





service providers to a hedge fund are generally subject to
rules and regulations in onshore jurisdictions. In addi-
tion, the Cayman Islands authorities do have some pow-
ers under existing regulatory laws of the Cayman Islands
to step in and assist onshore regulators and authorities
where appropriate if a hedge fund gets into trouble or
acts fraudulently. Where hedge funds fall into distressed
situations, the range of accountants, insolvency lawyers
and practitioners and other professionals available in the
Cayman Islands, along with the reputation of the
Cayman Islands courts and stability of the legal system
(which is in large part derived from English law), mean
that the jurisdiction is of further comfort and appeal to
both institutional investors and non-institutional
investors alike.
Graham: The hedge fund industry could probably be best
served in adopting some form of hedge-fund-specific self
regulation, before having regulation foisted upon it by
bodies less familiar with its complexities. Recognition of
industry-wide adoption of robust standards in accounting
and accepted systems for capturing and deriving reported
data would go a long way to calming outside concerns of
risk, without necessarily forcing greater transparency.
Since the industry has been created under the overriding
principal of caveat emptor, perhaps any regulation should
concentrate on the caveat part rather than the emptor.
Cigarettes still sell despite the black warning covering half
the box.
Cantillon: Balance of self-regulation and regulatory body
legislation. FSA has the right approach.
Flynn Levy: My view is that the current levels of regula-
tion are largely sufficient. The main area where I believe
any tightening should be focused is fraud prevention. This
issue was not really addressed by the Securities and
Exchange Commission’s (SEC) attempted new rules on
registration. In the US, the use of third party administra-
tors and perhaps the implementation of rules regarding
the minimum qualifications and/or background checks on
actual managers might help to better safeguard investors.
McClean: Regulators ultimately decide on the level of
regulation they determine appropriate for their jurisdic-
tion. In Ireland, the Regulator ‘pitches’ regulation at a level
which protects investors while encouraging enterprise and
innovation. Different hedge funds should be regulated to
different degrees, depending on their risk profile and
investor base. In Ireland the non-UCITS PIF and QIF
provide for varying levels of regulation - in terms of
investment and leverage restriction - depending on the
sophistication of investors.
The Irish Fund Industry Association (IFIA) represents
the requirements of most stakeholders in the Irish fund
services industry [investment managers, administrators,
lawyers, auditors] and co-ordinates industry
participants’ requirements and proposals with the
Regulator. The Irish Regulator, therefore, works with stake-
holders to create a compliant environment which encour-
ages business.
PANEL DISCUSSION - HEDGE FUNDS
How is the role of hedge funds changing?
Smith: As investment managers continue to seek out
investment opportunities in markets that appear to be
experiencing greater competition, we may see greater
diversity in investment strategies and investment opportu-
nities considered. Indeed, over the last year we have begun
to see renewed interest in hedge funds seeking exposure to
more private equity style investments and funds seeking to
provide for longer lock up periods and side pockets in
their fund structuring.
Flynn Levy: Increasingly, I see hedge funds coming full
circle; they are growing into “absolute return institutions”
in their own right. Arguably, these insitutions should be
capable of producing superior returns on lower cost bases,
due to investment in advanced technology as well as a
greater focus on both risk management and alpha genera-
tion. I don’t think it will be long before institutionalisation
reaches a point where we no longer distinguish the hedge
Now hedge funds are
investing into a wider
spectrum of investment
opportunities and also moving
into financial markets that
were historically the domain of
other types of entities.
fund sector from the larger fund management sector.
Graham: Hedge funds have changed from serving as the
wealth growth vehicles of individual “General Partner”
experts and their Limited Partner close associates to serv-
ing as one of the key investment growth vehicles of insti-
tutions. It is probably a role shift of the same magnitude as
the equity market went through decades ago. The pension
and life funds and their regulators previously perceived
any risk beyond sovereign debt as off-limits to their kind
of money. The advent of the then novel theories of portfo-
lio diversification and portfolio insurance subsequently
saw these institutions run their equity exposure up past
the 50% mark, bringing major changes to the volumes,
liquidity and structure of equity markets.
Hopkin: Hedge funds were initially created as a stream-
lined way for a small market of sophisticated investors to
pool their funds and obtain investments in areas that
required specialized knowledge. Now hedge funds are
investing into a wider spectrum of investment opportuni-
ties and also moving into financial markets that were his-
torically the domain of other types of entities. This is evi-
dent with their growing influence within the capital mar-
kets – where they are seen as providing liquidity in some
markets through the use of derivatives, borrowing, short
positions and structured securities, as well as providing a


INVESTOR SERVICES JOURNAL 31
 PANEL DISCUSSION - HEDGE FUNDS
signification percentage of total trading volumes in some
segments.
In addition to this, the pool of investors has now broad-
ened, and is expected to expand to include many institu-
tional investors who are investing their own investors’
funds into hedge funds. In many cases, the investors in
these institutional funds are smaller individual investors or
stakeholders who are used to having a regulator oversee
the operation of the institution investing their funds. It is
this broadening of the hedge fund investor base that is
raising many of the questions regarding regulation.
Cantillon: Increased asset flows mean they have a more
significant impact on the global financial markets.
Convergence with other assets classes such as private equi-
ty and real estate. Global reach, understanding and promi-
nence of the sector overall is changing at a rapid pace. The
role of the Manager, service providers, auditor, and lawyer
will mirror this, the speed of this change will determine
the success of each component.
Hedge funds accommodate
innovation. Asset managers,
through their innovation and
enterprise, push the boundaries
of investments.
Swindon: Hedge funds are becoming more mainstream
and, as a result, are driving market innovation both in
terms of instrument structures and available support
services.
McClean: A hedge fund is not a single product; rather it is
a spectrum of product offerings. At one end of the spec-
trum are complex structures [including master feeder,
multi-share class, SPVs, multi-strategies using sidepock-
ets]. The complex multi-strategies often invest in a wide
array of investment types including difficult-to-price thin-
ly traded [or illiquid] complex OTC derivatives, private
equity and structured products. At the other end of the
spectrum are straight forward single strategy structures
investing in exchange traded liquid securities/derivatives.
Hedge funds accommodate innovation. Asset managers,
through their innovation and enterprise, push the bound-
aries of investments thereby forcing and forging the devel-
opment of the latest structured products or derivative
instruments. Hedge funds allow investors access to these
asset managers and the asset classes and strategies in
which they invest. The complex products of yesterday are
common place and easy to price today. The innovation of
new products and structures today will form the invest-
ment instruments of tomorrow’s hedge funds and so the
cycle continues. In other words hedge funds are designed
to meet the growing and changing demands of an increas-
ingly diverse investor base and therefore are at the leading
edge of financial product and structure innovation.
32 INVESTOR SERVICES JOURNAL
In January it was announced that a hedge fund backed by
Morley Fund Management was poised to launch the
world’s first fund of property derivatives to be marketing to
institutional investors. How will new initiatives like this
affect the hedge fund market in 2007?
Swindon: Initiatives such as this will provide investors
with a broader choice of potential investments and will
offer an opportunity to increase their exposure to less
accessible markets. In order to be able to provide these
opportunities hedge funds will need to establish flexible,
scalable processing infrastructures which can support
complex asset classes. These initiatives will drive the devel-
opment of innovative services such as independent pricing
services.
McClean: Initiatives such as property derivatives represent
new asset classes for the alternative asset management
industry. Any new asset class brings challenges often faced
by hedge funds and their service providers. The challenges
of a new product such as property derivatives include
understanding the product, developing expertise, account-
ing, pricing/valuation and so on. As new asset classes grow,
investors become more comfortable with the investment
instruments and strategies. New capital, therefore, flows
into these strategies creating increased liquidity and, con-
sequently, investor confidence. By creating a fund which
invests into a new asset class, such as a property derivative
fund, investors are offered more than just exposure to the
new asset class. With the fund structure comes the protec-
tion of having independent directors, independent third
party administrators as well as the regulatory oversight of
the fund [if the fund is regulated] and the service
providers to the fund.
Hopkin: Managers are always examining and exploring
potential new opportunities as they face a growing chal-
lenge each year in order to maintain and improve track
records and achieve returns as more and more money
chases a finite number of investment ideas. A couple of
years ago, funds were seen to visibly move into the rein-
surance space, as returns do not rely directly on the per-
formance of the broader market – thereby allowing gener-
ation of gains irrespective of the traditional markets –
which is one of the ways hedge funds like to differentiate
their product.
The hedge fund managers who are successful are contin-
ually doing market research to determine what type of
investment instrument would be attractive to a broad
enough market to enable them to launch a new fund with
every expectation that it will fulfill the investment needs of
a large pool of capital.
Flynn Levy: I think we will see more of this sort of initia-
tive as institutional investors become better acquainted
with the world outside equities and vanilla fixed income.
They have already shown an interest in specialist invest-
ing, and they clearly have a preference for liquidity. As
absolute return institutions begin to scale up, I believe
that they will increasingly repackage their investment


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 PANEL DISCUSSION - HEDGE FUNDS
ideas according to customer demand.
Graham: The hedge fund market will definitely become
more exciting. Where 2005 and 2006 saw rotation
between tried and tested strategies as they came in and
out of favour, we are now seeing demands on our systems
for the accounting of some very creative new strategies.
Litigation Funds are another example. Pricing of the
funds will no doubt become more challenging.
Smith: From a Cayman Islands legal perspective, there is
likely to be little change to the legal structuring of the
hedge fund vehicles, regardless of the particular invest-
ment strategies contemplated by the investment manager.
To the extent that more hedge funds look to invest in
assets that might remain illiquid for some time, there
might be a greater number of funds seeking to adopt side
pockets in their structuring, as perhaps the traditional
distinction between a private equity fund and a hedge
fund becomes less distinct and more hybrid funds come
In 2007 investors will hail
from an even greater number
of jurisdictions, and distribution
into maarkets such as
Germany and Austria will be
of increasing importance to the
hedge fund industry.
to the market.
What will be some of the challenges and opportunities for
the hedge fund market in 2007?
Graham: Getting and retaining talent is likely to become
harder. Taking on new strategies in this ever-changing
industry typically requires very specific, new expertise and
we saw how 2006 favoured the nimble in strategy adop-
tion. Having the right tools and the capital to attract talent
will be key. Secondly, the decision on how to handle the
Markets in Financial Instruments Directive will challenge
many funds. Are they exempt as a collective investment
scheme with no European connection except for their
instrument exposure (not even marketing)? If not, how do
they handle partner/client classification, best execution
and post-trade reporting? The opportunities on the other
hand, abound as ever, as the industry begets its own liq-
uidity in countless geographies and negotiable instruments
as yet untapped. Litigation Funds are redefining “Event
Driven” as a strategy. What next?
Flynn Levy: The fact that the big are getting bigger poses a
challenge for smaller hedge funds and therefore for those
who provide services to them. There will still be room for
some smaller hedge funds to exist as niche players, but
34 INVESTOR SERVICES JOURNAL
many will take part in consolidation one way or another.
For those who scale up into multi-strategy absolute return
institutions, there is an enormous opportunity to make
money on assets allocated from outside the “alternatives”
bucket, but there is also a lot of work to be done in the
background. To do it properly, firms will have to make sig-
nificant investments in talent and operational controls, as
well as in well-integrated, scalable, multi-asset technology.
McClean: In 2007 investors will hail from an even greater
number of jurisdictions, and distribution into markets
such as Germany and Austria will be of increasing impor-
tance to the hedge fund industry. Investors will continue
to seek more frequent and transparent reporting and will
continue to seek managers able to provide strong alpha.
Managers will continue to seek to offer alpha to their
investors and to ensure that they offer the asset classes and
strategies demanded by the market.
Service providers are constantly searching for ways to
improve services to clients to ensure their requirements
are met or exceeded. Having the expertise and IT infra-
structure in place, along with experienced, knowledgeable
client-focused staff, to meet the challenges of an evolving
market place will be integral to all services providers
including administrators, prime brokers and custodians.
The ongoing challenge for regulators is to provide mean-
ingful regulation at the same time as maintaining the
attractiveness of their own domicile to asset managers and
investors alike, allowing business to flourish in a well regu-
lated environment.
Smith: Whilst the regulatory regime in the Cayman
Islands is relatively settled, the challenges onshore will be
for the industry to actively participate in the debate on
the necessity for any increased regulation of hedge funds.
It is hoped that onshore regulators and legislators will
consider all sides of the arguments as well as a cost/bene-
fit analysis of any proposed hedge fund regulatory pro-
posals. In particular, it should be carefully considered
whether introducing additional onshore regulation will
actually protect investors over and above the laws and
regulations that already exist or whether it would simply
stifle the ability of hedge fund managers to satisfy
investors’ increasing desire to look to hedge funds to add
value and diversified non-market correlated alpha to their
investment porfolios. However, from a Cayman Islands
legal perspective, we would expect the continued interest
of institutional investors in the hedge fund asset class to
continue to institutionalise aspects of the hedge fund
market and, given the reputation and stability of the
Cayman Islands, that the Cayman Islands will continue to
be the natural jurisdiction of choice for such funds.
Cantillon: 1. Preserving performance in an environment
where asset flows are increasing and spreads are narrow-
ing. i.e. a lot more money chasing the same deals.
2. meeting the demands of the institutional investor who's
appetite for hedge funds is growing. Means bigger invest-
ment in hedge fund manager's infrastructure and more
emphasis on operational risk, streamlining processes etc.
good news for service providers!


 PANEL DISCUSSION - HEDGE FUNDS

3. Possibly more regulation to deal with. In Europe,

MIFID gets rolled out this year and in the US, further
regulation is imminent.

Hopkin: The challenges and opportunities are well docu-

mented from an oversight and regulatory perspective and
this year will continue to see this being examined in more
detail by numerous stakeholder. From a trading perspec-
tive, the inverted yield curve, increased pressure from
high interest rates as well as market volatility still close to
multi-year lows. There are several challenges for funds
who fail to achieve client expectations, which may result
in further consolidation within the industry. On the
counter side, continued opportunities within the hedge
fund industry will continue to attract some of the bright-
est minds in finance, resulting in more new ideas,
approaches to trading and products providing opportuni-
ties both in 2007 and in the years to come. This also

The challenges facing hedge

funds are: more competition,
increased regulation, and the
need to focus on Straight-
Through Processing (STP) with
electronic trading, trade matching
and reconciliation serrvices.
includes opportunities for funds to change their business
models and move into other areas of financing, and it is
clear that if this becomes as successful model of opera-
tion, that others will follow this strategy.

Swindon: In summary, going forward the challenges facing

hedge funds are: more competition, increased regulation,
and the need to focus on Straight-Through Processing
(STP) with electronic trading, trade matching and recon-
ciliation services.
Opportunities for the market include: trading other
instruments and asset classes for example carbon bonds, a
new investor base; retail (high end) and a fund of funds
approach, and the ability to access scalable, resilient, value
for money outsourced services such as client reporting and
reconciliation. 

36 INVESTOR SERVICES JOURNAL

For you, a

front-row seat

A borderless ‘domestic market for Europe’ with

harmonised market practices will soon become
a reality.

Together with your active participation, Euroclear

is on the way towards delivering a single, multi-
market processing platform. A choice of services
and service levels will meet your domestic and
cross-border settlement needs.

Take a front-row seat and enjoy the benefits.

DELIVERING A DOMESTIC
MARKET FOR EUROPE
 PAYMENTS
Blowing the cobwebs
away through
innovation.
Alan Duerden looks at
how the interest of the
regulators has shakenn-
up payments space.
I
t can be argued that for many years the
payments industry has really been the
back office of the back office, gathering
dust, and not getting the recognition it has
recently enjoyed as a separate business line
and a very stable operation.
For a long time a balance had been struck
on the payments seesaw between the banks
Working Together themselves and the regulators, and as we all
know, a balanced seesaw is no fun for any-
one. That balance however has been some-
what knocked out of kilter in recent
months, both in the UK context and the
wider European context as the interest of
the regulators has increased in the pay-
ments space.
“What we have seen over the last few years
is an acceleration in the rate of change and
scale of change in an industry that has been
used to a very stable life for many years,”
says Martin Wilson, Chief Commercial
Officer, Voca, a provider of payments serv-
ices to banks and corporates. “Then all of a
sudden you get regulatory intervention to
increase the rates of innovation and
increase the clearing cycle in the UK, and
governance structures around payments
The drive for change in the payments space
has really come from regulation, namely SEPA
and the UK Faaster Payments scheme.
instruments in Europe.”
In Europe, it was noted that across the
Eurozone there was one single currency
but a whole host of different payment
instruments and rules purely dependent
on where you happened to find yourself in
38 INVESTOR SERVICES JOURNAL
Europe. The idea was born that a standard
form of payment instruments would allow
freer flow of trade and commerce.
Similarly, in the UK, concern over restric-
tive practices in the payments industry,
such as high barriers to entry, low levels of
innovation, concern about the speed at
which payments could be cleared or the
services that could be provided to con-
sumers meant that initiatives were needed
to open up the market and make it more
competitive.
The drive for change in the payments
space has really come from regulation,
namely SEPA and the UK Faster Payments
scheme, which have been the catalyst for
development and innovation across
Europe and the UK respectively.
SEPA, born out of what is referred to now
as the Lisbon Agenda, subscribes to the
idea that by streamlining payment services
and flows, productivity and profitability
can be increased in the market. The direc-
tive is about common instruments, com-
mon process, common legal definitions
and achieving common standards and
commonality between European states in
the way they perform credit transfers and
direct debits.
With a degree of commonality already
existing in the UK through the APAC stan-
dards operated by Voca, the UK faster pay-
ments scheme is slightly different. It tries
to address the issue of making a payment
outside banking hours and doing it quick-
ly. The sole justification of faster payments
is about trying to do things within near
real-time, where SEPA is addressing a
‘common framework’ problem that exists
in Europe because a number of states do
things differently.
While the two directives are providing
two different solutions to two very differ-
ent issues, the consequence of both is sim-
ilar and payments has finally been brought
out of the corner in which it had been
shoved for many years.
“The new initiatives like SEPA and UK
Faster Payments create the issue of adher-
ing to new standards (at European level)
and the need for real-time processing of
payments,” states Parth Desai, MD of ACE
Software. “With the new level playing field
based on standards, it would be very easy


Geared towards SEPA?
We definitely are.

The European payments market is rapidly

evolving. The realisation of SEPA demands
a lot and the stakes are high. And while
becoming SEPA compliant, business needs
to continue as usual. Obviously you require
a partner who is capable to fully suit your
needs and provides all the necessary support.
Equens is such a company.

Equens is the first truly pan-European

payment processor. Leading the way to
future-proof payments and debit card
processing solutions. Offering a complete and
modular, thus flexible service portfolio. And
catering for a borderless payments market
on a pan-European scale. In short: providing
maximum value at minimum cost.

Our current leading position makes us the

obvious payment processor within
SEPA. Our integrated, high-performance
processing platform is SEPA-ready at this
very moment. We will be offering SEPA
services from day one, and we are ready to
support your smooth transition towards SEPA
compliance. It is clear that we are fully geared
to support you. Together we will make the
most of a challenging future.

www.equens.com
 PAYMENTS


for customers to change from one bank to
another. The only way banks can get new
customers and retain them would be to
offer new products and services.”
“Within Europe, SEPA and the UK Faster
Payments are the main drivers for change,”
agrees Mickey Vonckx, Sungard. “However,
combined with these issues is an ongoing
change in the way corporate clients are
purchasing their payments and cash man-
agement services.”
On top of heightened customer expecta-
tion, the legislation drive towards stan-
dardisation and efficiency has also created
a more competitive market. In the case of
SEPA the cost of cross-border payments in
the SEPA zone is has been limited, directly
affecting the cost-income ratio of
There is no simple answer, save that
legacy systems will require amendments
to manage the differinng requirements of
these new initiatives.
European banks. Effectively banks invest-
ment in payments procedures and systems
will at minimum stay the same, if not go
up, while the revenue they generate from
payments will decrease.
“The challenge within the banking con-
text is trying to make a business case for
what are almost mandatory changes but
have no revenue associated with them,”
explains Jonathan Williams, Principal
Market Strategist, Eiger Systems. “Its costs
without the associated revenue back from
their customers.”
To combat this banks will have to either
attract higher volumes or provide value-
added services to clients such as e-invoic-
ing, one initiative that the European
Commission is very keen on. Banks will
have to be more innovative in their pay-
ments departments and, as seen in other
areas of securities services, an element of
‘value-add’ will have to be involved in the
long-term view to make sure existing
clients are kept happy and to remain com-
petitive.
“On the value-add discussion, I think
there will be a degree of innovation in the
services that are provided to the end cus-
tomer, and that is what the regulators
want,” believes Jerry Norton, Director of
Strategy, Global Financial Services,
LogicaCMG. “Whether retail or institu-
tional, it should force banks to be more
innovative in the customer services they
offer.”
40 INVESTOR SERVICES JOURNAL
“As a result of these initiatives corporate
customers have expectations regarding
enhanced service and cost reduction,” con-
tinues Nicholas Daniel, Business
Development, CBNet. “Banks will be
under pressure to fulfil those expectations.
Logically, the winners will be those banks
who can offer an efficient, low cost, volume
payments processing service with the facil-
ities for sophisticated tracking and report-
ing.”
While offering an efficient, low cost, vol-
ume processing service seems to be a more
than adequate solution to the problem, the
reality however is a little harder to arrange
than the idea would suggest. Currently,
legacy systems; the old, in-house, corpo-
rate computer systems that are the hang-
over from a distant business world, allow
for multiple system fragmentation on a
bank-to-bank, bank-to-customer, and
geography-to-geography level. Coupled
with this is the fact that, as with many
other back office processes, the payments
space has been marred by lack of invest-
ment.
“Banks have always chosen to use the least
costly alternative to meet various changes
in the industry. This has resulted in legacy
payments processing applications, 10-20
years old, doing the core payments pro-
cessing with several patches,” believes
ACE’s Parth Desai.
There is no simple or single answer to this
problem save that legacy systems will
require amendments to manage the differ-
ing requirements of these new initiatives,
and as Mr Daniel of CBNet suggests, the
question for the institutions concerned is
the cost of the amendments versus the pur-
chase of replacement systems, set against
the new competitive environment that
SEPA will create.
There is evidence to suggest that banks
who are prepared to, with a bit of foresight
and investment, opt for an ‘open heart sur-
gery’ approach to their payments systems
rather than just papering over the cracks
will put themselves in a much stronger
position to capitalise on the potential
shakeout that will occur as a result of SEPA
and the UK Faster Payments Scheme, how-
ever there are relatively few banks who are
currently willing to make that investment
and commitment.
In Europe we seem to suffer slightly from
regulation-phobia and don’t always
embrace legislation in ways that would be
healthy for the long-term development of
the market, and SEPA is no different. For a
lot of banks regulation is just a case of tick-
ing the boxes and doing the minimum that
is required to comply.
A widely held view is that most banks will
continue to use their legacy systems, and
paper over the cracks with minimum
investment. So what will the competitive
landscape look like after SEPA and the UK
Faster Payments Scheme?
“Banks will much more critically exam-
ine the profitability of providing the pay-
ment service,” states Vocs’a Martin Wilson.
“I think you will see many banks outsourc-
ing or partnering and looking for the most
efficient way to manage their payments.
While a number of banks see SEPA as just
a compliance issue, there are others that
recognise the opportunity to either consol-
idate in their own market or branch out
into new markets. As Wilson says, partner-
ing is one instrument that banks may use
as they invariably will not be able to solve
all of the problems that legislative change
brings themselves, and will look to pay-
ment processors to assist them.
“Im convinced that, whether its in the UK
or Europe, over time banks will look at
their payments business as an area they
don’t want to be in,” believes LogicaCMG’s
Jerry Norton. “Now outsourcing might not
be the right word for this but I think pay-
ments will definitely go to a third party to
deal with.”
Under such ‘partnerships’ banks will be
able to tap the innovation strategy of such
processors and introduce products includ-
ing, international remittance payments,
payments through the mobile phone and
get it out into the market quickly, hoping
for increase revenue and increased attrac-
tiveness to customers.
There is no denying that legislative
changes in the payments space is making it
a volumes game because banks will be
required to making potentially quite large
investments in new systems and volumes
are needed to pay for that investment.
What regulation has brought with it how-
ever is also huge potential for innovation
and banks will be able to offer the clients
they are dealing with, a series of services on
top of their base capability, enable you to
increase your margin and catch more of a
market share. 

Back to the
Future?
Brian Bollen
gets to grips with
the UK market.
N
o-one with any significant degree
of experience in the custody and
securities services industry in the
UK can possibly need reminding of the
dramatic changes that have taken place
over the past 10-15 years. But younger
readers, and/or newer arrivals on the
scene, might find it astonishing to learn
that the landscape was not always popu-
lated by non-British names. There did
indeed used to be a number of indige-
nous providers of custody and related
services, a time when the closest thing the
UK could claim as a home grown
provider was not the re-domiciled
Hongkong & Shanghai Banking
Corporation, trading under a badge that
gives no clue to its origins somewhere
further east than Bromley-by-Bow. Still, if
the UK's Davis Cup tennis team can
claim Canadian Greg Rusedski as one of
its own, who could possibly deny HSBC's
claim to local UK citizenry? Especially as
the powerhouse that is its modern cus-
tody and regional sub-custody business
can trace at least some of its roots back to
the old securities business of the late,
lamented Midland Bank International.
Stretching the tennis metaphor still
UK CUSTODY
further, there is a clear argument for say-
ing that the UK custody market presents
a clear case of Wimbledon Syndrome. It
is one of the best of its kind in the world,
but it is dominated by players from else-
where in the world, including big names
from the USA, Canada, France and the
Netherlands. One irony is that the
demand for UK-based financial services
continues to grow, despite the predictions
of doom and gloom generated by the
UK's refusal to adopt the euro as its cur-
rency, and despite its willingness to allow
foreign institutions to purchase UK busi-
nesses on a scale that simply would not
be allowed in other countries. Maybe
British tolerance of immigration com-
bined with a preference for laissez faire
economic and social policies is a model
for prosperity that others might do well
to consider and analyse, and maybe even
adopt. History can be an excellent
teacher, if one is willing to listen.
Once upon a time in the UK, then,
respected institutions such as Lloyds TSB
and Royal Bank of Scotland used to rub
shoulders with the likes of The Bank of
New York, State Street, Northern Trust,
Citigroup, RBC et al, before finally recog-
nising their limitations and taking the
painful decision to throw in the towel. In
September 1998, RBS Trust Bank Ltd,
part of the Royal Bank of Scotland, wrote
a mini-history of the changes that took
place in the UK in the 1990s. Less than a
decade later, it reads like a melancholy
period piece, with a number of points
that are still relevant today.
“In the United Kingdom, the choice of
custody providers has narrowed again,”
wrote RBS Trust Bank. “The Bank of
Scotland withdrew from the custody mar-
ket altogether, and sold its trustee busi-
ness to State Street. Just 18 months after
acquiring the custody clients of Barclays
Bank, and with the transition process still
incomplete, Morgan Stanley sold its
entire Global Securities Services (MSGSS)
arm to Chase. If the withdrawal of the
Bank of Scotland was not unexpected, the
sale of MSGSS was a sharp reminder to
The UK is one of the
best of its kind in the
world, but it is domi-
nated by players from
elsewhere in the world.


INVESTOR SERVICES JOURNAL 41
 UK CUSTODY
custodial clients everywhere to reassess
whether the commitment of their
provider to the industry is sustainable, or
merely the waffle of the marketing men.
“Some users of custody services in the
United Kingdom are now experiencing
their fourth change of provider in as
many years, without being consulted
about any of the changes which have
taken place. Yet each merger or acquisi-
tion obliges custodial clients not only to
run the risk of disruption to the service,
but to familiarise themselves with new
credit risks and fresh faces, communica-
tions systems and reporting formats.
Every change of ownership prompts at
least some clients to incur the expense of
changing their provider altogether. It is
“London is a hotbed for hedge fund
investment with 400-500 single
strategy hedge fund managers aloone.”
not surprising that fund managers are
increasingly reluctant to give business to
banks where custody is not a top priority.
“However, it has not stopped them
placing new business altogether. The
unbundling of fund management and
fund administration has continued apace,
with more fund managers electing to buy
custody services from specialist providers
rather than supply them directly to their
clients. The price of maintaining compet-
itive systems and the growing burden of
regulatory compliance - exacerbated by
the expense of the systems, advance
preparations for the Euro and the need to
defuse the Millennium Bomb - has per-
suaded many fund managers that it is
cheaper and better to buy administrative
solutions from specialists who can spread
the costs over larger volumes of business.
A record number of custody mandates
are coming on to the market.
“Not all of them are finding ready buy-
ers. The shrinking number of custodians,
coupled with rising demand for their
services, has relieved the downward pres-
sure on custody fees. Fees have yet to rise
significantly. But the demand from clients
for greater transparency in fee structures
has led to some upward pressure on
nominal fees, if not on the overall cost of
purchasing a custody service. Whereas
they once used earnings from foreign
exchange transactions and idle cash bal-
ances to cross-subsidise the provision of
the core custody service, custodians now
42 INVESTOR SERVICES JOURNAL
look to price and charge separately for
each aspect of the service they provide.
“For custodians, this greater trans-
parency is a mixed blessing. It has
exposed the poor profitability of a pure
custody service, but helped clients to
understand the true cost of the services
and the risks they are asking their custo-
dians to assume. Separate pricing has also
increased the flexibility of fund adminis-
tration, allowing clients to assemble and
price their own portfolio of custodial
services. Custodians are now providing a
much broader range of services, and their
clients are prepared to pay for those
which they want or need. In the wake of
the problems which occurred at Barings
and Morgan Grenfell Asset Management,
clients are also demanding a clearer
understanding of the risks they are run-
ning and the steps which the custodian is
taking to mitigate them.
“One comfort they have is that custody
is now regulated directly by the
Investment Management Regulatory
Organisation (IMRO), rather than as one
of the services which a bank or fund
manager or broker-dealer happens to
provide. Regulations under the Financial
Services Act of 1986 were issued in June
1997, and new IMRO rules came into
effect from February this year. During the
course of next year, IMRO will be merged
with the new Financial Services Authority
(FSA), the body created in October 1997
to merge the activities of nine separate
regulatory bodies. The FSA took over
from the Bank of England full responsi-
bility for the supervision of banks in June
this year, making it the lead regulator for
many custodians already. All of these
measures are intended to strengthen
domestic and international confidence in
the regulation of investment in the
United Kingdom.
“Expectations as to what is acceptable
in the market, in terms of the services
custodians provide and the prices they
can charge, have changed over the past 10
years,” says Chris Pemberton, Head of
Clearing, Settlement and Custody UK at
BNP Paribas Securities Services in
London. “Fees have more than halved in
certain markets, including the UK, and
people have had to be more savvy about
the scale play, compensating for the drop
in fees by building up assets and driving
business volumes through their existing
infrastructure. At the end of the day,
though, the decision to award a mandate
is not made entirely based on price.
Different clients have different dynamics,
and they all need to make the choice that
is right for them.”
Moving firmly back to the present, and
then forward to the future, the latest
surge in growth caused by the mush-
rooming of hedge funds in Europe pres-
ents more opportunities for the foreign-
owned but largely UK-staffed providers
in the market. London is the leading
hedge fund centre for Europe, says Fergus
Healy, global product head for
Citigroup's alternative asset administra-
tion business. Although hedge funds
managed by European based managers
are mostly domiciled in Dublin, Cayman
or potentially Luxembourg, the invest-
ment talent is very much based in
London, and looking for the range and
quality of service they have been accus-
tomed to in traditional asset manage-
ment, which poses interesting challenges
for service providers. “Hedge funds want
more frequent reporting and we have to
be able to service both traditional invest-
ment managers and hedge funds using
the same technology,” says Fergus Healy.
“Hedge funds will invest in more com-
plex OTC derivatives, but so do tradition-
al managers, and we've had to gear up for
that already; we can source independent
valuations of OTC products from third-
party vendors for example. Hedge funds
are constantly changing and our staff and
technology have to be able to adapt to
client needs, which means that adminis-
trators are probably recruiting a higher
calibre of staff than they might tradition-
ally have done.”
“London is a hotbed for hedge fund
investment with 400-500 single strategy
hedge fund managers alone, but the real
growth is in funds of hedge funds,” says
Marc Russell-Jones, vice president, Global
Fund Services, at Northern Trust. “There
were almost 500 in Europe at the last
count.” He has little doubt that 2006 will
go down in history as a turning point for
the industry. “We recently produced a
research paper showing where future
growth will come from. It shows that
demand in Europe for hedge fund expo-
sure sees no sign of relenting. In 2003,
one in five institutional investors in





Europe invested in hedge funds or fund
of hedge funds. By 2005 this had
increased to one in three, as a recent
Northern Trust survey entitled “The
Forced Institutionalisation of the Hedge
Fund Industry” highlighted. Other recent
industry surveys indicate that industry
growth rates doubled in the first six
months of 2006 compared to the same
period in 2005.”
He draws attention to the way in which
increased inflows are impacting the hedge
fund industry right now and will act as a
catalyst to the emergence of a two tier
hedge fund industry in Europe, namely:
1)Boutique managers servicing private
clients and high net worth individuals;
2) “Supra” alternative asset managers
with the infrastructure to service institu-
tional clients.
His study further concluded that there
were three key effects that institutional
asset flows would have on the hedge fund
industry.
One, increased regulatory environment:
this will have the single biggest influence
on the future of the hedge fund industry.
The focus of the regulator will be on
areas such as asset valuation, risk moni-
toring and internal operational and man-
agement controls. A by-product of insti-
tutional flows will be increased standardi-
sation benefiting both managers and
investors in areas such as asset identifica-
tion, pricing and subscription and
redemption documentation. An improve-
ment in professional standards and
increased regulation will create condi-
tions for more investors to diversify into
alternative strategies.
Two, asset allocation: portfolio diversi-
fication and non-correlated absolute
returns are driving asset allocation. The
portfolio transparency argument has
moved on to focus on operational trans-
parency leading to the emergence of
“supra” alternative asset managers who
offer in-house, multi-strategy, multi-
structure product offerings coupled with
an established compliance and reporting
infrastructure.
Three, administration and custody:
77% of institutional investors allocate
assets to hedge funds through the fund
of hedge fund route today. A result more
emphasis is being placed on core admin-
istration and custody competencies.
With over 40 hedge fund administrators
in Dublin alone, consolidation is
inevitable as we have seen within the
traditional custodian banks over the last
UK CUSTODY
10 years who have the infrastructure, do you price them? How do you manage
scale, expertise, technology and banking and automate linked payment processing?
services to accommodate the diverse How do you handle the paper chain?
requirements of institutional investors Hedge fund managers roll on to do new
and managers alike. things every day, and there is a lot of
As a result of the inevitable increase in paperwork involved in derivatives; the
regulation, the greater focus on opera- higher the volume, the less we can use old
“The growing complexity of the
investment world poses a
number of questions
to custodians.”
tional transparency and the demand for technology. Fund managers are very
institutional type fund administration, it interested in hearing about component
is clear that one size most certainly does services that will sit well within their
not fit all, he argues. “Ultimately it is the architectures; as custodians and adminis-
target investor who will dictate the profile trators, we have to continue finding ways
of the administrator/custodian and asset to service those fast-changing instru-
manager for alternative assets. The fund ments. People, processes and IT are being
of hedge funds market presents a chal- impacted more than ever before.” 
lenge to us all, as it just doesn't work in a
straight-through processing environment.
In fact, the joke is that in that world the
acronym STP means straight to paper.
The challenge is adding automation and
controls around a process that lends itself
to a manual environment owing to the
lack of standardisation in the industry
today. Without tight controls around doc-
ument management and order processing
the administrator opens himself up to
higher degrees of operational risk."
“Apart from a few mature schemes,
there's not an investor around today who
doesn't want hedge funds, private equity
or other alternative assets, and the
mantra 'Adapt or Die' is more relevant
than ever in our market,” says Nigel
Taylorson, Head of Client Relationship
Management, UK & Ireland at ABN
AMRO Mellon. “Our capabilities have
had to increase enormously in recent
times. We have bought in a range of new
products and services, for instance
through our partnership with The
Burgess Group LLC for private equity
administration, by purchasing DPM to
provide hedge fund administration, and
by developing an OTC valuation service
as well as new reporting capabilities.”
“The growing complexity of the invest-
ment world poses a number of questions
to custodians,” concludes Wade
McDonald, head of State Street's asset
management and bancassurance group in
the UK. “How do you capture and auto-
mate these very varied transactions? How
INVESTOR SERVICES JOURNAL 43
 ANALYZE THIS - PRIME BROKERAGE
LORD CALUM GRAHAM,
Advent
HOW CAN PRIME BROKERS GIVE HEDGE
FUNDS REAL REAL-TIME?
A s a software partner to many of the major players in the
prime brokerage industry, Advent sees this challenge faced
by many of them. Between them and their hedge fund clients
they develop ever more innovative strategies and instruments by the
day, but the hedge funds need to see their results, their P&Ls, in
real time.
Many hedge funds look to their prime broker to provide this view.
The challenge is this: a decade of strategy innovation in this industry
and its quest for real time has demanded radical compression of
the processes that traditionally existed between decision maker,
trader, back office, custodian, fund administrator and back to the
decision maker, but if just one of these processes is not com-
pressed to fractions of a second, the overall result is far from
real time.
The easy part has been compressing the processes on the execu-
tion side, with data messaging and networks standardising their
protocols to eliminate three minute phone execution and end-of-day
confirmation. Next, STP has done wonders to compress the next-
day processes in the back office, exchange and custodial reporting
side. However, portfolio accounting and the task of NAV calculation
seems to have proven more of a challenge. Bear in mind, ten years
ago this process was done at best weekly by accountants with days
of lead-time to boot.
Pulling together a fund's general and portfolio ledgers, transfer
agency data and performance fee calculations has always been a
mammoth task. Just synchronising the portfolio ledger and the gen-
eral ledger, normally on different systems, causes headaches. As
hedge funds have competed for more investors, the registers of
partners and partnership accounting has added layers of complexity,
not to mention the effect of performance fee structures formulated
by clever marketing departments.
The solution? Rethink the technology behind this process, down
to its basic architecture. Reducing stored derived data to the mini-
mum of a transaction ledger and deriving the portfolio account on
request each time maintains account integrity when the underlying
transaction records have changed. With the fastest possible data-
base management system holding the transaction records, in main
memory, the cycle time can be reduced to milliseconds. If amend-
ments to transaction records only lock down the transaction data-
base for milliseconds, real-time is approachable. Enable multiple
access, 24/7 and the prime broker is capable of delivering as close
to real time as we mortals can discern. Hedge funds are having a
great time, but they need real time.
44 INVESTOR SERVICES JOURNAL
SINGAPORE BECOMES PRIME BROKERAGE
HOT-SPOT
Two global banks have announced plans to establish prime broker-
age teams in Singapore. The new initiatives reflect the growing
importance and size of the Singapore market and the increasing
demands of the hedge fund community.
Morgan Stanley, who have been operating in the Singapore
investment market since 1997 and are the leading prime-broker by
assets under management, will build on its regional presence by
opening an office later in the year. The news follows Citigroup’s
decision to capitalize on the promising growth of Singapore's
hedge fund sector by establishing a prime-brokerage department
to handle sales and client servicing.
“Our clients are asking us to be closer to them,” said Kurt Baker,
Morgan Stanley’s Asian Regional Head of Prime Brokerage. “Their
businesses are becoming increasingly sophisticated and complex,
which is changing the model. With the growth evident in both
Singapore-based start-up hedge funds, as well as with players
entering the market from other countries, client proximity and on-
the-ground support is clearly the right next step.”
Hannah Goodwin, managing director of Citigroup’s equities
prime brokerage operation in Asia, mirrored these sentiments:
“We're setting up in response to the trend of people setting up
hedge funds in Singapore. By actually being on the ground there,
we will be better positioned to proactively provide services.”
Alexis Fosler, who previously worked in the offshore banking
industry in the British Virgin Islands, has been appointed to run
Morgan Stanley’s prime brokerage sales. Alexis Fosler will run
Citigroup’s.
Pasquale Rombola, Morgan Stanley’s Head of Institutional
Equities Division in Singapore, said: “The expansion of our prime
broking capability in Singapore builds on investments in our insti-
tutional equities business over the past several years. Significant
resources have been added in cash and derivative coverage of the
ASEAN markets. The division’s headcount has increased by 50%
over the last 18 months and reflects the continuing growth of
hedge fund and traditional fund activity emanating out of
Singapore.”
Johnny Heng, Head of Global Equities Trading and Quantitative
Equities at the Government of Singapore Investment Corporation,
said, “Morgan Stanley’s plans to establish a prime brokerage team
in Singapore bears testimony to the healthy growth of the hedge
fund industry here. This should give more reasons for new hedge
funds to be started in Singapore now that they can have on-the-
ground prime brokerage support and services.”

PHIL VASAN ,
Global Head of Prime
Services, CS.
HOW DO YOU SEE THE PRIME BROKERAGE
MARKET IN THE US PERFORMING IN 2007?
I n 2007 and beyond, prime brokers must stay a step ahead of
the needs of the clients they service. This challenge increases
as the distinction among hedge funds, fund of funds, asset
managers and private equity sponsors blurs. The decrease in differ-
entiation among these types of organizations is also leading to
increased consolidation and competition. Hedge funds are increas-
ingly looking to prime brokers to provide them with a breadth of
services surpassing traditional offerings such as stock loan and
client service.
The forces driving the future of prime brokerage are these evolv-
ing needs. They can be described in four overall categories: opera-
tions, performance, growth, and evolution. Hedge funds' increasing-
ly complex and diversified activities across asset classes require
operational sophistication and efficiency from the prime brokers
that service them.
As the hedge fund industry grows even more crowded many man-
agers are challenged to continue to deliver exceptional risk-adjusted
returns. A value added prime broker will not only provide opera-
tional and financing support for traditional and new investments
but will deliver ideas and solutions on how to develop the business
as well.
Hedge funds at all different stages in their life cycles require capi-
tal; prime brokers are expected to facilitate access to the highest-
quality capital. Finally, as hedge funds grow into more permanent
institutions, prime brokers are expected to facilitate the develop-
ment of franchise value via "corporate finance" services including
access to capital markets financings and M&A.
ANALYZE THIS - PRIME BROKERAGE
MARTIN CAMPBELL,
Managing Director, Prime Brokerage,
SunGard.
COULD PRIME BROKERAGE BE MORE EFFI-
CIENT?
he time has come for prime brokerage and the hedge fund
T industry it supports to instill greater quality and efficiency
in operational processing and reporting. There are several
key areas in which improvements can be made to help
reduce or even eliminate current cumbersome or error-prone
practices.
All transaction processing messages in both directions between
hedge fund and prime broker should be based on industry stan-
dard open data formats. There is no competitive advantage and
significant cost in having proprietary or bespoke interfaces. Many
of the manual processes, delays and errors, especially those associ-
ated with OTC derivatives, could be eliminated.
All batch processing and reporting should be eliminated. Hedge
funds should send transactions to their prime broker as soon as
possible after execution and expect errors, settlements and failures
to be notified as soon as possible after they occur. Any processing
backlog implies a backlog of undiscovered problems. All reports
should be produced on demand based on up-to-date information
and not overnight based on the previous day's close. The sun never
sets in global markets. Where data, rather than a fixed format
report, is required, it should be provided.
Many margin calculations are based on specific positions, mar-
kets or transaction types that do not take into account effective
hedges. Robust cross-asset portfolio risk measures based on VaR
and stress tests are the norm elsewhere in the financial industry.
They should be used in prime brokerage. Prime brokers should
provide hedge funds as much transparency as possible on these
margin measures, including incremental margin calculations to
allow them to manage their margin effectively. More refined risk
and liquidity management should help produce better risk-adjust-
ed returns.
All activities should be carried out by the people or systems that
can execute them most efficiently. The benefits of scale enjoyed by
prime brokers should be exploited for the benefit of the entire
industry. The more tightly other scalable services required by
hedge funds, such as fund administration, technology, etc can be
integrated into a single reliable package, the easier and cheaper it
becomes for hedge funds to start up and operate.
Could prime brokerage be more efficient? Clearly it could, but I
think it will require people to step forward and lead the industry
in that direction to make it happen.
INVESTOR SERVICES JOURNAL 45
 CEO PROFILE - MAPLES AND CALDER
Andrew Warburton speaks to
Tahir Jawed, Partner, Maples
and Calder.
Dubai,
Dubai,
Do
46 INVESTOR SERVICES JOURNAL
W
hen Maples and Calder began their global
expansion strategy in 1995, they were the largest
law firm in the Cayman Islands and had prac-
tised Cayman law for more than 40 years. Their first two
openings in Hong Kong and London - in 1995 and 1997
respectively - allowed them to meet client demands across
all major time-zones. As part of their plan to provide con-
sistent quality advice across all relevant offshore jurisdic-
tions, they conducted a deliberate expansion strategy in
Jersey, Ireland, the British Virgin Islands and Dubai. This
involved, among other things, the acquisition of Smith-
Hughes Raworth & McKenzie, the second largest law firm
in the British Virgin Islands, and a merger with the
Dublin-based law firm Binchys.
Tahir Jawed began working for Maples and Calder at
their Cayman Islands office in 2000 after practising at
Clifford Chance in London, New York and Dubai. He
earned his Bachelors degree from the University of Hull in
1993 and went on to graduate from the College of Law in
Guildford (UK) with a diploma in legal practise.
2007 is an important year for Mr. Jawed as it marks the
tenth anniversary of Maples Finance, the firm's fiduciary
and administrative subsidiary, which has grown exponen-
tially in the last two years from 43 to 110 staff and from
zero to over US$16 billion under administration. New
offices have opened in Dublin and Hong Kong in the last
twelve months, adding to the existing presence in the
Cayman Islands, the British Virgin Islands and Jersey, and
the most recent office opening was on 8th February 2007.
The company was the first to obtain authorization from
the Dubai government to open an office in the region and
Mr. Jawed was personally responsible for establishing it. “It
was the growth in private equity and Islamic finance
which created enough potential to open an office in
Dubai,” Mr. Jawed explains. “Traditionally, clients in the
Middle East have utilised offshore holding companies and
trusts to manage their investments and personal wealth.
Both private equity funds and Islamic finance (particularly
sukuk transactions) require offshore elements which have
generated considerable work for offshore law firms…”
Driven by this tremendous growth, the potential for a
Dubai office became obvious in 2005 when the develop-
ment of the Dubai International Financial Centre provid-
ed a convenient central location. Mr. Jawed is now acting
as Managing Partner.
Particularly interested in Islamic finance, Mr. Jawed has
worked on the issuance of various sukuks (the Islamic
equivalent of a bond). During his time in the Maples and
Calder Cayman Islands office, he acted on the ADIB sukuk
(the first sukuk to be listed on the London Stock
Exchange), the Nakheel sukuk (the largest sukuk to date),
and various other sukuk programmes, including the Aabar
sukuk, the NICBM sukuk and the Sharjah Islamic Bank
sukuk. These, together with the many smaller transactions
he has worked on, demonstrate the growth of the market
and the potential for the future. “The economies of the
region are experiencing unprecedented growth at present,”
says Mr. Jawed, “and this has created opportunities in the
funds and sukuk markets. However, the Middle East is a
constantly growing and changing market and the chal-
lenge is to understand the market, understand those who


 CEO PROFILE - MAPLES AND CALDER



operate in the market and our clients, and to evolve with
them.”
Under Mr. Jawed's direction, Shariah compliant invest-
ment funds have become an important part of Maples and
Calders' work. They recently acted on the first US$1 bil-
lion and the first US$2 bilion Shariah compliant private
equity funds and are currently working on even larger
funds. These funds initially focused on the booming prop-
erty market, but as new markets appeared - in fields such
as energy, infrastructure, healthcare and the media - funds
began to diversify. Whilst welcoming such vast opportuni-
ty, Mr. Jawed is aware of the challenges involved in devel-
oping financial structures within an Islamic context. Not
only does Shariah law contain numerous prohibitions,
some of which are set in stone whilst others are debated by
boards of scholars, two defining characteristics are the
avoidance of interest and the prohibition of risk-taking
behaviours, processes that are integral to the workings of
Western finance. For many traditional financiers, the
structures that arise from this environment are difficult to
understand; the various interpretations of the law are
bewildering. “As the Islamic finance market in particular
matures, financing structures will also develop,” says Mr.
Jawed. “There are various schools of opinion on Islamic
financing structures and as the market develops these
should start to conform. The challenge is to understand
the structures, the objectives of the various Shariah
schools and to be active in assisting the development of
the Islamic finance products which in time will become
more complex and more distinct from traditional finance.”
Whilst the economies in the region grow, the potential
business for law firms seems unlimited. Maples and Calder
may be making use of various IT outsourcing systems
alongside their own to drive the business forward, but in
the coming years it will take more than IT to navigate the
finer points of Islamic finance. Here the expertise of men
such as Mr. Jawed will be vital to the development of the
industry. His name is certainly one to watch. 
2007 is an important year for
Mr. Jawed as it marks the
tenth anniversary of Maples
Finance, whichh has grown
exponentially in the last two
years from 43 to 110 staff.

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 - Jan B. Penne: jan.penne@dnbnor.no
Global Relations and Support - Bente Hoem: bente.hoem@dnbnor.no
e-mail: custody@dnbnor.no • www.dnbnor.no/custody
Nordic Custody & Clearing Alliance: Swedbank, Sweden – Amagerbanken, Denmark – OKOBank, Finland
 NORDIC CUSTODY
The changing landscape of the
Nordic custody market has been
described as complex,
competitive and 'overbanked'.
Andrew Warburton looks at the
tactics local players have
deployed to compete with the
Team Players or
Going Solo?
T he Nordic custody market is an
ever-moving kaleidoscope of
shapes, blown by the winds of
globalization. If you stop and let the
shapes float by, the sheer complexity
amazes you; but as you stop and let the
shapes come clear, interesting patterns
emerge. Just when you think you have it
figured out, the kaleidoscope turns, new
bodies form, the old merge or splinter.
The 'kaleidoscope effect' is a by-product
of increased competition in the region,
which is itself a result of phenomenal for-
eign investment. The desire for cross-bor-
der custody to service cross-border trans-
actions has resulted in a complex custody
market, in which a variety of global and
sub-custodial solutions are on offer. Most
global custodians operate from overseas;
some have teamed-up with regional
providers to offer regionally tailored solu-
tions, others outsource their work to
regional sub-custodians. On the local
front, we see a tapestry of alliances, merg-
ers and strategic acquisitions: some
providers have teamed up with their glob-
al counterparts, hoping to maintain their
market share; others have looked to their
Nordic fellows to improve their Nordic
48 INVESTOR SERVICES JOURNAL
global giants.
reach. All these factors have contributed
to what can best be described as a multi-
faceted market that changes quickly and
dramatically.
The first twist of the 'kaleidoscope' hap-
pened in the mid-nineties, when
American custodians began marketing
their services in the Nordics, leading
doomsayers to prognosticate the death of
local businesses. In this ever-moving envi-
ronment, they said, the smaller structures
will get broken up and recycled. “Alliance
is vital!” they cried. Many years later, how-
ever, the local player is still in play and the
custody market is thriving. The twist of
the kaleidoscope may be harmful for
On the local front, we see a tapestry of
alliances, mergers and strategic acquisitions.
some but as yet it seems there are ways to
stay whole. “[T]his business is really
infantile and not at all as mature as every-
body would like to have it be,” says Ulf
Noren of SEB. “We've heard these death
threats now since 1983 or 4 and ever since
the business has been moving and becom-
ing more and more sophisticated, more
and more complex…”
If you've ever looked through a kaleido-
scope, you'll understand it's the smaller
shapes that are most vulnerable to trans-
formation. The ever-moving environment
is hostile to fragile life, and those shapes
with the most weight are the least likely to
be broken down. This is increasingly true
for custody providers who find it more
and more important to demonstrate a
global reach. Attracted by the simplicity of
adopting a single global custodian, com-
bined with the inevitable cost efficiency
resulting from this, more and more 'tier 1'
clients are expected to follow the example
of Ilmarinen, the Finnish pension fund,
who, in 2005, replaced the services of sep-
arate domestic providers with that of
global custodians ABN Amro Mellon and
saw their custody costs almost halve. This
highlights the kaleidoscopic nature of the
Nordic custody market at this time -
described, variously, as harshly competi-
tive, burgeoning with growth and unnec-
essarily full of banks.
In this situation, it is the local providers
who are suffering. According to Peter
Dahlgren, Head of Custody at Nordea,
“Global custodians are growing their posi-
tion in the market and winning clients
from local providers… It's very hard for
the Nordic players to have a product
which is in line with global players.” This
is not to say there is no place for the local
providers - Nordic clients still, undoubt-
edly, prefer dealing with Nordic banks -
but as the influence of their global coun-
terparts increases, they're being forced to
devise strategies for developing Nordic-
wide capabilities. Three solutions appear
to be in evidence: forming alliances
among themselves, cooperating with for-
eign competitors or sticking to their guns
and going it alone.
Allying with each other
The 'Nordic Custody Alliance' is an exam-
ple of the former - a loose association of
four major banks from across the Nordic
region: DnB NOR of Norway,
Amagerbanken of Denmark, OKO Bank
of Finland and Swedbank of Sweden.
Marketing itself as a 'single point of entry'
to the Nordic market, the success of the
venture is a point of contention. “The
Nordic Custody Alliance is very hard for





me to understand,” says Mr. Dahlgren. “It
is four different banks who've said they
have no product on the Nordic level and
don't purport to build one, and have said,
'Lets try to put something together and
see what we can do without investing in
ITC steps.' If you ask me it's an impossi-
ble thing to do.”
Bente Hoem of DnB NOR defends the
alliance, pointing out that it's a “good,
flexible solution for small- and medium-
sized players.” Besides, she argues, the
alliance was never intended to be an alter-
native to the global custody product; it
was marketed instead as a sub-custodial
and remote brokerage service for 'tier 2'
clients. Whether the alliance can survive
long on sub-custodial pickings - or
whether 'tier 2' clients will begin to follow
their 'tier 1' counterparts - is a question
only time can answer. “That could happen
if we are not able to offer them a more up
to date service,” says Bente Hoem, “and
that's one of the reasons why DnB NOR
have invested in a new system - to be able
to serve them in a better way.”
NORDIC CUSTODY
Allying with the giants Highlighting the desire of many tier 1
An example of the second approach (that clients for a truly global strategy, executive
of teaming up with a foreign player) can president of AP7 Peter Norman said of
be seen in the recent manoeuvrings of the selection: “We were very impressed by
Nordea and Svenska Handelsbank. The the joint offering that they presented. We
result of a merger between four Nordic have a need for a robust global custody
banks, Nordea was already well situated to solution to address the needs of the fund
serve the Nordic territories. It was their and are confident that their appointment
alliance with the Bank of New York in gives us this.”
August 2005, however, that ultimately The real question, however, is, who ben-
Nordic clients still prefer dealing with
Nordic banks - but as the influence of
their global countterparts increases, they're
being forced to devise strategies for
developing Nordic-wide capabilitiees.
allowed them to clinch some major global efits most from an alliance such as this -
custody mandates. The success of the the global or the regional provider? Mr.
alliance was evident within three months Allan Nedergaard of Northern Trust
of its existence when a joint Nordea/BNY argues that it is the regional provider who
bid won global custodianship of the $7 has most to gain from the financial mus-
billion Swedish AP7 Pension Fund. cle of the custodial giant: “The fact that
NORDIC CUSTODY

even the largest bank in the region
[Nordea] felt it was necessary to enter
into an alliance with the Bank of New
York is a sign that they have concluded
they need to work with somebody in
order to provide a better product than
they otherwise would.”
On the other hand, there is the value of
regional expertise to consider. Luckily, for
the Nordic banks, the corporations with
the largest critical mass are also those with
the least experience; by leveraging local
knowledge, regional providers can take
advantage of their competitors' weakness
in order to stay in play. So says Mr.
Dahlgren: “Global custodians have a very
good service offering in general, but they
haven't taken the whole market because it's
Not all Nordic banks have felt it necessary to
team up with a global or local player.
important to have local expertise. Which is
why they're seeking to team up with local
players - because they know clients want to
be serviced locally. Their business model,
besides, is not such: they are asset gather-
ers, and a big pool of assets and a stan-
dardized service offering doesn't fit very
well with the idea of a local service.”
Some banks have been quicker to adapt
to this principle than others. Northern
Trust, for instance, were able to win a $17
billion mandate from the Swedish insur-
ance company Folksam by appointing the
Swedish Svenska Handelsbanken trustees.
The servicing of a mutual fund by a global
custodian was unprecedented in Swedish
history and is surely a taste of things to
come as fund managers continue to look
for custodians who combine pan-Nordic
capabilities with regional expertise.
Going solo
Not all Nordic banks have felt it necessary
to team up with a global or local player.
SEB and Danske Bank remain successful
examples of independent local custody
providers. Mr. Noren explains: “We have
also, of course, during the years evaluated
this potential route but we came to the
conclusion that there is room for an inde-
pendent global custodian in the region,
being local, working with local businesses
for global custody purposes.” Mr. Noren
places greater importance on SEB's physi-
cal presence in the region and the benefits
of the “relationship capabilities” that arise
from this. Esa Anderson of SEB Helsinki
elaborates: “The custody business… is
not a simple business in any sense. There
are always complicated things, and when
discussing with the local players here it's
much easier when things get more com-
plicated to discuss with us in Finnish or
in Swedish, the local languages. It's also
true with all the Nordic banks, especially
SEB, when dealing with global custody
business, the clients know us very well,
and they know they're important to us.”
In contrast, global custodians have been
slow to recognise the importance of the
“business relationship”. As Mr. Noren
points out, only Citigroup have actually
established a custody office in the Nordics
(Stockholm) despite the rest having mar-
keted their services there since the 90s.
“From a Finnish point of you,” says Mr.
Anderson, “you must be located here.”
Danske Bank, meanwhile, have been simi-
larly successful with their 'Nordic
Gateway Service', a single point of access
to all the Nordic markets from a base in
Copenhagen. They also recently extended
their Nordic reach by means of acquiring
Sampo Bank in Finland. “Danske Bank's
concept, based on our centralised opera-
tional set-up with the Nordics CSDs and
centralbanks, is proving to be very
robust,” says Christel Leonhardt, Head of
Sales and Marketing.
The conclusion seems to be that the
Nordic market is incredibly diverse. No
single model of success is in operation.
Changing market forces may be putting
pressure on the local player to adapt, but
the negative prognosticating of many
commentators has not yet come to pass:
year after year the local player remains in
play. Thus far it is their ability to provide
an excellent regional product that has
ensured local providers cannot be dis-
missed. Whether they will be able to break
into the global arena is another story,
dependent on their ability to improve
their capabilities or form strategic part-
nerships. “I think you should be open to
new ideas,” says Ms. Hoem, explaining
that DnB NOR would not be averse to
such a partnership, even if they have ruled
it out in the past. “So far we use local
banks in 40 markets when we need to ful-
fil global custody solutions… [But] we
would probably look at a global custodian
again - whether we should have an
alliance with one of them is probably
something we would look at, but whether
we would want to do it I'm not sure…”
As yet we can only speculate on things
to come. What is certain is that competi-
tion will not get any easier and the
'kaleidoscope' will continue to turn.
Whether this means the market will tip in
favour of the local or the global player,
only time will tell. 

Flexibility on a solid ground

To keep the customer in
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Because of a decentralised
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Handelsbanken is one bank
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Looking for Nordic Custody?
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www.okobank.com
 COMPANY PROFILE - BANK OF NEW YORK/MELLON
‘BoNY M’ Are Chart
Topping Again
The latest merger agreement between
Bank of New York and Mellon Financial
Corporation will create the world’s largest
securities services player and largest custo-
dian. What will the main benefits of this
merger be for both client and company?
From a client perspective first, they will get
a stronger, more profitable, more commit-
ted provider, and by that I mean somebody
that will continue to invest in the people
and technology to maintain a clear leader-
ship position in the three core businesses
we are in. One being asset servicing (or
investor services), one being asset manage-
ment, and one being private banking. So
the first benefit is overall commitment.
The second benefit is the widest range of
leading edge, state-of-the-art products
available to clients. And clients over time
have tended to tell us, particularly in the
asset-servicing arena, that they want to do
more business with fewer companies but
they don’t want to sacrifice quality, scale or
value. What that means to us is that if you
can bring a broad range of industry leading
products to clients that are satisfied with
the core services that you provide to them
today, you should have every expectation of
building a broader, longer-term partner-
52 INVESTOR SERVICES JOURNAL
Tim Keaney, Managing
Director, The Bank of
New York speaks to ISJ.
ship with those clients. So range of prod-
ucts is the second feature.
The third is global. The rate of globaliza-
tion is incredible. You look at the clients we
service, big fund managers for example,
they are in Asia, Europe, the US and in off-
shore locations, and as a result of the con-
solidation in the asset management arena
and the fact that the world is becoming
global, markets are opening and investors
can pick an equity manager based in the
US for their retirement fund that the fund
manager is looking through a global prism
when they are selecting their partners. Now
having global reach and running opera-
tions that are 24/7 is much more of a
requirement today than I would say two or
Having global reach and running operations
that are 24/7 is much more of a requirement
today than I would say two or three years ago.
three years ago.
When you take commitment and an abil-
ity to continue to re-invest, you take range
of products and you take a truly global
enterprise, that’s what this means to clients.
What different elements have BoNY and
Mellon respectively, brought to the merger
that made it a logical step to merge?
At a corporate level, both companies have
been on similar, if not parallel tracks over
the past ten years, where both companies
have continued to shed non-core business-
es with a focus on the three core businesses
of asset servicing, asset management and
private banking.
Certain parts of these businesses benefit
from scale. The custody and asset servicing
business is certainly one. So that’s a benefit
to the company and we are both investing a
significant amount of resources in further-
ing our business models and we should be
getting some economies of scale where we
overlap, so that is one.
The second thing is, when you look at
the Bank of New York, we have been very
open about the fact that we have wanted to
grow our asset management business and
we wanted to emphasize passive/quantita-
tive products and also build out a broader
range of cash management products for
our clients because as a big custodian and
fund administrator there are lots of fric-
tional cash balances that need to be re-
invested on our clients behalf and Mellon
brings both of those things to us.
Mellon on the other hand continues to
look for ways to distribute their products
and one big avenue for distributing their
asset management products is entertain
asset servicing clients around the globe,
exploiting access to the 2,400 clients I and
Bank of New York have around the world,
so there is a clear synapse there between
the asset management business and asset
servicing.
The other interesting dynamic is also cost
avoidance. I have been dedicating a larger
proportion of our technology spend to
what I would call our financial institutions
business; so fund managers, banks, insur-
ance companies, mutual fund type struc-
tures, and one of the areas that has been a
focus for us has been building out our
global pension capabilities. If you were to
look at Mellon it is almost the exact oppo-
site. Mellon has dedicated most of its spend
to pension solutions and were gong to have
to invest a substantial amount of money
over the next few years rounding out a
financial institutions / funds capability.
So from a Bank of New York Mellon



Financial Corporation point-of-view there
are a number of areas where we clearly do
not have to spend on things we both indi-
vidually would have had to spend on that
we will not now, being able to leverage the
experience each of us has separately.
This merger is another in a string of con-
solidation moves over the past few years.
Will the trend of consolidation slow at all,
and do you think the size of the combined
company will trigger further consolidation
in the market as other companies try to
compete with you?
I think our competitors see the landscape
issues that I described earlier: the globalisa-
tion, the clients, the diversification of
investments so people are investing in
instruments that they were five years ago. I
think all of us are being challenged to raise
the bar on service quality, all of us are
being challenged to bring new and broader
product offerings to clients and all of us
see the opportunity to do core business
with clients that are satisfied with the job
that you do for them.
If you accept that, and our competition
agrees with that, then there is no doubt
that the Bank of New York Mellon merger
is getting a lot of time in the boardrooms
of a lot of companies.
Why we feel good about where we are is
that we picked each other. This wasn’t a big
company merging with a small company or
a strong company merging with a weak
company, these are two companies that
were running a very profitable and success-
ful enterprise and have come together to
create a new competitor force in the mar-
ket place, and we feel pretty good about
that.
While the obvious cost and technology
benefits from such a merger can be seen,
to what extent is there a danger that the
service quality offered to clients may
decrease because of the scale of the new
company?
If you look back, this merger is unique for
one aspect and one aspect alone, and that
is that two strong companies have merged,
and in my 20 years it has been a big com-
pany buying a small company or strong
company buying a weak company. When
that happens, the whole psychology and
objectives of a merger process or integra-
tion process are quite different than what I
am about to talk to you about. It is about
slamming the two enterprises together
quickly, getting synergies as quickly as you
can and minimising client disruption.
COMPANY PROFILE - BANK OF NEW YORK/MELLON
Jim Palermo and I will be co-CEO’s of this
business and our first goal is to increase
client satisfaction during integration, our
second goal is to actually grow our business
during integration, and so everything is
keying off of what is good for the cus-
tomer. We are not being put under intense
time pressure to merge systems or slam our
organizations together, in fact, it’s quite the
opposite. The remit given to the two of us
was to take our time, get it right, and put
the customer first, and if we do that and we
keep a very open and transparent dialogue
with our clients and our employees, we are
going to be just fine.
I think all of us are being challenged to
raise the bar on service quality.
Only approximately 25% of the combined
groups revenues will be outside of the US.
To what extent will the strategy of Bank of
New York Mellon concentrate on growing
US business or will it make more of a chal-
lenge in Europe?
I think it’s very clear that the growth rates
in Europe and in Asia are substantially
higher, as are their potential for growth for
us, over the next five years. It’s fair to say
that the US market and parts of the UK
market are more mature. They still have
good growth prospects when you consider
them in the context of their own growth
rates historically, but when you compare
them to the growth rates in Europe and in
Asia they are much higher but off a smaller
base. I wouldn’t be at all surprised if we
were to see a seismic shift and much more
balance in our revenue and earning stream
over the next five years, and will be proba-
bly closer to 55% to 45% or 50-50% poten-
tially within four or five years from today.
What do you see to be the main challenges
and opportunities for the company going
forward, now that the merger has taken
place?
We see huge growth opportunities in what
I would call the global pension challenge,
so global pension opportunities as compa-
nies have under-funded pension schemes,
as pension regulation continues to take
shape around the world, who will be the
net winner in that game? Hedge Funds.
There is no doubt that hedge funds and
other alternative assets continue to be
growing at a much faster rate than core
equity and core fixed income and hedge
funds and hedge fund administration is
not for the faint hearted. It’s a highly com-
plex environment and a number of compa-
nies that are in the hedge fund administra-
tion business will have to declare whether
they are truly committed long term to that
space and I think the weak wont survive
and the strong will get stronger, but the
strong get stronger because they are
attracting the best people and they are
making significant technology and infra-
structure, and risk management capabili-
ties.
And finally, offshore fund administra-
tion. As Europe and other international
markets open, fund managers, no matter
where they are domiciled, whether they are
specialized fund managers, a bank or an
insurance company, will be distributing
their asset management products onto the
continent through places like Luxembourg
and Dublin and these are the key globe
centres for fund managers to distribute
through onto the continent. We are not
only one of the top hedge fund administra-
tors, but we are number two in all of
Ireland in terms of offshore, and we’re
somewhere around top eight or top nine in
Luxembourg, and Dublin and Luxembourg
happen to be two of the fastest growing
segments of our asset servicing group, so
this whole offshore phenomenon will con-
tinue to be a major opportunity space in
the near term.
With the focus on the hedge funds and
fund administration across the different
domiciles, do you see this as an opportuni-
ty to develop further value-added services,
or will you stick to core competencies?
Core custodian services are the ‘stomach
muscles’ of our firm, they are important,
but what has become important in the
clients eyes are accounting, administration
and transfer agency services, and even
more now, independent research, equity
execution, commission recapture and risk
management and compliance. Those are all
really topical now where three years ago
they were hardly brought up, it was cus-
tody first, a little bit of accounting and
almost no talk of the value addeds. Now it
is accounting and transfer agency first,
value added type services second, and the
custody offer next. 
INVESTOR SERVICES JOURNAL 53
 SECURITIES LENDING

Giles Turner looks at the

growth of the Securities
Lending market, the impact of
various funds and what lies
aheead in 2007.

Reaching Capacity?

T here has been a significant increase

in the use of securities lending
through prime brokerage by hedge
funds. In terms of lending volume and
transactions, hedge funds have made a
big impact; loan balances in the industry
are around $12 trillion, yet no matter
how much regulation you can put on
hedge funds, to the man on the street,
hedge funds have a shady aura. In reality,
this is no longer the case. The days of
Long Term Capital Management are,
hopefully, long gone, although the spectre
of hedge fund collapse reappeared with
the Amaranth debacle (perhaps the trick
is not to name your fund after anything
to do with longevity, Amaranth being an
immortal flower in Greek mythology).
However, no matter how ‘safe’ hedge
funds are at present, is unavoidable to
wonder if the massive influx of hedge
funds has increased the risk in securities
lending market.
A few obvious ways to decrease the
amount of risk in an industry is to
increase the amount of regulation and
transparency. The American financial reg-
ulator SEC has recently looked into the
securities lending practices of mutual
funds. Brian Traquair from Sungard
states the reason for this rather wryly, “I
think the what the SEC is always doing is
acting like a rotating lighthouse, they’ll
turn their light and look on something.
Mutual funds are the last group of people
to really come in to the securities lending



54 INVESTOR SERVICES JOURNAL

process plus the SEC always get more
involved when the individual investor is
at stake. Even though a big pension fund
for instance is ultimately lending securi-
ties that are for the benefit of individuals,
they are really not individual accounts,
whereas a mutual fund company, it’s your
money and my money therefore they pay
more attention.”
As what happens in most burgeoning
areas of finance, the industry itself has
created its own first line of defence when
it comes to risk, that of third party ven-
dors. Brian Staunton, Managing Director,
Securities Finance, Citi Global
Transaction Services explains, “Because of
the fact that hedge funds are borrowing it
does put a little more emphasis on how
you measure and manage risk. I think the
tools that we have enable us to manage
risk are a lot more sophisticated than
there were, say, five years ago. There are a
few third party vendors now, most
notably for the security finance business,
for example Risk Explorer, owned by
Data Explorers, who offer a product that
can fit in with your own systems. Five
years ago that wasn’t available, you had to
build your own system from scratch.”
Companies saw niche markets in cutting
risk in securities lending and jumped
right in. It would be easy to make the
assumption that the securities lending
market has become riskier if we feel the
need for third party vendors to make
lending safer. This may not be the case
regarding the assumption of risk as Mike
Speight, consultant, at Rule Financial
states, “This is not something you can
prove definitively either way, but I sense
that we are seeing a relaxation of risk.
This is to do with the market cycle, we
are very much in an up cycle at the
moment, and hedge funds are really back
with a vengeance. Back in the late 90s,
hedge funds were seen as prestigious
counterparties and investment banks
would bend over backwards to get their
business. There was a certain pressure
back then to trade with hedge funds,
An obvious way to
decrease the amount
of risk in an industry is
to increase the amount
of regulation and
transparency.
regardless of whether it was profitable or
not, I believe we are seeing that sort of
situation again.”
As an industry grows, risk will always
be a factor, but what is clear is that we
will see a lot of consolidation within the
industry. Allen Postlethwaite, CEO at
SecFinex gives us first hand knowledge,
“Recently we have agreed to sell 51% of
the business to Euronext. One of the rea-
sons we’ve aligned ourselves with
Euronext is because they do have the
existing infrastructure that we can lever-
age with is to the benefit of the market.”
It makes economic sense to consolidate,
no matter your position in the industry.
For example some of the direct lenders
who lend their own portfolios will find it
It would be easy to make the assumption that
the securities lending market has become riskier
if we feel the need for third party vendors to
make lending safer.
increasingly difficult to keep up to date
and compliant. Mr. Staunton explains,
“They will struggle not only in the
increase in transactions and volume, but I
also think they will struggle to come to
terms with the amount of investment that
is needed to stay in the business and to
stay efficient. The cost of staying in busi-
ness is one side of the equation, but the
margins that we earn in the business are
decreasing. So you are earning less on the
securities that you have out, but you need
more volume to generate the same
amount of volume.”
Regarding the future, no matter the size
or scope of your company, you will be
focusing on the up and coming securities
lending markets. Whilst there is almost
unanimous agreement that China and the
far east will be the emergent markets in
2007, it seems that everyone has their
own favourite regarding the surprise mar-
ket in the new year.
Mr. Traquair sees “China as the big one
for this year, so much so that the interna-
tional conference of securities lending is
being held in China for the first time this
year. Other new and pushing places are
Brazil, and places like Russia are a still a
bit further off.”
Mr. Postlethwaite agrees with the Asian
analysis: “Any emerging market is going
to present opportunity, we’ve been asked
recently by some of our clients to look at
the Asian markets, but don’t forget about
SECURITIES LENDING
the European Markets, MiFID is right
around the corner, it is designed to open
up European Capital Markets, increase
price transparency and make cross board-
er trades easier, particularly with the new
countries joining the EU and the growth
of Hedge Funds.” Mr. Speight sees “the
obvious places are over the far east, India,
China, the Philippines. You also have cen-
tral and eastern Europe, such as Poland,
Russia and Hungary where I imagine
there is a lot of scope.”
Interestingly, Mr. Staunton from
Citigroup goes a little bit further in assess-
ing new markets. “We developed Taiwan
last year as a new lending market. In addi-
tion to Taiwan we added Czech Republic,
Hungary and Brazil. It was a focus to us
last year in regards to new market,
because if those traditional markets are
becoming more liquid, and there is more
availability in the market and the spread
in coming down then you really have to
look at some of the new markets to help
get them on board so the rates you can
get in that market and the first to the
market are quite high. Regarding the main
markets for 2007, from what we are hear-
ing from our brokers, Israel, India, Turkey,
Poland and Russia. That was a snapshot at
the time of speaking. I was reading in a
hedge fund magazine that Mongolia was
riding high on the back of economic
developments and their copper mining.”
Whilst all eyes are focused on China for
2007, I think I shall give my man out in
Ulan Bator the heads up. 
INVESTOR SERVICES JOURNAL 55
 STATS - SECURITIES LENDING

“Acquaintance, noun: A person whom we know well enough to borrow from, but not
well enough to lend to..” Ambrose Bierce (1842-1914), The Devil's Dictionary

Analysis of the key indicators on

securities lending and borrowing
statistics from Data Explorers.

Utilisaton of All Securities (%) Total Return to Lendable Assets (Bp) & SL Fee (Bp)

Comparing the data at the beginning and the end of the
year, utilisation has only increased by a small margin
(c. 0.25%), however in May 06 utilisation reached 3%
higher than the start of the year. Will we see a similar
fluctuation this year?
The seasonal Securities Lending Fee peaked in May 06,
reaching just over 60 base points. However, like
Utilisation, the difference between the year beginning
and end is minimal, with a slight fall overall. Total
Return to Lendable Assets stayed constant.

56 INVESTOR SERVICES JOURNAL

 HEDGE FUND PERFORMANCE - INDICATORS

ISJ analyses data

from Hedge Fund
Research Inc.
July 2006 to January 2007 Rate of Returns
The most volatile index over the
past half year has, at first glance,
been the Short Selling Index,
with a rate of return variation of
three base points every three
months. Whilst Short Selling is
for both winners and losers, the
Emerging Market Index reached
four base points in December
06, making it a volitile but
tempting index.

Rate of Return: Standard Deviation

A better indication of volatility is

to have a quick look at the
standard deviation over the past
year, comparing the change to the
past three years. Most indices
have changed relatively little; the
three years measurement
understandably having a slightly
greater deviation. It is also clear
to see that the index with the
greatest standard deviation is the
Emerging markets, fitting the
markets stereotype of being a
prosperous but volatile market.
Fixed Income, on the other hand,
remained steady. The most
volatile index is the Equity
Non-Hedge Index, reaching a
standard deviation of nine.

INVESTOR SERVICES JOURNAL 57

 TECHNOLOGY & STP
T his was one of the first few sentences
from a much quoted paper, ‘A Eulogy
for STP and the Asset Manager’, writ-
ten in 2003 by then TowerGroup analyst, Tim
Lind. Taken at face value, it would appear that
the paper was saying that the concept of
straight through processing was dead.
However, a full read through would suggest
that what was actually being suggested was
that while the industry had tired of the term
STP due to the GSTPA debacle and the T+1
initiative coming to naught, the actual move
towards end-to-end automation was very
much alive. “STP was the buzz word a few
years back,” says Graham Bright, Managing
Director of technology vendor, Financial
Tradeware. Now, he says that the new ‘lingo’
being used is about increasing business effi-
ciencies and reducing costs. “Firms are very
conscious of the need for a securities transac-
tion moving from the front office to the back-
office without resorting to any manual inter-
vention. And this is STP,” he notes.
While the earlier focus on STP was driven by
the T+1 initiative and the need to reduce set-
tlement times, a key driver now is regulation.
Firms are realizing that not only does straight
through processing help improve efficiencies
and reduce costs, but it allows firms to meet
mandatory compliance requirements by
enabling better risk management and reduc-
ing overall operational risk. STP also creates
transparency by enabling better audit trails,
improves client reporting and helps firms
adhere to customer protection norms.
Barriers to STP Implementation by instrument:
Asset Management Firms
Barriers to STP Implementation by instrument:
Banks
58 INVESTOR SERVICES JOURNAL
“Straight-through processing (STP) has
become the Frankenstein’s monster of
financial acronyms, and maybe it’s
time to pick up a torch and pitchfork
and rein in this monster before it bores
any more villagers to death.”
Rekha Menon reports.
STPlease
Despite the enormous benefits offered by
straight through processing, a recent report
by analyst firm, Celent on current levels of
automation in Europe in the post-trade
processing arena, concluded that European
banks and asset management firms are not
allocating sufficient time and attention to
back and middle office STP initiatives. The
report also states that while STP is
embraced as a concept, actual practice
shows a lack of commitment. Banks across
Europe are still quite siloed, and STP proj-
ects fail to fully rationalize back office sys-
tems across product categories.
Additionally, upstream systems are not
adequately capturing transaction detail, and
this is creating hazards for downstream pro-
cessing. Surprisingly, only relatively small
budgets are allocated to improving back and
middle office processes as opposed to the
front office, leading to underinvestment.
And while the problems differ by country,
the report states that all geographies are
having difficulty with STP initiatives.
Although only firms in Europe were inter-
viewed for the report, says David Easthope,
senior analyst at Celent and one of the
authors of the report, he believes that the
findings are relevant to other regions as
well.
Interestingly, views within the industry are
extremely divided about the attention being
received by STP initiatives within financial
institutions. Kevin Rideout, global head of
relationship management agrees with the
findings. Several large players are spending
shy, he says. One of the reasons for that is
the high level of mergers and acquisitions.
“Some firms have gone through major
mergers and acquisitions. They are trying to
merge their systems and therefore they have
not really invested on STP.” However, he
notes that some of the firms that have
invested in STP by creating a seamless glob-
al platform for order management, trade
processing and settlement, have achieved six
fold savings.
Mr. Bright of Financial Tradeware too
agrees that the level of investment on STP in
the middle and back office is not adequate.
“The investment made in the front office is
much higher than in the back office, since
the front office is the revenue centre while
the back office is viewed as a cost centre. “
James Hockley, Principal of the operations
practice at Investit, the investment manage-
ment consultancy, believes however that
firms are not spending shy in the STP space.
“For some years now, asset managers have
been investing in STP – both internal as well
as external.” In traditional core assets, equi-
ties and bonds, the STP rates are peaking, he
says, pointing out that the problem area is
the derivatives space. Paul Stevens of UK
based consulting firm, Catalyst, who is the
former CIO of Barclays Capital concurs. In
equity and bog standard bonds, he says, STP
has been achieved and the problem area
now is the alternative funds space. On the
whole he believes a significant chunk of





asset managers’ IT budgets are dedicated to
the back office.
So how does one reconcile these vastly dif-
fering opinions on the level of STP invest-
ment in the middle and back office?
Easthope says that difference lies in the
frame of reference. The level of STP differs
by instrument type, nature of financial
institution and even the size of financial
institution. So the Celent survey results look
very different once the analysis becomes
more granular and are collated according to
institution type. Banks, which constituted
61 percent of survey respondents, reported
manual processing and inefficiencies across
all instrument types. Conversely, asset man-
agement firms, which constituted 21 per-
cent of survey respondents, were unified in
identifying derivatives confirmations and
matching as primarily being the main pain
point.
Banks have vastly different priorities than
asset managers, which reflects in the signifi-
cant difference in STP levels between banks
and asset managers, says Easthope. The
Celent report states that for banks, opera-
tional cost was cited as the key reason for
engaging in STP projects, likely due to high-
er STP levels leading to less manual process-
ing and thus lower operational costs. Asset
management firms on the other hand, more
overwhelmingly cited operational risk, pos-
sibly due to the higher likelihood of failed
procedures to lead to financial perform-
ance, reputation, and job loss because asset
management firms are smaller than most
European banks.
Another difference was the failure of
banks to automate in the fixed income
arena while asset management firms experi-
ence more difficulties in cash (reconcilia-
tion and payments). Notably, Easthope
points out, universal themes such as rela-
tively high STP in equities and low STP in
derivatives are consistent to both types of
market participants.
Not surprisingly, the highest percentage of
respondents cite derivatives STP efforts as
the top priority for 2007. Results of
Investit’s IT value survey among asset man-
agers corroborate these findings. Hockley
says that by far, the biggest area of discre-
tionary spend is derivatives. A lot of work is
being done in improving derivatives pro-
cessing, but that is not sufficient. According
to a director of a large European bank active
in OTC derivatives, who was interviewed as
part of the Celent survey, there appears to
be an absence of good front end tools for
buy side firms to automate the post-trade
processing, which lead to major problems in
back and middle office processing.
Hockley says, “Increasingly there is stan-
dardization of formats, structured data
terms and conditions, but unfortunately,
there is a new derivative designed everyday
that lies outside these standardization
parameters.” Omgeo’s Rideout agrees with
Hockley that new products coming out
makes standardization difficult for deriva-
tives, but he says that the industry needs to
continually look at standardizing high vol-
ume products that are already well estab-
lished. “If you look at equities 10 years ago,
the industry was debating about how to
remove paper. Now in the world of credit
derivatives, and interest rate swaps, solu-
tions are being made available to help these
instruments leapfrog and achieve standard-
ization. We need to keep up the efforts for
any new instrument.”
Although derivatives is increasingly the
key focus area among financial institutions
Banks have vastly different priorities than
asset managers, which reflects in the
significant diffference in STP levels.
looking for higher returns, Rideout cautions
that STP efforts cannot be ignored for the
traditional instruments. “We cannot take
our eye off traditional plain vanilla instru-
ments. Third party administrators for
instance, still get dirty data from asset man-
agers. Nearly 20 percent of the data between
asset managers and broker dealers is un-
matched and un-checked,” he says.
Rideout adds that large European players
have achieved nearly 100 percent STP in
equities, but among tier2 firms, he says,
equities STP is still not completely a reality.
There continues to be a vast difference
between levels of STP focus between the
large and small firms, agrees Bright of
Financial Tradeware, which provides inte-
grated solutions for medium to small sized
Investment Management firms, Fund
Managers and Hedge Funds, covering the
full trade life cycle. “In mid-tier and small
investment management firms, phones and
faxes are still used for processes like bro-
ker/dealer confirmations. But awareness is
growing and with the availability of cost
effective tools, we expect to see more STP
initiatives,” he says.
Among asset management firms, trade
processing and settlement are often regard-
ed as non-core activities as against the core
activities of making investment decisions
and servicing clients. Many large firms like
ING Investment Management and Standard
Life have therefore in recent years, out-
sourced their non-core functions to large
custodian banks. Despite a few high profile
outsourcing failures such as in the case of JP
Morgan-Schroeders and F&C Investments-
TECHNOLOGY & STP
Mellon deals, outsourcing is expected to be
the way ahead for the asset management
world. A key question however, is whether
these outsourcing deals provide STP bene-
fits to the concerned asset manager.
Hockley of Investit says that achieving
back office STP depends on the model
adopted by the custodian banks. “Asset
managers will be able to experience better
automation levels only when they move to a
new technology platform. However, that is
not the case in many cases, “he says. Out of
the around 35 ‘live’ middle/back-office out-
sourcing deals in the market, Hockley says,
nearly half are still operating on their legacy
systems. STP benefits will accrue to those
firms, that have moved to a new platform, as
in the case of Martin Currie which has
moved to BNP Paribas’ Hi Portfolio tech-
nology platform, he asserts.
“Benefiting from large volumes and
economies of scale, custodian banks no
doubt have the opportunity to streamline
systems, implement a modern technology
platform and pass on straight through pro-
cessing benefits to their client organizations.
But not many have done so yet,” states
Hockley.
As efforts to automate and reduce opera-
tional risk increase, outsourcing trend is
moving from 100 percent lift-out to compo-
nentized outsourcing. Stevens of Catalyst
says that some firms are using two specialist
outsourcing providers, one to process cash
instruments while another to process deriv-
atives. Not surprisingly, this trend is being
fuelled by the increasing use of derivatives
among asset managers, since derivatives
management requires high-end specialist
expertise not easily available in the market.
Stevens says that the trend is also being driv-
en by the increase of back-office outsourc-
ing among hedge fund managers. “With
increasing regulatory focus and client
scrutiny, hedge funds are realizing that they
need to adopt a more strategic and robust
STP approach, and outsourcing is the obvi-
ous route to achieve the same.”
Commenting on the buy-side communi-
ty’s focus on STP, Stevens says, “I think peo-
ple have been talking about STP and
outsourcing for a long time and it is being
taken very seriously. Larger and the more
sophisticated portfolio managers have
achieved a high level of STP. But the STP
challenge now lies in alternative asset
classes, not cash instruments.” 
INVESTOR SERVICES JOURNAL 59
 PROXY VOTING
ISJ explores the effect of market forces and
European regulation on cross-border proxy
voting.
Completing the Puzzle
P rior to 2001, corporate accountabil-
ity was an ancillary concern. When
Enron made it clear to everyone
that poor corporate governance could sink
even the most successful company, corpo-
rate democracy became a pressing goal. In
the United States, where company law
requires a quorum to make important
decisions, shareholder involvement has
traditionally been quite common.
Shareholders have been able to vote by
proxy for over 60 years – quite amazing
really, when you think that some EU states
still forbid it. With Europe’s rich history,
it’s easy to forget that as a union it’s com-
paratively young and that many of its
institutional votes are cast across borders,
which makes the obstacles much more
problematic. The difficulties it is experi-
encing reflect a lack of integration at the
national level – an issue that the United
States took almost 100 years of revolution
and civil war to resolve.
60 INVESTOR SERVICES JOURNAL
To address this issue, the Dutch
Minister of Justice formed the ‘Expert
Group on Cross-Border Voting’ in 2002.
The group’s focus was to research prob-
lems associated with cross-border voting
and make specific suggestions for their
removal. In August 2002 they published a
document outlining the need for a num-
ber of European regulations to ensure the
following: first, that all those who are
Whilst corporate governance groups breathed a
sigh of relief at what seemed to signal imminent
changge, the British Bankers’ Association argued
that regulation was an inappropriate method for
solvingg the problems of cross-border voting.
entitled to vote know they are entitled to
it; second, that they are actively enabled
to vote; and third, that they are given the
relevant information to exercise their
rights in an informed manner.
The industry’s response to the group’s pro-
posals was mixed to say the least. Whilst
corporate governance groups breathed a
sigh of relief at what seemed to signal
imminent change, the British Bankers’
Association (BBA) argued that regulation
was an inappropriate method for solving
the problems of cross-border voting: “The
implementation of a pan-European
Directive… would likely require signifi-
cant change in so many other areas of
securities investment and company law
such that costs would be prohibitive and
progress slow.” If market forces were har-
nessed instead, technological innovation
would provide the answers.
Bolstered by the age-old belief that mar-
kets, if left to their own devices, will solve
the problems they create, the BBA was
expressing industry unease at the prospect
of Europe imposing regulations. Although
it is an undeniable feature of the capitalist
market that some are able to grasp oppor-
tunities where others see only problems, to
equate this with the notion that markets
do not need regulation (or are, in some
ways, inherently self-correcting) is danger-
ous to say the least, inevitably lending
itself to poor corporate governance. Whilst
recognizing that “over-reliance upon law-
making may prove counterproductive,” the
International Corporate Governance
Network has pointed out that “some sig-
nificant initiative” at a “European level” is
necessary if most shareholders are “ever to
have the opportunity of making their voic-
es heard upon issues of great concern to
their economic interest.”
No doubt, the obstacles to shareholder
voting have encouraged the growth of a
market in proxy-voting solutions and mes-
saging technologies. The likes of ADP,
RBC Dexia and Euroclear have offered
outsourced proxy-voting solutions to
companies for some time, with the result
that in the UK alone the number of share-
holders exercising their rights has
increased from 30 to 60 per cent in the last
10 years. The various proxy-voting agen-
cies have also improved transparency by
outsourcing the processing work of fund





managers, custodians and registrars. The
automation of votes, meanwhile, has facili-
tated speedy execution. In the UK, the
CRESTCo electronic proxy-voting service
has enabled all FTSE100-listed companies
and more than half the FTSE250 to broad-
cast meeting events and offer an automat-
ed voting system to their shareholders.
What with Institutional Shareholder
Services’ introducing a highly innovative
system last year and the SWIFT messaging
service constantly developing new prod-
ucts, progress looks set to continue. Edwin
de Pauw, Business Model and
Harmonization Director at Euroclear,
describes the importance of these develop-
ments: “The introduction of more effec-
tive proxy-voting services has certainly
bolstered shareholder rights. For the UK
and Ireland, we have seen increased levels
of meeting participation since the intro-
duction of electronic proxy-voting in
CRESTCo… It makes the voting process
more efficient as it facilitates significantly
less turnaround time for communication
between the issuer and its investors, and
vice versa. This enables investors to benefit
from a larger window of opportunity to
participate in the meeting event… Given
that shareholder participation is an essen-
tial prerequisite for effective corporate
governance, electronic voting is a key
enabler.” The UK, in general, is more
advanced than much of Europe, helped in
part by a recent change in company law
and by the early growth of online proxy-
voting agencies such as Manifest.
Established in 1995, Manifest’s name alone
(meaning “caught in the act” in Latin)
would seem to suggest a core belief in the
undependability of corporate actions, but
they are quick to point out that they are
not regulators or lobbyists (although
Britain’s Observer newspaper did once
describe co-founder Sarah Wilson as a
“pugnacious shareholder activist” with
“trenchant views on corporate governance
issues”). Instead, they have developed a
comprehensive database of the policies
and resolutions of every UK company so
that shareholders can compare them to
industry averages. Once this information
is absorbed, Manifest provides efficient
proxy-voting solutions. The situation may
not rival the dream of corporate democra-
cy first envisaged by Manifest’s founders,
but it is undoubtedly better than no share-
holder voting at all.
Despite these improvements, problems
do exist – Europe-wide – that only regula-
tion will rectify. Simon Coleman,
Securities Operations Director at RBC
Dexia, explains: “Proxy-voting is certainly
an important step in improving share-
holder rights, but in itself has not actually
improved the rights of the shareholder.
There are many aspects of voting cross
border that inhibit the true ability to vote.
It is the harmonization of process and
simplification of local market processes
that will truly be an aid to improving the
rights of shareholders.” In some EU mem-
ber states, for instance, laws preventing in
absentia voting are still in place, whilst
elsewhere archaic ‘share-blocking’ is in
practice, which means that shareholders
who want to vote must surrender, for a
fixed period, their right to sell their shares.
The processing and announcement of
The UK is more advanced than much of Europe,
helped by a recent change in company law and
by the gro
owth of online proxy-voting agencies.
meeting events also differs widely accord-
ing to local and market-specific regula-
tions, with the result that in some cases
shareholders do not have the time to
research and vote accordingly. Another
problem is the widespread inefficiency of
paper-based voting. In 2003 the European
financial industry was shocked by
Unilever’s announcement that ten of its
major shareholders’ votes had been lost
prior to its annual general meeting. Simon
Hughes, Director of Sales and Marketing
at ADP, explains: “Paper based processes
have undoubtedly been an issue in the past
and the introduction of electronic voting
definitely helps both with the efficiency of
the process, but perhaps more important-
ly, through the facilitation of greater trans-
parency and ‘auditability’ of the process.
Unfortunately, many markets are yet to
fully adopt an end-to-end electronic solu-
tion…”
For some, this is proof that Europe is in
need of regulation. “To achieve similar
results [to the UK and Ireland],” says Mr.
de Pauw, “the various legal frameworks in
the European member states require fur-
ther harmonization.” The Giovannini
Group supports these findings, pointing
out that the expensive, localised nature of
many EU members’ voting processes is a
barrier to efficient cross-border opera-
tions. The European Commission
responded with a set of proposed regula-
tions known as the ‘Directive on the exer-
cise of voting rights by shareholders’. By
PROXY VOTING
replacing ‘share-blocking’ with ‘record
dates’ and obliging member states to
remove impediments to electronic voting
from their laws, the directive aims to cre-
ate a smooth framework for cross-border
voting, whilst encouraging transparency
through a “minimum set of standards for
announcement, distribution and basic
processes.” The directive has, however,
come in for criticism, not least from the
London Stock Exchange, who disagree
with the imposition of a mandatory 30-
day notice period for Extraordinary
General Meetings and are quick to point
out that “a careful balance needs to be
struck between ensuring shareholders are
able to exercise their rights and imposing
costs on companies.” Whether the directive
will be successful in replacing ‘share-block-
ing’ is also uncertain. As Mr. de Pauw
points out, “it will not provide the
regulatory framework that would enforce
the use of such a record date and impose
the right order of key dates. In the event
where the record date is not set before the
actual date of the meeting, the need to
block entitled positions will remain for
obvious operational reasons.”
Criticisms aside, the directive will
undoubtedly provide further impetus for
an already dynamic proxy-voting solutions
market – an impetus which market forces
are unable to supply due to the restrictions
enshrined in regional law. If market forces
are like water, pooling wherever they can,
it is the responsibility of governmental
bodies to authorise the removal of any
obstacles to their flow. Whereas some
organisations (the British Bankers’
Association etc) are quick to dismiss the
interference of governmental bodies, the
proxy-voting agencies will welcome the
measures as liberalising changes. By
removing the barriers to proxy-voting – in
both a cross-border and an electronic
sense – the directive is ushering in a new
age of European integration, in keeping
with the recent plans for Target2
Securities in the clearing and settlement
industry. Not only is this exciting news
for providers of proxy-voting solutions, it
is equally exciting for European
shareholders, who are finally being given
the tools to exercise their rights. 
INVESTOR SERVICES JOURNAL 61
 RISING STARS - INTERACTIVE DATA
Interactive
Dan
ISJ speaks to Dan
Campion of Interactive
Data, continuing the
series of ‘Meet the future’
profiles.
I joined MW Marshall Ltd as a board boy in
the Fixed Interest US$ division. In addi-
tion to writing the boards, I made tea and
delivered breakfast and lunch for the 40
odd people on the desk. After four months,
I moved on to the link broking desk and
dealt with the company’s other offices and
third party brokers.
Thereafter I went to JPMorgan Securities
to trade F&O, primarily at LIFFE and then
following the switch to electronic broking,
to the execution desk within the bank.
Having preferred the direct interaction,
I decided to move to sales. I joined Bridge
and became Sales Manager for Securities
Administration Services. Following this, I
joined Telekurs as a Sales Manager
promoting similar services. In June 2003,
I joined Interactive Data in my current role.
THE ISJ MINUTE
CD or MP3? CD
Books or Films? Books
Beer or Wine? Beer
Theatre or Club? Club
Elvis or Johnny Cash? Johnny Cash
Nights In or Nights Out? Nights Out
Watching or Playing? Playing
ISJ or FT? FT of course (we’re part
of the FT Group of companies).
62 INVESTOR SERVICES JOURNAL
Why did you choose your career initially?
A family friend who was a money broker
suggested I would be suited to it and he
appeared to be doing rather well for him-
self.
Describe your experience at previuos
employers / locations
Although very different, they have all
been extremely positive and enjoyable. I
have learned and developed with each and
continue to do so. I have also been lucky
to work with some really decent people,
many of whom I am still in contact with.
What do you enjoy most about your current
position at Interactive Data?
I most enjoy the varied nature of the role
and the team of people around me. The
organisation continues to expand and
develop, and this presents a constant
stream of new opportunities. Coupled with
this, there is a strong management team
with the vision to consistently develop or
expand the services we offer in an ever-
changing market, be it market or regula-
tion-driven. As a result, no two days are
quite the same.
Who are your mentors / role models?
I have encountered many people during
my time both in education and in the city
whom I regard in some form as mentors or
role models; but I ultimately hold the high-
est regard for my grandparents and par-
ents. My Grandfather passed away a few
years back but my Grandmother, even now
at 89, gets up at 7.00am each morning
and doesn’t allow herself to rest until
1.00pm. When she gets to bed at night
she says to herself: ”What have I done
today to make me feel proud?”
Additionally, she managed to cook the best
Christmas dinner this year for nine peo-
ple – I find her inspiring!
Where do you see yourself in five years
time?
Who knows? My primary focus is today
and tomorrow. I am a firm believer that if
you perform well, your career, in many
ways will dictate its own path.
We at ISJ work hard, we did hear you
work long hours too. What is your average
working day like?
I start early, and am one of the first
into the office. I try to address my
admin. during this time, leaving my day
open to attend meetings and develop
opportunities.
If you were given the opportunity to
take a sabbatical or year out what
would you do?
I’m not looking for one right now, but
should the chance ever arise I’d love to
travel more. When I was 18, I travelled
extensively for just under two years,
mainly in south-east Asia, and spent
eight months in India. Whilst there, I
taught English during three months of
my stay. Given the chance now, I’d love
to explore South America in-depth and
having taught previously, I’d be interest-
ed in working in education for part of the
journey.
If you were named Interactive Data
employee of the year, how and where
would you celebrate?
Whilst I’d be flattered, I don’t think I
would do anything out of the ordinary. I’d
probably just enjoy a couple of pints with
my mates.
What are your long-term goals for the
future?
Achieve the most I can and provide well
for my family …enjoying it along the way.
DAN CAMPION
Head of Sales – Pricing and Reference
Data, Interactive Data (Europe) Ltd
Education:
Seaford College – Petworth West Sussex,
St John’s School – Leatherhead Surrey.
Employment:
MW Marshall Limited, JP Morgan
Securities, Bridge Information Systems,
Telekurs Financial, Interactive Data.
 Conference Hemicycle
Luxembourg
alfi 27 & 28 March 2007 Kirchberg

L u x e m b o u r g - Yo u r B r i d g e t o E u r o p e

Association Luxembourgeoise des Fonds d’Investissement - Association of the Luxembourg Fund Industry
 MANDATES

MANDATES AWARDED TABLE

2007
Month Winner Client Location Assignment Mandate Size
March Northern Trust Hounslow UK Custody Services GBP 300 million
February BNY Tokyo-Mit UK Custody Services USD 3.4 bn
February State Street Rolls Royce UK Custody & Fund Services GBP 450 million
February BNY Davy UK Custody & Clearing Services n/a
February Northern Trust Avida UK Custody Services EUR 2.3 bn
February State Street Suffolk UK Securities Lending USD 2.4 bn
February ABN AMRO Mel Agricultural Bank UK Custody & Securities Lending n/a

BRITISH COUNTY COUNCILS PROVIDE A NUMBER OF

MAJOR MANDATES IN THE FINANCIAL QUARTER.

NORTHERN TRUST and the GUARDIANS OF NEW ZEALAND SUPERANNUATION have entered into exclusive negotia-
tions for the Guardians to award Northern Trust the mandate to act as custodian for the NZ$11.5 billion (approximate-
ly US$8 billion) New Zealand Superannuation Fund (“NZSF”). “The review process was comprehensive and competi-
tive,” says David May, Chairman of the Board of the Guardians of New Zealand Superannuation. “Our key aims were to
re-examine the best available custody services in the light of the Fund's planned growth and development.”

STATE STREET CORPORATION has been appointed by PUTNAM INVESTMENTS and THE PUTNAM FUNDS to provide
servicing for $169 billion in assets. State Street will provide custody, fund accounting, and investment manager opera-
tions outsourcing services in support of more than 450 retail, institutional, trust and offshore portfolios as Putnam con-
solidates its investment service providers. As a result of this mandate, approximately 250 Putnam employees joined
State Street last month.

STATE STREET CORPORATION announced that it has been reappointed to provide an integrated range of investment
services to the US$2.4 billion SUFFOLK COUNTY COUNCIL PENSION FUND. In addition to its current services, State
Street will now provide the fund with securities lending. Suffolk County Council has been a State Street customer since
September 2000 and will continue to be supported from State Street's service centre in London. State Street will pro-
vide global custody and investment accounting services and WM Performance Services, the European performance meas-
urement division of State Street, will provide performance measurement services to the fund.
The EAST RIDING OF YORKSHIRE COUNCIL has appointed NORTHERN TRUST to provide custody services for its £2bn
(US$4bn) pension fund. The scheme conducted a rigorous review of various providers prior to selecting Northern Trust.
"We spoke to a number of local government schemes as part of the tender process," says Paul Barnett of East Riding of
Yorkshire Council. "We selected Northern Trust as they best met our overall requirements and demonstrated a particu-
larly high regard for client service."
The BANK OF NEW YORK has been appointed by BANK OF TOKYO-MITSUBISHI UFJ (Luxembourg) S.A. to custodize
$3.4 billion of its assets in the UK market. Hiroaki Harada, managing director at Bank of Tokyo-Mitsubishi UFJ
(Luxembourg) S.A., said, "We appointed The Bank of New York because of its personalized approach. We were especial-
ly keen on its proven service model and impressive custody and clearing capabilities. We look forward to developing our
relationship with the Bank and believe the team will provide us with an excellent service that meets our current and
future needs."
The £3.6 billion LONDON PENSIONS FUND AUTHORITY (LPFA) has re-appointed JPMORGAN as its global custodian.
JPMorgan has provided custody services for LPFA since 1991 and also provides accounting, performance measurement
and securities lending services. "JPMorgan has been our long-standing trusted provider of custody and related securities
services, and we are happy to extend our relationship with them," said Mike Taylor, Chief Executive at LPFA. "We have
found that JPMorgan offers a high quality level of service and good value."

ABN AMRO MELLON has been appointed by WILTSHIRE COUNTY COUNCIL to provide global custody, investment
accounting (SORP), securities lending and performance measurement services for assets valued at £1.1 billion. Wiltshire
County Council acts as the administrating authority for the Wiltshire Pension Fund (WPF), a defined benefit scheme with
18,500 active members and administered on behalf of more than 50 employers.

64 INVESTOR SERVICES JOURNAL

13152 INI fishing ST1.ai 23/2/07 9:57:54 am
 PEOPLE MOVES
Moving
&
Shaking
Brian Bollen,
who has been a
contributor to
ISJ since its
inception, has
been elected as
a Fellow of the
IFS School of
Finance. This is
the highest
accolade that t
he Institute for
Financial
Brian Bollen
Services can
award, and is in recognition of Brian's
outstanding contribution to
international financial journalism,
and socio-economic thinking, over the
past 22 years.
Unlike most financial journalists,
Brian has a background in banking,
having served five years at the mast
with the greatly missed Midland Bank
International. He was almost unique
in having a banking qualification, and
being an Associate of the Chartered
Institute of Bankers. We know of no
other journalist who has been elevated
to Fellowship in modern times.
“I'm hugely proud to be a Fellow,”
says Brian. “When I was a clerk learn-
ing the ropes at MBI, I looked up to
Fellows as if they were gods. It's a great
honour to have joined their ranks.”
Brian left MBI in September 1984 to
join the Financial Times Group as
deputy editor of its weekly capital
markets report, Financial Times
Euromarket Letter, becoming executive
editor in February 1988. He became
editor of the FT's mergers and
acquisitions magazine in August 1989,
and served a tour of duty on the FT
newspaper's daily international bonds
66 INVESTOR SERVICES JOURNAL
column before going freelance in January
1993. He remains a regular contributor to
the FT, and Financial News, as well as a
number of other financial titles. He lists
some of the world's top names in finan-
cial services amongst those corporate
groups for which he has completed writ-
ing, editing and coaching assignments.
Well done Brian, from the ISJ team!
New York - Keith Babbitt has joined
Deutsche Bank Securities as a Managing
Director and Co-Head of Securities
Lending, Global Prime Finance, North
America, within the bank's Global
Markets division. Babbitt joins Deutsche
Bank after 23 years at Merrill Lynch,
where he was most recently Head of
North American Securities Lending for
15 years. “We are excited to add Keith to
our rapidly growing business and are
extremely confident that the leadership
and client commitment he has shown
throughout his extensive career will be a
great addition,” said Anthony Byrne,
Head of Securities Lending.
New York - Gary Crittenden, formerly
Executive Vice President and Chief
Financial Officer and head of Global
Network Services at the American
Express Company, will become Chief
Financial Officer at Citi. He will report
directly to Charles Prince, Chairman and
Chief Executive Officer, effective March
12, 2007. "Gary's proven record and
expertise in strategic financial manage-
ment, together with his substantial expe-
rience in the consumer business, will
accelerate our growth across the fran-
chise. We are delighted that he has chosen
to join Citi," Mr. Prince said.
Brussels - Lázaro
Campos, current-
ly SWIFT
Executive
Committee
member and
Head of the
Banking Industry
Division, will
succeed Leonard
H. Schrank as
Chief Executive
Lazaro Campos Officer of SWIFT,
effective 23 April
2007. Leonard H. Schrank will step down
after 15 years as SWIFT's longest serving
CEO. Yawar Shah, Chairman of the
Board said: “Lázaro's 20 years of service
at SWIFT and his market expertise will
ensure continuity as SWIFT imple-
ments its 2010 strategy and keeps its
focus on its customers and its coopera-
tive franchise.”
Melbourne - Credit Suisse announced it
has appointed Mark Pierce as a Director
in the Bank's Australian Leveraged
Finance team. The announcement
comes amid increasing merger and
acquisition activity in Australia. Mr.
Pierce, who will be based in Sydney,
joins Credit Suisse's leading leveraged
finance team from ANZ Investment
Bank's Leveraged & Acquisition Finance
team. Before that, he headed Corporate
Finance at Rabo Australia Ltd. Michael
Tierney, Head of Leveraged Finance for
Credit Suisse in Asia Pacific, said the
team had been building across the
region over the past two years. “This
new hire represents an important addi-
tion to our Asia Pacific Leveraged
Finance team, which is continuing to
grow in line with market activity result-
ing from numerous transactions in
Australia,” he said. “We expect this
activity to continue both here, and in
the region, going forward into 2007 and
beyond."
Chicago - MSCI Barra, a provider of
benchmark indices and risk manage-
ment analytics products, has expanded
its presence in the Americas with the
opening of a new office in Chicago. The
Chicago-based team of four will be
headed by Dan Murphy, Executive
Director. Dan joined MSCI Barra in
2006 from Bloomberg where he was
Global Sales Manager, running their
electronic futures trading product.
London - Merrill Lynch has further
strengthened its pan-European Global
Private Client (GPC) discretionary
business with the appointment of
Dominic Liversedge as a Portfolio
Manager. He joins Merrill Lynch
Portfolio Managers (MLPM) in
London, which focuses on managing
the assets of high net worth individuals.
Mr. Liversedge was previously with
Taylor Young Investment Management
for ten years, where he managed private
client and institutional portfolios, as
well as a UK Growth OEIC, with a
focus on UK stock selection.

New York - The
Depository Trust
& Clearing
Corporation
(DTCC)
announced the
appointment of
Michael Bodson, a
20-plus year
industry veteran,
to a newly created
position of
Executive Michael Bodson
Managing Director
for Business Management and Strategy,
effective March 1. He will report directly
to DTCC President and CEO Donald F.
Donahue and will be responsible for con-
solidating the product management of all
DTCC business lines, strategic planning,
relationship management and marketing
under one umbrella.
London - Tom
Abraham will
join DST
International
(DSTi) as chief
executive officer
(CEO) in spring
2007. Abraham's
30 years of expe-
rience within the
investment man-
agement indus-
Tom Abraham try include senior-
level positions
with Citigroup, Deutsche Bank and
Accenture. Most recently, he directed the
strategic solutions/global transaction
services division at Citibank Corporate
and Investment Bank in London. “Tom
Abraham brings a unique set of interna-
tional investment management experi-
ence to an already strong management
team,” said Tom McDonnell, president
and CEO of DST Systems, Inc., DSTi's
U.S.-based parent company.
New York - GoldenSource Corporation, a
global software provider of Enterprise
Data Management (EDM) solutions for
financial and securities institutions
worldwide, has announced the appoint-
ment of Greg Stockett as Chief Financial
Officer (CFO). Based in the New York
office, Stockett will report directly to the
President & CEO as well as the Board of
Directors. Stockett brings to
GoldenSource more than 17 years' of
financial control experience within the
financial services technology industry.
London - Henderson Global Investors,
the independent asset manager, has
strengthened its institutional business
with the appointment of Jennifer Cawley
as Director of Institutional Business
focusing on fixed income clients and
Nina Bhatt as Associate Director of
Institutional Business within the consult-
ant relations team. Jennifer has over 12
years experience in asset management,
seven of which were in fixed income fund
manager roles. Nina has six years experi-
ence in asset management, sales and mar-
keting roles. She joins from Northern
Trust Global Investments. Commenting
on these appointments, Arno Kitts, Head
of European Institutional Business said,
"The provision of superior client service
plays a vital role in the growth and devel-
opment of our institutional business.
Both Jennifer and Nina bring consider-
able knowledge of the investment man-
agement process, and expertise in client
service. I am pleased to welcome them on
board and look forward to their contri-
bution to the institutional business team."
London - Gerry Brady will be joining
Northern Trust as Managing Director of
its international fund administration
operations in Dublin. Vic Holmes, who
has been Managing Director in Dublin,
relocates to Guernsey in the role of Chief
Executive of Northern Trust's Channel
Island businesses and Managing Director
of Northern Trust International Fund
Administration Services (Guernsey) Ltd.
Wilson Leech, head of Northern Trust's
Global Fund Services business, said,
“Gerry is joining an expanding operation
in Ireland and both he and Vic will have
the important role of managing the
growth of our Dublin and Channel
Islands businesses.”
New York - Matt Barrett has been
appointed
Managing Director
and Head of
Distressed Debt
and Special
Situations
Investing at
Barclays Capital.
“Matt Barrett is a
leader who brings
unrivalled experi-
ence in the dis-
tressed debt mar- Vic Holmes
PEOPLE MOVES
kets,” said Grant Kvalheim, Co-
President, Barclays Capital, commenting
on the appointment. Mr. Barrett was for-
merly employed as Managing Director,
Head of Analysis and Portfolio Principal
of Oaktree Capital Management's
Opportunities Funds, one of the largest
and most successful global distressed
debt/special situations platforms.
New York - William E. Smith has joined
JPMorgan Worldwide Securities Services
as a managing director to head Western
Hemisphere new business development
for JPMorgan's Securities Lending and
Execution Products unit. Smith will be
based in New York and report to Paul
Wilson, recently appointed Global Client
& Sales Executive of JPMorgan's
Securities Lending and Execution
Products business.
California - Mathon Systems, a
provider of information risk manage-
ment solutions, has announced that Sir
Peter Job has joined its advisory board.
Sir Job joins Francis Remacle, former
Head of the Securities Industry
Division at SWIFT, as part of a select
group of internationally-renowned per-
sonalities within the financial services
and high-technology industries to pro-
vide technical advice and strategic
guidance to Mathon Systems. Sir Peter
formerly served as Chief Executive
Officer at Reuters Group from
1991until his retirement in July 2001.
New York - Citigroup announced that
Sallie L. Krawcheck, Citigroup's Chief
Financial Officer and Head of Strategy,
has been promoted to Chairman and
Chief Executive Officer of the company's
Global Wealth Management division,
comprising the Citigroup Private Bank,
Smith Barney and Citigroup Investment
Research. The appointment is effective
upon the identification and arrival of her
successor in her current role.
Frankfurt - BNP Paribas Securities
Services has announced the appointment
of Renate Hartmann to its Global
Custody Sales Team in Frankfurt. Ms
Renate joined BNP Paribas at the begin-
ning of this year as a sales manager for
Institutional Investors, focusing on
Pension Funds and Insurance
Companies. Previously, Ms Renate
worked at Deutsche Bank for six years.
INVESTOR SERVICES JOURNAL 67
 LETTERS TO THE EDITOR
Letters (continued from page 4)
Good Advice for
Hedge Funds
Dear Sir
Hedge Fund start ups have a plethora of
experts lining up to offer expensive advice.
Lawyers, accountants, administrators all
have their own methodologies for extracting
fees for their time.
There are plenty of vendors, too, as Tiffany
Kemp points out (ISJ Vol 4 No 19) – each
with their innovative methods of taking
payments, including giving systems away
and charging extortionate fees for imple-
mentation. Most of these larger systems will
provide efficiencies once the firm/fund is
well established with its array of profession-
als to run its concerns. In the meantime,
more financially challenged smaller firms
can easily fall prey to the law of the jungle:
Cast your mind back a few years to 1998. The
Russians defaulted on one or two debt
obligations and
d chaos reigned in the markets.
only the strong survive.
New businesses need the mentors of the
prime brokers and administrators, but they
also need tools to be independent, manage
their own destiny and emulate the lifestyle of
their elder relatives.
The solution seems to be, like raising our
children, teach them to walk before encour-
aging them to run.
- Invest smaller amounts in ‘fit for pur-
pose’ less complicated systems
- Realise the value and pay the price of
the systems without negotiating all the
profit away for everyone concerned. This
way you can expect more interest and
support from vendors and professional
services acting in partnership.
- Start ups will have a limited budget, so
salaries and capital investment need to be
realistic.
- Salaries in the financial markets are
never inconsequential. Software may
perform certain tasks or supply rules that
will enable additional work to be per-
formed at an administrative level (rather
than employ an expensive specialist).
- Finally, we return to childhood again.
Who has never heard, “Don’t worry if it’s
too big, he’ll grow into it”? It never
seemed to matter that by the time you
68 INVESTOR SERVICES JOURNAL
had grown into it, it was worn out.
Hedge funds should not rely solely on their
advisors but take control from day one,
invest in systems (and actions) that work
now and for the immediate future.
“Growing into it” will not work; it will be a
drain on resources such as finances, time and
energy, all of which are precious commodi-
ties best directed to healthy growth activity.
Graham Bright,
Managing Director,
Financial Tradeware
Hedge funds, leverage
and margin
Dear Sir
Cast your mind back a few years to 1998.
The Russians defaulted on one or two debt
obligations and chaos reigned in the mar-
kets. A hedge fund called LTCM, one of the
largest and most successful funds of its type
(a fund with a couple of Nobel Prize win-
ning economists among its founders) could-
n’t withstand the shock and went bankrupt.
It turned out that it wasn’t “hedged” at all.
The event put the spotlight on these enti-
ties called hedge funds and their enormous
leverage; leverage they enjoyed by way of the
investment banks who courted their custom
so assiduously with securities finance servic-
es (repo and prime brokerage and the like).
The banks weren’t hedged either. Their
problem wasn’t an exposure to Russian
bonds, it was their exposure to hedge funds
like LTCM, who’d been trading in Russian
bonds as if they were risk free. If the Federal
Reserve hadn’t stepped in with the bail out
… who knows?
What happened back then was that the
hedge funds forgot about the risk of holding
high yield assets, and the banks who serviced
them forgot about the risk of lending to
hedge funds. Getting their business was
what mattered most.
Does this sound familiar? It should do
because we have the same climate develop-
ing today. Hedge funds are back with a
vengeance and the banks are once more
falling over themselves to win their man-
dates. Leverage is going up and margins are
going down. At Amaranth, in the weeks
leading up to its collapse last September, it is
estimated that a single trader was borrowing
around eight times the total capital of the
firm to finance his positions as they spiralled
out of control. Two big investment banks
took a hit because they weren’t holding
enough margin.
So, how can the banks protect themselves?
They can’t of course; not completely, not if
they want the returns. What they can do,
though, is really focus on the margin they
should charge. They should ask not only “is
this low enough to keep the customer
happy?” but also “is this high enough to mit-
igate the risk?”
Mike Speight,
consultant, securities finance,
Rule Financial.
The Cost of Derivatives
Dear Sir
The processing of credit derivatives has
hogged the headlines over the last few years.
Less attention has been given to the area of
equity derivatives trade processing where
volumes are rising at a similar rate.
While derivatives still tend to be the pre-
serve of institutional investors and hedge
funds, retail investor volume is on the
increase. High net worth investors are
becoming increasingly sophisticated in their
understanding of complex products and as
such are increasing their exposure to prod-
ucts such as credit and equity derivatives.
Additionally, in the UK, regulatory changes,
such as SIPPS (self invested pension plans)
have contributed to the rise in derivative
volumes. Individuals now have a far wider
choice of products to put in their pensions
and are selecting complex equity derivative
products such as Contracts for Differences.
As volumes rise, the focus on operational
efficiency is increasing. Omgeo statistics
back-up this trend. Since Omgeo started
offering CFD processing three months ago,
volumes have gone from zero to 30,000
trades per month. And it seems that this is
paying off, industry research shows that the
cost of processing equity derivatives is
decreasing. However, we are only at the start
of this process and there is still a way to go.
The comparative cost of processing a vanilla
equity trade, - $4 - versus an equity deriva-
tives trade - over $100 - shows that signifi-
cant progress needs to be made before the
industry has cause for any celebration.
Kevin Rideout,
Global Head of Relationship Management,
Omgeo

T: +44 (0) 844 499 6388
C: David Monks, Saghar Bigwood
or Stephen Everard
A: 10, Earl Street
London, EC2A 2AL.
E: dmonks@goalgroup.com or
sbigwood@goalgroup.com or sev-
erard@goalgroup.com or
info@goalgroup.com
C: Professor Michael Mainelli,
Executive Chairman
E: michael_mainelli@zyen.com
C: (Disaster Recovery and Project
Management): Keith Ford,
Senior Consultant
E: keith_ford@zyen.com
T: +44 207-562-9562
F: +44 207-628-6786
W: www.zyen.com
ISJ Directory of Services
Asset Servicing
GOAL is the widely-acknowledged industry leader in providing creative products,
services and solutions to automate and optimise the global reclamation of withhold-
ing tax and class action compensation. Our research has shown that in excess of
US$6 billion of withholding tax remains unclaimed each year by the rightful owners
and beneficiaries and the amounts for class actions is even larger.
To establish your potential ability to reclaim over-withheld taxes and/or class action
compensation GOAL provides a free proof of concept analysis. We simply require details
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and Bespoke Software Development.
Consultants
Z/Yen helps organisations make better choices. Our name combines Zen and Yen -
“a philosophical desire to succeed” - in a ratio, recognising that all decisions are
trade-offs. Z/Yen’s mission is to be the foremost risk/reward management firm.
In the financial markets Z/Yen conducts numerous research projects on a variety of
wholesale and retail issues, as well as providing technical strategy, support and
prediction systems. Z/Yen’s renowned annual studies include:
i. Global cost per trade benchmarks on equities, money markets and foreign
exchange;
ii. Operational performance of broker ratings;
iii. Operational performance of client (buy-side) ratings.
69 INVESTOR SERVICES JOURNAL
 Custody & Clearing
BHF-BANK is one of Germany's most prestigious private banks. Its roots date back to the
year 1854. As an advisory, service and sales & trading bank, we offer our discerning clientele C: Cornelia Keth
a comprehensive array of customised solutions. BHF-BANK combines the strengths of a pri- T: +49 69 718 3738
vate bank with a long track record of capital market competence. F: +49 69 718 6050
Trust, an individual approach and impartiality - these qualities are at the very heart of the E: cornelia.keth@bhf-bank.com
long-term guidance and advice we provide for our clients. Our bank's activities are grouped C: Moritz Ostwald
within the divisions Asset Management & Financial Services, Financial Markets & Corporates
T: +49 69 718 6838
and Private Banking.
The bank's longstanding experience in the German securities services market goes hand in E: moritz.ostwald@bhf-bank.com
hand with a corporate culture that values prompt acknowledgements and short decision-mak- A: Strahlenbergerstraße 45,
ing channels. 63067 Offenbach a.Main
BHF-Bank offers tailor-made custody services to meet its clients' particular requirements. Germany
It's reporting services include a comprehensive SWIFT reporting matrix as well as its W: www.bhf-bank.com
Internet-based reporting tool cds@web. Assets under Custody: EUR269 bn No of funds: 328

The CACEIS Group is a partnership between the Investor Services business lines
T: +33 1 57 78 10 78
of Crédit Agricole S.A. and Groupe Caisse d'Epargne. We rank among the top 10
custodians worldwide, with EUR 1,697 billion in assets under custody C: (France)
(30/6/2006). CACEIS provides a full range of services to institutional clients in Patrick Lemuet
France, Luxembourg, Spain and Ireland. These services include, global and local E: france@caceis.com
custody (safekeeping of listed and OTC assets) depositary/trustee services, T: +352 4767 2567
STP transactions (SWIFT), corporate actions and income collection, proxy voting, C: (International)
tax services, compliance and performance monitoring, flexible online reporting, José-Benamin Longrée
securities lending, matching, processing and settlement. We also have links to E: international@caceis.com
200+ UCITS registrars. Our network of sub-custodians provides a secure
W: www.caceis.com
environment for your assets in over 70 markets worldwide.

www.dbs.com
DBS offers a full range of custodial services including securities safekeeping, settlement +65 6878-1830
of trades, corporate actions and market information updates. These services are
available in Singapore, Hong Kong, Indonesia, India, China (A-shares) and other select- +65 6878-4766
ed markets. DBS also offers short-term, highly liquid overnight facilities for its clients' Ms Low Swee Fun
accounts to earn daily interest on any excess funds. investorsvs@dbs.com
DBS Bank Ltd,
With over 20 years of experience in the custody business, DBS' strengths lie in its ability Global Transaction Services,
to provide quality services, in depth knowledge and expertise of the Asian markets, as Securities Services,
well as customized business solutions to support clients’ businesses. Its clientele 6 Shenton Way, #36-02,
comprises the global custodians, international central securities depositories, broker- DBS Building Tower 1
dealers, financial institutions, insurance companies, investment managers, private banks
and corporate. 068809 Singapore

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 client's needs.
W: www.dnbnor.com

Handelsbanken was the first Nordic bank to provide complete custody services in the T: +46 8 701 2988
entire Nordic region. We conduct in-house processing in each Nordic country, with F: +46 8 701 2990
well-experienced staff with in-depth market knowledge and access to market Contact: Johan Wennerberg
information. Each client is allocated an account manager fully responsible for the E: custodyservices@handels-
day-to-day activities, as well as a regional relationship manager. Handelsbanken banken.se
provides specialised and tailor-made custody services including complete corporate Address: Blasieholmstorg 12,
action services, securities borrowing and lending for all Nordic countries, as well as SE-106 70 Stockholm, Sweden
settlement and clearing services to clients that are remote members of the Nordic www.handelsbanken.com/nordic_
stock exchanges. _custody_services

New York: Christopher Lynch

T: +1 718-242-7555
JPMorgan Worldwide Securities Services provides custody and securities servicing
solutions to the world's leading institutional investors, including fund managers, E: chris.e.lynch@jpmorgan.com
insurance companies, pension funds and banks. London: Dick Feehan
As one of the world's leading global custodians, we have $11.7 trillion in assets T: +44 (20) 7742-0102
under custody. E: dick.j.feehan@jpmorgan.com
JPMorgan meets institutional investors' needs by providing extensive experience, Sydney: Laurence Bailey
comprehensive products and advanced technology designed to optimize efficiency, T: (61-2) 9250-4833
enhance revenues and mitigate risks associated with global investing. E:laurence.bailey@jpmorgan.com
W: www.jpmorgan.com/wss

70 INVESTOR SERVICES JOURNAL


and operates through three business areas: Retail Banking, Corporate and
Institutional Banking and Asset Management & Life.
T: +47 2248 6238
Contact: Anne-Lise Kristiansen
Head of Sub-custody and
Clearing
E: anne-lise.kristiansen@nordea.com
Nordea is the leading custody services provider in the region. Nordea provides high
quality, tailor-made custody services for local and foreign investors dealing with
Nordic, Baltic or global securities.
T: +44 (0) 20 7653 4096
F: +44 (0) 20 7248 3946
Contact: Tony Johnson
Head, Sales & Relationship
Management
E: antony.johnson@rbcdexia-is.com
Address: 71 Queen Victoria Street,
London, EC4V 4DE, UK
T: Europe: (34) 91 2893932 / 28
T: USA: (1212) 350 39 02
W: santanderglobal.com
E: globalsecurities@
gruposantander.com
T: +46 8 763 5770
F: +46 8 763 6930
Contact: Goran Fors
E: goran.fors@seb.se
W: www.seb.se
A:Standard Bank
Financial Asset Services
3rd Floor
25 Sauer Street
Johannesburg 2107
T: +2711 636 6615
E: adam.bateman@standard-
bank.co.za
W: www.standardbank.co.za
C: Neil Daswani,
Global Head, Securities Services
T: +65 6517 0022
E: Neil.Daswani@sg.standard-
chartered.com
W: www.standardchartered.com
Nordea is the leading financial services group in the Nordic and Baltic Sea region
- The leading financial services group
- A world-leading Internet banking and e-commerce operation
- The largest customer base of any financial services group in the region
- A leading asset manager in the Nordic financial market
- The most comprehensive distribution network in the region
RBC Dexia Investor Services offers a complete range of investor services to
institutions worldwide. Established in January 2006, we are equally owned by Royal
Bank of Canada (RBC) and Dexia. We rank among the world's top 10 global
custodians, with approximately USD 2.0 trillion in client assets under custody,
including in-house assets of RBC and Dexia. Our innovative products and services
help clients maximise operational efficiency, minimise risk and enhance portfolio
returns. And our 3,800 professionals in 15 markets offer proven expertise to
enhance clients’ business performance.
Santander is Spain’s leading financial institution and the largest bank in the euro zone
by market capitalization. Our commitment and contribution to the securities industry is
well established after more than a century of providing services in this field.
Santander’s cutting edge technology enables it to offer a comprehensive array of inno-
vative services in a broad range of markets. Santander currently has full local capabili-
ties in Iberian and Latin American markets along with a franchised presence in many
others. Santander`s experience and product range ensures that every aspect of the
securities business is fully contemplated.
SEB is the leading provider of securities services in the Nordic and Baltic area. We
are committed to custody and clearing processes for the wholesale market. We hold
securities worth over EUR 460 bn and provide services in more that 70 markets, 9
of them under the SEB name (Sweden, Norway, Finland, Denmark, Luxembourg,
Germany, Estonia, Latvia and Lithuania).
We offer a full range of securities services including corporate action and
information services, securities lending and services to remote members of the
Nordic and Baltic stock exchanges. We continuously develop new products in
connection with clients and partners to ensure we deliver the high-quality
products our clients demand. We always strive to make the processes more
efficient. With a history of 150 years in the securities industry; we know the market
and our clients well.
Financial Asset Services is the custody and investments-servicing division of
Standard Bank, providing a unique suite of services to sophisticated investors in
South Africa and eight sub-Saharan markets.
Standard Bank has assets under custody to the value of ZAR1.56 trillion and an
overall market share of approximately 40%.
Standard Bank's unique selling point lies in its consultative approach to
relationships combined with the bank's commitment to custody and investment
administration services.
Standard Chartered leading the way in Asia, Africa and the Middle East.
Standard Chartered has a history of over 150 years in banking and is in many of the
world's fastest-growing markets with an extensive global network of over 1,200
branches (including subsidiaries, associates and joint ventures) in over 50 countries
in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom
and the Americas.
As one of Asia's leading custodians, Standard Chartered has an impressive track
record across the 16 Asian markets in which it provides securities services. It serves
global, regional and local custodians and broker-dealers, as well as local and regional
fund managers. The Bank plays a key role in promoting the development of these
markets and keeping the international investor community informed of industry
developments across the region.
INVESTOR SERVICES JOURNAL 71
 Swedbank provides client-focused custody services to domestic and international
securities lending (including auto-borrow facilities), derivative clearing services,
proxy voting, full corporate actions and income service. Flexibility is an important
aspect of Swedbanks products and services. Our dedicated Client Relations T: +46 8 5859 1800
Managers and Account Managers are focused on personalized processing and F: +46 8 7237 147
reporting solutions. C: Neal Meacham, Head of
Custody
Other Features: ISO9001:2000 quality certification. Swedbank Markets Online
(SMO) internet information and reporting toolfor Custody and Securities Lending. E: neal.meacham@swedbank.com
Nordic Custody alliance with DnB NOR (Norway), OKO Bank (Finland) and A: Stockholm SE 105 34
Amagerbanken (Denmark) to offer regional custody product. Sweden
Institutional Assets under Custody: USD 70 billion
No. of Institutional Clients: 110

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

Data Services
Capco Reference Data Services (CRDS) provides a suite of reference data
management solutions that help financial services providers to achieve C: Donna Faup Bailey
superior data integrity, solve data integration issues and transform
operational performance while lowering data management costs. These Director Business Strategy &
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alternative to in-house management of reference data as well as index T: +212 284 8749
and ETF data solutions. CRDS also provides consulting services E: Donna.FaupBailey@Capco.com
including advisory, assessment, migration, implementation, integration,
project management, development and training. For more information, W: www.capco.com/crds
please visit www.capco.com/crds.

Through its subsidiaries, DTCC provides clearance, settlement and information serv-
ices for equities, corporate and municipal bonds, government and mortgage-backed London: Richard Bustard
securities and over-the-counter derivatives. DTCC's depository also provides custody T: +44 (0)20 7444-0403
and asset servicing for more than 2.5 million securities issues from the United E: rbustard@dtcc.com
States and more than 100 other countries and territories. In addition, DTCC is a
leading processor of mutual funds and insurance transactions, linking funds and car- New York: Susan Spivey
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tions in the United States and overseas. For more information on DTCC, visit T: + 1 212 855-4144
www.dtcc.com. E: sspivey@dtcc.com

DTCC’s GCA Validation Service gathers and distributes validated global corporate General information
actions announcement information on more than 1.4 million securities from more T: +1 212 855-1000
than 150 countries in more than 16 languages, more than any other provider.

Interactive Data Corporation (NYSE: IDC) is a leading global provider of Interactive Data (Europe) Ltd
financial market data, analytics and related services to financial institutions, active A: European Headquarters
traders and individual investors. The company’s businesses comprise: FT Interactive
Fitzroy House, 13-17 Epworth
Data, ComStock, CMS BondEdge and eSignal.
Street, London EC2A 4DL
FT Interactive Data provides global securities pricing, evaluations, dividend, corporate T: +44 (0)20 7825 7800
action and reference data designed to support financial institutions’ and investment F: +44 (0)20 7608 3514
funds' pricing activities, securities operations, research and portfolio management. FT
E: eu-info@interactivedata.com
Interactive Data collects, edits, maintains and delivers data on more than 3.5 million
W: www.interactivedata.com
securities, including daily evaluations for approximately 2.5 million fixed income and
international equity issues. FT Interactive Data specialises in ‘hard-to-value’ instru- C: Brendan Beith – European
ments and ‘hard-to-get’ information from emerging markets. Sales Director

SunGard's solutions for data management provide technology for the management
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72 INVESTOR SERVICES JOURNAL


Telekurs (UK) Ltd
15 Appold Street
London
EC2A 2NE
C: Kimberly Neumann
T: +44 (0) 20 7550 5000
F: +44 (0) 20 7550 5001
E: info@telekurs.co.uk
W: www.telekurs.co.uk
Andrew Collins Managing Director
T: 441-299-3954
E: andrewcollins@bntb.bm
Tania Kowalski Marketing
Manager T: 441-278-6300
E: taniakowalski@bntb.bm
A: Rosebank Centre 11
Bermudiana Road, Pembroke,
Bermuda HM 08 / P.O. Box HM
195 Hamilton, Bermuda HM AX
T: +33 1 57 78 10 78
C: Patrick Lemuet (France)
E: france@caceis.com
T: +352 4767 2567
C: José-Benamin Longrée
(International)
E: international@caceis.com
W: www.caceis.com
New York: Christopher Lynch
T: +1 718-242-7555
E: chris.e.lynch@jpmorgan.com
London: Dick Feehan
T: +44 (20) 7742-0102
E: dick.j.feehan@jpmorgan.com
Sydney: Laurence Bailey
T: (61-2) 9250-4833
E:laurence.bailey@jpmorgan.com
W: www.jpmorgan.com/wss
C: Fred W. Jacobs, III
A: PFPC, 301 Bellevue Pkwy
Wilmington, DE 19809 USA
T: 302-791-2000
F: 302-791-1570
E: Information@pfpc.com
C: Fergus McKeon
A: PFPC Riverside Two
Sir John Rogerson’s Quay
Dublin 2, Ireland
T: +353-1-790-3500
E: Information@pfpc.com
T: +44 (0) 1481 744000
F: +44 (0) 1481 744529
C: Jose Santamaria
E: jose.santamaria@rbc.com
A: PO Box 48 Canada Court
St Peter Port Guernsey
GY1 3BQ United Kingdom
W: www.rbcprivatebanking.
com/ci.html
Telekurs Financial, a company in the Telekurs Group, specializes in the procurement,
processing and distribution of international financial information for investment adviso-
ry services, portfolio management, financial analysis and securities administration. A
global network of local financial market specialists procures real-time stock exchange
information at source from the leading financial centres. Containing over 3 million
financial instruments, the database of structured, encoded securities information main-
tained by Telekurs Financial and its ten representative offices abroad is unparalleled
throughout the world in terms of both depth and data coverage.
Telekurs Financial is a founding member of the Association of National Numbering
Agencies (ANNA) allocating Swiss security (Valor) numbers and leads the way in intro-
ducing standards aimed at simplifying trading and securities administration.
Fund Administration
Butterfield Fund Services (BFS) provides valuation, accounting, corporate secretarial,
compliance, directorial and shareholder services to hedge funds, fund-of-funds, and
mutual funds. BFS also services international pension & insurance trusts. Clients
such as financial institutions, insurance companies, and institutional investors use
Butterfield Fund Services to set up and launch investment funds. BFS operates in
Bermuda, Bahamas, the Cayman Islands and Guernsey.
Whether a fund is just starting out or is well established, Butterfield Fund Services
can provide complete solutions to help clients better service their investors. With
over $50 billion in assets under administration, many alternative funds have turned
to Butterfield Fund Services for timely and accurate administration services.
The CACEIS Group is a partnership between the Investor Services business lines of
Crédit Agricole S.A. and Groupe Caisse d'Epargne. With a total of 823 billion in
assets under administration (30/6/2006), we are Europe’s premier third party fund
administrator. CACEIS provides a full range of services in France, Luxembourg,
Ireland, Belgium and The Netherlands. These services include portfolio valuation
with multiple and automated pricing sources, NAV calculation, product structuring,
tax relevant data calculation, fees and commissions calculation, on-line client report-
ing, legal and statutory investment guideline monitoring, performance measurement
and globalisation techniques such as Cloning. Our transfer agency services include
retail and institutional account management, Europe-wide transaction processing,
distribution network management, third party distribution and shareholder services.
The Fastnet Network, operated by CACEIS, undertakes some of the above services
and is a partnership venture with the Fortis Group.
JPMorgan Fund Administration provides a full suite of products for all aspects of
fund administration, enabling asset managers to focus on their core business of
investment management. Fully integrated with JPMorgan's custody and fund
accounting system, it also accepts automated data feeds from clients' in-house or
third party accounting platforms. By automating these activities, we leverage
technology to build flexible business systems that increase efficiencies and deliver
customer focused solutions.
A world-class team of experienced industry professionals provides the expertise you
need in fund administration services.
PFPC is a premier provider of processing, technology and business solutions to the
global investment industry. Our core offering includes accounting, administration,
investor services, middle-office services and regulatory administration services. Whether
your products are U.S. or non-U.S. domiciled funds, trust vehicles, limited partnerships
or commingled investment products, PFPC’s multi-jurisdictional, multi-fund capability
allows us to process your complex fund structures - from hedge funds, fund of funds
and private equity funds to master/feeder and multi-managed funds.
PFPC offers personalized alternative investment solutions tailored to your unique
needs. With more than 30 years in the fund servicing industry, our seasoned and
responsive professionals bring you the know-how, focus and dedication to deliver the
services you need, when and where you need them, any way you want them.
Our clients have access to a broad range of value added services and tailored solu-
tions including global custody and fund administration services for funds domiciled
in the Caribbean and Channel Islands.
Our services include Trustee, banking and credit facilities, treasury and foreign
exchange, trade execution, financial accounting, corporate services, derivative sup-
port services and online access, leveraging a custody network that covers 80 plus
markets worldwide. Our service combines leading edge technology with professional
expertise and a truly integrated service delivering creative, customised solutions.
INVESTOR SERVICES JOURNAL 73
 Atlanta: Peter Cohen
For over 25 years, professional advisors, financial institutions, corporations and high net T: 001-404-233-5275
worth families worldwide have relied on Trident Trust for integrity, reliability and commit- BVI: Barry Goodman
ment to client service. T: 284-494-2434
Main Services: A full range of back office administration services tailored for hedge, pri-
Cayman Islands: Rick Gorter
vate equity and closed-ended funds. We offer flexibility in structuring administration
T: 345-949-0880
which allows us to work closely with accounting firms and other service providers.
Services include full fund accounting, NAV calculations, registrar and transfer agent, Guernsey: Mark Le Tissier
corporate secretarial including company formation, due diligence compliance and inter- T: 01481-740-930
net reporting. UK: Robin Harris
Assets Under Administration: $13 billion * No. of Funds Administration: 185 T: 44-(0)207-935-1503
W: www.tridenttrust.com
Fund Services offers comprehensive fund administration services including fund
set-up, registration and support around the world (currently 28 countries), fund
accounting, NAV calculation, compliance management, risk control and reporting.
We provide a flexible offering from the full range of services, including Private W: www.ubs.com/fundservices
Labelling, to selected functions. Services are based on leading fund administration C: Mr Gerhard Fusenig
architecture, multi-source pricing and powerful compliance tools. T: +41 44 235 4992
Capabilities also extend to services for hedge funds through our teams in Cayman, E: gerhard.fusenig@ubs.com
Ireland and Canada. A: UBS Global Asset
In times when management attention is increasingly focused on value creation, it Management, Fund Services,
may be rewarding to re-evaluate whether asset administration remains a strategic Stauffacherstrasse 41, PO Box,
core business to you. CH-8098, Zurich, Switzerland
Luxembourg: Jean-Paul Gennari, tel. +352-44-1010 1
Switzerland: Markus Steiner, tel. +41-61-288 4910
UK: Mark Porter, tel. +44-20-7901 5000

Hedge Fund Administration

Robert N. Chin, General Manager
T: (+) 5999 738 1351 ext 11
E: robert.chin@atcfunds.an
ATC Fund Services is a specialized hedge fund administrator who has consistently Kedi J. Chang, Managing Director
received excellent reviews from its clients. ATC provides full administration to hedge T: (+) 5999 738 1351 ext 10
funds, including daily processing of all funds’ activities, nav calculation on a daily, E: kedi.chang@atcfunds.an
weekly or monthly basis and registrar & transfer agency services. In addition, ATC
ATC Fund Services
takes a pro active approach in assisting start up hedge fund managers with the Bon Bini Business Center, units
incorporation of their fund in jurisdictions such as the Cayman Islands, the British 2B2K & 2B2L
Virgin Islands and the Netherlands Antilles. Schottegatweg Oost 10
Curaçao, Netherlands Antilles
F: (+) 5999 738 1311
W: www.atcgroup.info

Custom House Administration &

Custom House is a specialist hedge fund administrator and was the first and only Corporate Services Limited
one to be awarded a Moody’s Management Quality Rating. A: 25 Eden Quay, Dublin 1,
Custom House provides advice and assistance in the organization of hedge funds, Ireland
together with the provision of a full administration service, which covers all aspects T: +(353) 1 878 0807
of the day-to-day operation, including shareholder services. F: +(353) 1 878 0827
Custom House now offers a global “24/7” service through offices in Dublin, Chicago C: dermot.butler@customhouse-
and Singapore. group.com
Custom House is authorised by the Irish Financial Regulator under Section 10 of the C: david.blair@customhouse-
Investment Intermediaries Act, 1995. group.com
ww.customhousegroup.com

DPM Mellon 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 W: www.dpmmellon.com
allocators, institutional investors and proprietary traders. T: +1 732 667 1155
DPM Mellon’s services are designed to solve complex administrative needs and F: +1 732 662 2650
improve operational efficiency. From the most basic reports to complex portfolio C: Skander Aissa
valuations, risk analysis and daily transparency, DPM has the systems, infrastructure E: Aissa.s@dpmmellon.com
and experience to handle your toughest administrative challenges. A: 400 Atrium Drive Somerset
DPM Mellon has a world-wide staff of approximately 200 employees. DPM Mellon New Jersey NJ 08873 USA
is headquartered in Somerset, New Jersey with offices in London, the Bahamas, and
the Cayman Islands.

For over 25 years, Trident Trust has been a leading provider of corporate, trust and
fund services to the financial service sector worldwide.
Fund Services: A full range of back office administration services tailored for W: www.tridenttrust.com
hedge, private equity and closed-ended funds. Flexibility in structuring a fund’s T: +44 (0) 20 7935 1503
administration allows us to work closely with accounting firms and other service F: +44 (0) 20 7935 7242
providers to offer a cost-effective administrative solution. C: Robin Harris
Services include full fund accounting, NAV calculations, registrar and transfer E: rharris@tridenttrust.com
agent, corporate secretarial including company formation, due diligence compliance A: 7 Welbeck Street
and internet reporting. Assets of Funds Serviced: $20 billion No. of Funds: 300 London W1G 9YE UK
New York: Mario Novello T: 212-840-8280 London: Robin Harris T: 0207-935-1503
BVI: Barry Goodman T: 284-494-2434 Cayman Is: Rick Gorter T: 345-949-0880
Guernsey: Mark Le Tissier T: 01481-727571 Jersey: Mike Spittal T: 01534-733401

74 INVESTOR SERVICES JOURNAL


W: www.ubs.com/fundservices
C: Mr Gerhard Fusenig
T: +41 44 235 4992
E: gerhard.fusenig@ubs.com
A: UBS Global Asset
Management, Fund Services,
Stauffacherstrasse 41, PO Box,
CH-8098, Zurich, Switzerland
British Virgin Islands
International Finance Centre
Haycraft Building
1 Pasea Estate
Road Town
Tortola
British Virgin Islands
T: +1 284 494 1509
F: +1 284 494 1260
W: www.bviifc.gov.vg
C: Philippe Teilhard
A: Fimat International Banque SA
(UK Branch) - part of the Societe
Generale Group
SG House, 41 Tower Hill
London EC3N 4SG, UK
T: + 44 207 676 85 36
F + 44 207 628 44 47
E: philippe.teilhard@fimat.co.uk
A: Exchange Tower
One Harbour Exchange
London
E14 9GE
T: Asia: +81 (0) 2 3517 2791
Europe: +44 (0) 20 7971 5700
North America: +1 212 943
2290
E: corpcom@cls-group.com
W: www.cls-group.com
A: Eiger Point
Swift Park
Old Leicester Road
Rugby
CV21 1DZ
United Kingdom
T: + 44 (0) 1788 554800
(Sales): +44 (0) 1788 554810
A: Europe/Asia/Africa
42 New Broad Street
London EC2M 1SB
United Kingdom
T: +44-207-588-1100
F: +44-207-588-1155
A: Americas
30 Montgomery Street Suite 501 ing in countries outside the U.S. that have established Real Time Gross Settlement
Jersey City, NJ 07302
T: +1-201-946-1100
F: +1-201-946-1313
Hedge Fund Services, based in the Cayman Islands, Ireland and Canada holds a
leading position in the area of hedge fund administration, offering a complete range
of services including accounting, NAV computation, share holder services, banking
and credit facilities. With the dedication and experience of a professional team of
200 and our state-of-the-art web reporting, accounting and shareholder systems, we
are well positioned to provide clients with a first class service.
With specialist expertise in both single manager and fund of hedge fund adminis-
tration, we provide facilities for both onshore and offshore funds.
Capabilities also extend to services for investment funds through our teams in
Luxembourg, Switzerland and the UK.
Cayman Islands: Darren Stainrod, tel. +1-345-914 1076
Ireland: Don McClean, tel. +353-1-436 3636
Canada: Pearse Griffith, tel. +1-416-971 4702
International Finance Centres
The British Virgin Islands has created a progressive and transparent environment for
the establishment and regulation of mutual/hedge funds and their functionaries. By
the end of Q3 2006 the BVI had recognised or registered more than 4,000 funds,
and licensed some 700 managers and administrators, making the BVI a leading
domicile of choice for investment business.
Benefits of conducting investment business in the BVI include:
-Fast-track registration and licensing system - funds can be registered in a few days.
-Presence of qualified, experienced legal, accounting & administration practitioners.
-A well-developed corporate professional infrastructure.
-Modern, robust and cost-effective regulatory and corporate regimes.
-BVI private and professional funds fall outside the scope of the EU Savings
taxation Directive.
-Segregated Portfolio Companies - also known as Protected Cell Companies - can now
be formed as mutual funds under the BVI Business Companies Act 2004.
Prime Brokerage
Fimat’s Alternative Investment Solutions team (AIS) is a dedicated global Prime
Brokerage team serving the alternative investment community including hedge
funds and CTAs.
The AIS team offers a global range of brokerage activities on a wide range of asset
classes including equities, bonds, currencies, commodities, and their related listed &
OTC derivative products. The team also provides a dedicated account management
team, cross-margining tools between securities & derivative instruments, hedge fund
start-up services, hedge fund industry quantitative information and capital
introductions services.
The AIS team is part of Fimat, which employs over 1,600 people in 26 markets,
and is a member of 46 derivatives exchanges, and 17 stock exchanges worldwide.
Payments & Settlement
The Settlements Directory for CLS removes the uncertainty surrounding which
instructions to use, easing time pressure on query handling and investigation in
back office operations.
The Settlements Directory for CLS is a web-enabled application powered by
SSISearch containing contact details, basic settlement information and MT300
preferences. It offers Settlement Members ongoing certainty of accurate settle-
ments information and a fast, simple method of publishing and accessing CLS
static data.
Eiger Systems solutions are designed to be best in class and are the leading products
within their market sectors. Developed to meet the needs of organisations with complex or
mission critical payment processes, our solutions interface easily with existing business
applications and are available for all main operating systems.
EigerPAY Gateway is a global payments platform which handles complex payment require-
ments and multiple payment channels. Already the UK’s leading BACSTEL-IP solution,
EigerPAY Gateway is ideally suited to organisations with one or more of the following:
• a mission critical reliance on payments
• complex functional or technical requirements
• a requirement for numerous communication channels such as
BACSTEL-IP, CHAPS, SWIFT, or PE-ACH connectivity
EigerPAY Gateway’s flexible architecture enables organisations to integrate with the
many new and developing payment systems, with minimal change to legacy systems.
Fundtech's payments solutions automate all aspects of the funds transfer and cus-
tomer notification process, enabling straight-through-processing (STP) of payments.
Fundtech also offers payments solutions for continuous linked settlement (CLS), nos-
tro account management and enterprise-wide payments management.
Global PAYplus - The enterprise-wide payments management solution for global
financial institutions.
PAYplus RTGS - A fully integrated, multi-currency payment system for banks resid-
(RTGS) standards.
PAYplus USA - The leading payments solution for financial institutions in the US.
INVESTOR SERVICES JOURNAL 75
 Securities Lending .
Data Explorers Limited, a specialist and independent company, offers impartial
W: www.dataexplorers.com
quantitative measurement of securities lending performance services to the global T: +44 (20) 7392 4000
securities financing industry. We help our clients monitor and understand the F: +44 (20) 7392 4004
relative performance of their lending activity and risk, and turn raw lending, borrow- A: 155 Commercial Street,
ing and collateral data into useful, actionable information. We also provide proxies London E1 6BJ United Kingdom
for short selling information. London: Julian Pittam
Working with the industry we ensure information flows are appropriate and peer T: +44 (20) 7392 5018
groups relevant. We are not involved in transactions. E: jp@dataexplorers.com
All of our services: Performance Explorer, Transaction Explorer, Risk Explorer, Boston: Tim Smith
Index Explorer and Report Explorer are web based and available to clients T: + 1 (617) 973 5099
E: tim.smith@dataexplorers.com
over the internet.

T: +1 212 901 2224

EquiLend Holdings LLC was formed by a group of leading financial institutions to C: Michelle Lindenberger
develop a global platform for the automation of securities finance transactions. E: Michelle.lindenberger@equi-
The EquiLend platform is designed to increase efficiency by standardizing, cen- lend.com/info@equilend.com
tralizing and automating front and back office processes, while delivering global
A: 17 State Street, 9th Floor
access to liquidity, reduced risk and scalability. The EquiLend platform is
New York NY 10004
designed to process equity and fixed income securities finance transactions on a
global basis. Investors include: Barclays Global Investors; Bear, Stearns & Co. T: +44 20 7743 9510
Inc.; Credit Suisse; The Goldman Sachs Group, Inc.; J.P. Morgan Chase & Co.; A: 54 Lombard Street
Lehman Brothers; Merrill Lynch; Morgan Stanley; Northern Trust Corporation; London EC3V 9EX
State Street Corporation; and UBS. W: www.equilend.com

eSecLending is a global securities lending manager and a leading provider and

administrator of customized securities lending programs. Its programs attract T: US- +1 617 204 4500
some of the world's largest and most sophisticated asset gatherers, including T: UK- +44 (0)20 7469 6000
pension funds, mutual funds, investment managers and insurance companies. C: Dan Ahern
Over the past six years, the company has auctioned over $950 billion in assets E: info@eseclending.com
and has achieved significant growth in its client base, lendable assets and assets W: www.eseclending.com
on loan. The firm awards principal securities lending business through a compet- A: 175 Federal Street, 11th FL,
itive auction process that has provided clients with higher returns compared to Boston, MA 02110, US
traditional program structures and improved transparency and objective criteria A: 1st Floor, 10 King William
upon which to make decisions. More information about eSecLending can be Street, London EC4N 7TW, UK
found at www.eseclending.com.

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.
A: IFBS AG, Buckhauserstrasse
IFBS’s IT solutions range from FINACE®, a Securities Finance and Collateral
Management Platform, to the development of tailor-made IT applications. 11, CH-8048 Zurich, Switzerland
W: www.ifbs.com

New York: Christopher Lynch

JPMorgan Securities Lending offers institutional investors the opportunity to earn T: +1 718-242-7555
extra income on investment and pension portfolios with minimal risk and E: chris.e.lynch@jpmorgan.com
involvement by lending their securities to qualified borrowers. With more than 300 London: Dick Feehan
lending relationships and lendable assets in excess of $1.2 trillion, JPMorgan is T: +44 (20) 7742-0102
clearly committed to the market and to the value that our clients place in it. Our E: dick.j.feehan@jpmorgan.com
resources enable you to develop programs that comply with your business
requirements and achieve your business objectives. When you select JPMorgan as Sydney: Laurence Bailey
your securities lending agent, you have chosen a premier provider of securities T: (61-2) 9250-4833
lending services worldwide. E:laurence.bailey@jpmorgan.com
W: www.jpmorgan.com/wss

Nomura Group is a global investment bank dedicated to providing a broad range of

financial services for individual, institutional, corporate and government clients. T: +44 (0) 20 7521 5672
The Group’s business activities include investment consultation and brokerage F: +44 (0) 20 7521 2683
services for retail investors in Japan, and, on a global basis, brokerage services, C: Jonathan Cossey, Head of
securities underwriting, investment banking advisory services, merchant banking, Equity Finance
and asset management. A: Nomura House,
Nomura offers a full range of Equity Finance services to institutional participants 1 St Martin's-le Grand, London,
in over thirty markets, through regional trading desks in London, New York, EC1A 4NP United Kingdom
Tokyo and Hong Kong. Identifying client needs and providing bespoke solutions W: www.nomura.com
is our top priority.

76 INVESTOR SERVICES JOURNAL


W: www.gruposantander.com
T: (3491) 289 39 42/54
E: securitieslending@
gruposantander.com
T: +44 (0) 207 551 3000
E: bsginfo@adp.com
Address: The ISIS Building,
193 Marsh Wall, London,
E14 9SG, UK
T: +44 (0)20 7631 9240
F: +44 (0)20 7631 9256
E: emea@advent.com
A: One Bedford Avenue,
London WC1B 3AU, UK
W: www.advent.com
A: EMEA - Progress Apama
68 Lombard Street
London EC3v 9LJ
T: +44 (0) 870 3517212
E: fraser.herrick@progress.com
A: USA - Progress Apama
10th Floor, 230 Park Avenue
New York NY
T: +1 203 606 5006
E: jim.feingold@progress.com
W: www.progress.com/apama
C: Belinda Hamer (US)
E: bhamer@asset-control.com
T: +1 212 445 1076
F: +1 212 445 1079
C: Pascal Guignabaudet (EU)
E: pascalg@asset-control.com
Address: 54 Lombard Street,
London, EC3P 3AH, UK
T: +44 (0)20 7743 0320
F: +44 (0)20 7743 0321
W: www.asset-control.com
W: www.burns-stat.com
T: +44 (0)20 8525 0696
C: Patrick Burns
E: patrick@burns-stat.com
4-b Jodrell Road
London
E3 2LA UK
Santander is the only Spanish financial institution with a team exclusively dedicated
to securities finance & with the purchase of Abbey in 2004 has expanded its
capacity on a Global basis with trading teams in London (UK) & Connecticut (USA).
Santander's leading local capabilities in Spain, Portugal, UK, USA & Latin America,
along with its solid balance sheet & combined with the state-of-the-art technology,
provides its clients with the broadest range of solutions in securities lending &
financing, including availability across all assets classes, as well as access to
uncommon emerging markets.
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.
-Proxy Edge – comprehensive solution for institutional global proxy voting management.
-Gloss – leading international STP system which automates the trade processing
lifecycle from trade capture through confirmation, clearing agency
reporting and settlement.
-Tarot - a UK retail and private client stockbroking, custody and fund management solution.
-Securities Data Management – outsourced data services for securities operations.
Advent Software EMEA, established in 1998, provides trusted solutions for the front
through to back office operations, based on a true real-time fund/portfolio
accounting platform, to the investment management community throughout Europe,
Middle East and Africa. Advent has an established network of offices across the
region serving a growing client base of asset managers, hedge fund managers, prime
brokers, fund administrators, wealth managers, private banks and family offices who
continue to improve their businesses using Advent’s suite of integrated investment
management solutions. Advent Software EMEA is part of Advent Software Inc.
(Nasdaq: ADVS), a global organisation that has been providing solutions to the
world's leading financial professionals since 1983. Firms in more than 50 countries
using Advent technology manage investments totaling more than US $8 trillion.
Progress Apama provides the next-generation Algorithmic Trading
Platform for both the buy and sell-side financial institutions - giving
traders full control over composing, deploying and managing algorithmic
trading strategies, such as VWAP, spread trading and index arbitrage.
Apama has customers using the Algorithmic Trading Platform in equities,
futures & options, foreign exchange and bonds and often trading multiple
assets classes within the same strategy.
Apama's platform plugs straight into any market data feeds, order
management systems and databases.
Asset Control is the world's leading provider of Centralized Data Management (CDM)
to financial industry firms. With a complete range of in-house and outsourced
options, Asset Control delivers a hybrid approach to data management. The
selection of developer tools, turnkey software solutions and outsourced services
enable users to optimize their investment data for efficiency, cost control, reduced
operational risk and increased value from their data.
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.
Burns Statistics provides software and consulting services. We are focusing on ran-
dom portfolios, a technique that provides significantly improved performance meas-
urement. A particularly powerful feature is that the initial holdings of the portfolio
can be used in the performance analysis in order to gain even more precision.
Performance measurement is after the fact, but random portfolios also allow fund
managers to test trading strategies before implementing them. There are many addi-
tional uses of random portfolios as well, one is to objectively evaluate the effect of
constraints on a portfolio.
INVESTOR SERVICES JOURNAL 77
 DST International is the world’s premier vendor of technology solutions to the global
T: UK +44 (0)20 8390 5000
investment management community with over 700 clients in 55 countries, and
Boston +1 617 482 8800
1500 employees in 19 of the world’s leading financial centres. Our wide range of
Hong Kong +85 225 812 880
asset management solutions meet the needs of fund managers, dealers, settlement
F: +44 (0)20 8390 7000
staff, custodians and record keepers operating as international asset managers; from
E: info@dstintl.com
front office simulation, opinion management and modelling functions, through data
A: DST House, St Mark’s Hill,
management, dealing and settlement to custody and corporate actions. The suite of
Surbiton, Surrey, KT6 4QD
products can be used either as stand-alone applications or brought together in flexi-
W: www.dstinternational.com
ble combinations according to specific needs.

Eagle Investment Systems LLC, a Mellon Financial CompanySM, is a global provider

of financial services technology, serving the world's leading financial institutions. W: www.eagleinvsys.com
Eagle's Web-based systems support the internal straight-through processing T: +44 (0) 20 7163 5700
requirements of firms of any size including money managers, mutual funds, hedge F: +44 (0) 20 7163 5701
funds, plan sponsors, banks, corporate trusts, and insurance companies. Eagle is A: Mellon Financial Centre
committed to providing leading-edge technology, professional services, and global 160 Queen Victoria Street
support for portfolio management, investment accounting, performance London, EC4V 4LA
measurement, attribution, reference data management, AIMR/GIPS compliance,
reporting, and outsourcing.

Financial Tradeware provides integrated solutions for medium to small sized

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

For more than a decade, administrators, managers, and advisors have relied
on KOGER for dependable software tools backed by extensive industry T: 001-201-291-7747
experience and expertise. Now, for those who want to reduce costs and F: 001-201-291-7808
streamline business processes, Koger offers Fully Integrated Fund C: Mr Ras Sipko
Administrator, a vertically integrated suite serving the back-office E: ras@kogerusa.com
software needs of the fund industry. KOGER USA
Fully Integrated Fund Administrator consists of three core programs: 12 Route 17 North
~ NTAS, the New Transfer-agency System Suite 111
~ E*TAS, Electronic Transfer Agency System Paramus
~ GRID, Global Reach Interface Daemon New Jersey, NJ 07652, USA
Other programs, such as PTAS, KIT, and KORS available separately, complement W: www.kogerusa.com
the core competency of Fully Integrated Fund Administrator.

Building on over twenty years of experience in capital markets and cross-asset soft-
ware solutions, Murex introduces Mx Asset Manager - a unique cross currency, cross
asset fund management solution capable of handling the full range of products, from
plain vanilla to the most complex derivative products.
C: Hélène Desbiez
Coupled with a high degree of flexibility and customization, Mx Asset Manager fea-
Business Development Manager
tures a multifaceted design catering to the needs of both service providers (prime
T: +33 1 44 05 32 00
brokers, administrators, asset servicing providers) and direct clients (portfolio man-
E: helene.desbiez@murex.com
agers for mutual, pension or hedge funds, insurance companies).
W: www.murex.com
With so many new challenges presented to buy-side managers when integrating
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peterevans is a leading independent provider of front to back office solutions for the
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xanite, peterevans suite of products, offers a configurable, fully integrated, 35 New Broad Street
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or integrated as components into your existing platform. The xanite modules can de
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corporate actions, clearing and settlement, private client and on-line stock broking E: info@peterevans.com
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78 INVESTOR SERVICES JOURNAL


T: +44 20 7220 0961
F: +44 20 7220 0977
C: Rupert Perry
E: rupert.perry@pirum.com
A: Pirum Systems Limited
37-39 Lime Street
London, EC3M 7AY
W: www.pirum.com
T: +1 609-987-2400
F: +1 609-514-4794
C: Lorne Whitmore, Vice
President, Global Sales &
Product Management
E: lwhitmore@pfs.com
A: 600 College Road East,
Princeton, NJ 08540, USA
W: www.pfs.com
T: +44 (0) 20 8289 8174
F: +44 (0) 870762 6157
C: Mr. Khalid Mukhtar
E: khalid@sectech.com
A: Sectech Limited
204-206 High Street
Bromley, Kent
BR1 1PW, UK
W: www.sectech.com
T: +44 (0) 20 7651 8800
F: +44 (0) 20 7651 8811
C: Elizabeth Gee,
Sales Director
E: elizabeth.gee@simcorp.co.uk
SimCorp, 10 Walbrook
London EC4N 8DQ UK
W: www.simcorpdimension.com
T: +44 (0)20 7826 4470
F: +44 (0)20 7826 4480
C: Nick Stevens
E: sales@singularity.co.uk
A: Cable House, 4th Floor
54-62 New Broad Street
London EC2M 1ST UK
Further Contacts:
US T: +1 212 946 2685
Singapore T: +65 9616 7732
T UK: +44 (0) 8452 303 065
T US: 1-888-650-1831
F: +44 (0) 8452 303 064
E: info@fintuition.com
A: FinTuition Ltd
1 Berkeley Street
London W1J 8DJ
United Kinddom
W: http://www.fintuition.com
Pirum provides a full suite of automated reconciliation and straight through process-
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INVESTOR SERVICES JOURNAL 79
 HINDSIGHT/FORESIGHT
William De Vijder of
Fortis Investments, reflects on
yesterdays gone and tomorrows
to come...
THGISDNIH
How have investment management strategies evolved over the past
five years, with the benefit of hindsight?
Investors have become less benchmarked and that is very much
related to the bear market that we have had at the beginning of the
decade. In looking at investment portfolios one should determine
which return one is looking to achieve. In the past there has some-
times been too much of a tendency to focus on the benchmark
composition per se and not enough on the return target.
Increased diversification is something that we have very strongly
advocated with our clients. With the narrowing of the valuation
gap and the decline of expected risk premia, expected returns
between different asset classes have shown some convergence, cre-
ated the need to expand the investment universe even further.
Another consideration relates to the appearance of certain types of
risk and the way the investment community and financial world
look at inflation risk. It is important that the portfolio has some
protection against these types of uncertainties.
Another change is that absolute return strategies have become
more popular with the launch of absolute return products and the
evolution of the regulatory framework.
How have the lessons learnt impacted on the development of new
and innovative strategies?
The lessons learned are that when you have a bear market that has
a rather lasting impact on the appetite of investors to take risks it
means that as an asset manager one has to come up with solutions
for that new need – that new need being, can you offer something
that gives a high enough level of comfort when markets have a
more difficult behavior.
On the broader opportunity side, we have extended our product
offering and have launched in the past number of years absolute
return funds, commodity funds, funds for liability driven invest-
ment solutions, local currency emerging debt funds, etc.
With the benefit of hindsight on market conditions and volatility,
what would you do differently?
What we do differently is there is a far stricter way of looking at
risk and identifying what is the upside, what is the downside, and
where should I put my limit, so its almost like identifying a risk
budget for every individual strategy and then managing that risk
budget effectively. This is really important as one of the lessons
from the second quarter last year was to what extent markets can
react abruptly, that is one, and then to what extent they can be cor-
related and that is also an element that we and the market as a
whole have learned: correlations tend to move in swings as well
and when you need diversification it tends to disappear.
80 INVESTOR SERVICES JOURNAL
“Life can only be understood
backwards, but it must be lived forwards.”
SOREN KIERKEGAARD
FORESIGHT
Are hedge funds still alternative?
That is more of a semantic discussion. I think the distinction can
be based on how familiar people are with traditional versus alter-
native and alternatives do not confine themselves to just hedge
funds. I think the alternative part in hedge funds is really related
to the type of exposure you have and how that relates to what
type of offer you have and typically the hedge fund offer has not
the structure that you have on the traditional long-only manage-
ment because the portfolio management styles are different. This
is becoming less and less valid as a statement, relating to the fact
that with the sophisticated use of UCITS III you can actually
develop quite a number of strategies that look like strategies used
in certain hedge funds.
Over the next few years where will the largest returns come from?
It really depends on whether this is a question that tries to do
market timing and then it is very much dependent on the view
one has on the cycle, and my view on that is that beyond six
months it is very difficult to make any reasonable forecast, and
one is really entering the domain of scenario analysis. If you look
at it more structurally then I think you should just apply the
thinking of which are the more riskier asset classes and they
should be rewarded with the higher expected return. It means
that over the next few years emerging markets will deliver more
than developed equity markets, and equities should deliver more
than high yield bonds, which should deliver more than invest-
ment grade. So you have the usual ranking of asset class in terms
of expected returns.
What is the biggest risk you face?
We are an active manager so the ongoing challenge every day is
to deliver alpha. I would not really put the word risk with that
but it is something that I would single out as the main challenge
and it is making sure that we deliver the performance every day
and that is really what it boils down to. Then, there are a number
of other things that help to put that in perspective like, what
might make it more difficult to deliver performance and then
you have all sorts of different circumstances. So I think the key
challenge really is delivering the alpha.