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  • 1. AST ISSUE037 WEDNESDAY ASSETSERVICINGTIMES 18.04.2012 CONTENTS Regional profile We examine the custody market in Cen- tral and Eastern Europe. page8 Jersey focus AST assembled a panel of experts to look at how Jersey plans to keep its sta- tus at the top of the market page12 Interview: SebastienLondon pension schemes set to Chaker Calastone’s Luxembourg head explainsjoin forces in cost cutting move the issues and solution surrounding au- tomated messaging within the fund dis- tribution marketLONDON 13.04.2012 page16London’s 32 councils are in talks to establish apooled pension fund, loosely based on the Ontario Ray Bloom, head of LGPS at Northern Trust said: “It is absolutely the time to push ahead and investigate new Regulation focus Linedata’s Noreen Crowe examines theMunicipal Employers Retirement System’s infra- methods such as the potential benefits of being part of impact that FATCA will have on firmsstructure vehicle ‘Borealis’. If the merging of the 34 a Common Investment Fund, which allows a number of both inside and outside the USschemes takes place, a new entity could see £30 bil- registered pension schemes to pool their investments.lion of assets available. Under this arrangement the pension schemes would not page22 need to merge, but could continue to operate separatelyAdvocates of the pooled fund state that by cutting and gain the many benefits of this arrangement includ- Asian fund administration ing improved governance and reduced costs. Our panel of experts debate the latestadministration costs of running separate schemes, a developments in the Asian funds market,combined fund could direct as much as 7.5 per cent “We are also working closely with the UK Treasury to and discuss how the market will growof assets, or £2.25 billion, into local projects. facilitate the set-up and operation of the new UK tax page24One concern, most particularly for custodians, is transparent fund (TTF) pooled investment vehicle.whether one company or several will act as custo-dian for the £30 billion of assets, and how that deci- “Through this, LGPSs should be able to generate actual People movession will be made. Currently Northern Trust and State savings, through reduced investment management fees Find out the latest hires, and who isStreet provide the lion’s share of custody for pension and provide smaller schemes with the opportunity for getting promoted within the industry.funds in the boroughs, with BNY Mellon, J.P. Mor- enhanced diversification and the ability to gain access page28gan, HSBC and BNP Paribas also offering services. to a broader range of asset classes.” Societe Generale wins Metropole Gestion mandate Northern Trust welcomes UK tax law Societe Generale Securities Services in Italy (SGSS S.p.A.) has been appoint- Northern Trust’s custody and fund administration services are ready for the ed by Metropole Gestion to act as its local transfer agent in Italy, providing it with launch of the new UK authorised tax transparent fund (TTF) vehicle, due to paying agent and investor relations management services. be effective around August 2012. readmore p3 readmore p3Ten markets, tencultures, one bank.
  • 2. Many of the world’s leading asset management,life company, pension fund and financial services firmsturn to Milestone Group to unlock latent efficiency gainsin their middle and back office operations.Milestone Group’s unique pControl Fund Processingand Fund Distribution solutions help align operationalprecision with enterprise-wide efficiency gains.How do we do this? Our unique approach is builton technical innovation matched with lateral problemsolving. The keys to opening new ways of running yourfund are within reach.If you have complex fund processing or fund distributionchallenges and need a safe pair of hands, or wish to learnmore, give Milestone Group a call.Visit us at for our latestthinking or call +852 2293 2629.pControl® Fund Processing, Fund Oversight, Fund Distribution & pQuant® are registered trademarks of Milestone Group.© Copyright 2012 Milestone Group All Rights Reserved.
  • 3. NewsInBriefSociete Generale wins MetropoleGestion mandateContinued from page 1SGSS in Italy offers securities services includ-ing clearing, custody and trustee services,fund administration, liquidity management andtransfer agent services.Metropole Gestion is an independent assetmanagement company based in Paris and spe-cialised in stock-picking (European equities,euro zone and Japanese equities) and bond-picking (euro zone bonds and convertibles).Northern Trust welcomes UKtax lawContinued from page 1First announced in the 2010 UK Budget, the UKtax transparent fund will enable fund managersand institutional investors to pool their assetsto achieve cost and administrative efficienciesthrough withholding tax treaties that exist be-tween countries in which investors are based,and those in which they invest.It is being established to ensure the UK cancompete with fund jurisdictions already offer-ing tax transparent fund structures, such asIreland, Luxembourg and The Netherlands,and becomes the location of choice for masterfeeder structures under UCITS IV. of 188 per cent, and net income of $461,000 for After the unit was formed by the acquisition of Om-“In order for the master-feeder provisions in the quarter ended 31 December 2011. nium LLC in July 2011, new Northern Trust mandatesUCITS IV to be attractive to investors on a include six new clients in the Asia-Pacific region.cross-border basis, the master fund needs to Cade Thompson, chief executive officer stated:be a tax-transparent vehicle,” said Aaron Overy, “The past two years have been a period of tran- Julius Wang, MD of Samena Asia Managersbusiness development, asset pooling and re- sition as we shifted our core business from a for Samena Capital, said of his firm’s admin-tirement solutions at Northern Trust. consumer financial services company to a dis- istrator: “The quality of the overall team and tressed asset services company. A large part of people in Hong Kong gave us confidence that“We believe the introduction of a tax transparent the fourth quarter success is due to growth in they could deliver top service levels for a widefund in the UK would become the natural choice the distressed asset verticals, primarily asset range of investment strategies. We have notfor asset managers already operating large UK management and portfolio advisory services, been disappointed.”fund ranges as well as support UK pension indicating the completion of that transition.”funds wishing to pool all their assets in the UK, Northern Trust now has more than $170 billionand helping life insurance companies mitigate Halo Companies is a publicly-traded, nation- in hedge fund assets under administration.the effects of the Solvency II directive.” wide distressed asset services company, pro-“In addition, we would expect interest from Eu- viding technology-driven asset management, CIBC Mellon wins Bloom fundsrope, Asia and US-based asset managers look- portfolio analytics, acquisition, repositioning and liquidation strategies for the private invest- asset servicing mandateing to operate a central platform in the UK for ment and mortgage servicing industry. CIBC Mellon will provide asset servicing solutionstheir global fund distribution needs,” he added. for the Bloom Income & Growth Canadian Fund,Good fortune for Halo Companies Northern Trust fund adminis- and the upcoming Bloom Select Income Fund. tration secures 22 clients CIBC Mellon will provide Bloom with custodyHalo Companies, which provides services for dis- services, securities lending, accounting servic-tressed assets, announced profitable fourth quar- Northern Trust’s hedge fund administration division es, and real-time access to investment informa-ter results, with revenue of $3.2 million, an increase has secured 22 client wins in the last seven months. tion via CIBC Mellon’s Workbench platform. 3
  • 4. NewsInBrief“We selected CIBC Mellon as our asset servicingprovider based on the impressive dedication toclient service permeating the company’s culture,”said Paul Bloom, president of Bloom InvestmentCounsel, Inc. “We have worked with many custo-dians and have found CIBC Mellon to be the bestat allowing us to focus on our goals.”CIBC Mellon now provides asset servicing formore $370 million of assets managed by Bloom.NYSE Liffe US to launch newrepo futuresNYSE Euronext will launch repo futures markettrading on 16 July, if it passes regulatory approval.Seeking to compete with CME, which is aim-ing to own a futures exchange in London, NYSEwill launch its repo futures trading through itsNYSE Liffe US that comply with the DepositoryTrust and Clearing Corporation’s (DTCC) trade-mark – GCF Repo Index.With Libor, a diurnal fixing of interbank overnightdollar lending rates, under scrutiny for manipu-lation, and benchmark rates offered by FederalReserve losing lustre following the transactiontax introduced by Federal Deposit InsuranceCorporation (FDIC), NYSE is optimistic aboutexploring the $400 billion GCF repo market.Thomas Callahan, chief executive of NYSELiffe US, said at an investor meeting earlier thismonth: “The two things that market participants German institutional investors willing The SICAV is managed by Contassur Assist-would usually look at in terms of a short-term ance Conseil, a subsidiary of Contassur, the lifebenchmark, fed funds and Libor, are both in to pay more for extra services insurance company that provides group insur-their own way broken right now,” he said. “The ance for the GDF Suez Group and companies in German institutional investors are willing to paymarket needs a new benchmark and we think the Belgian gas and electricity sector. more for services above and beyond that of athat this could be it.” standard custodian, according to BNY Mellon. The new partnership strengthens the links be-Para Advisors expands onshore rela- The survey, conducted by German consultancy tween Contassur and CACEIS, which already firms itechx Consulting and FAROS Consult- provides the safekeeping of the insurance com-tionship with Maples Fund Services ing, analysed investors’ latest demands for new pany’s assets in the form of mandates. products and services.Para Advisors, a hedge fund manager with ap-proximately US$200 million of assets under Oliver Draeger, senior investment consultant at Kaufman Rossin Fund Servicesmanagement, has expanded its relationshipwith Maples Fund Services to include adminis- FAROS, said: “ We can answer the initial ques- launches in Texas tion - are depotbanks at a ‘dead end’ - with atration for the firm’s onshore funds. definite ‘no’.”
 Kaufman Rossin Fund Services (KRFS) will open an office in Dallas in order to focus on ad-Maples Fund Services has served as adminis- ministration and relationship management for According to the survey, institutional investorstrator for Para’s offshore fund since early 2010, hedge funds, commodity pools, private equity are willing to pay separately for services suchbut Para had previously handled administration funds and family offices. as transaction cost analysis, performance man-for its US onshore funds internally. MaplesFS agement and risk measurement, but custodi-was awarded the onshore business to help Formerly vice president for Jefferies & Co.’s ans are not taking full advantage of availablePara stay ahead of growing industry needs for prime brokerage division in Dallas, James Davis opportunities to sell such new services on amore independence and transparency. will head the new office. stand-alone basis.“The expansion is a testament to our value ofindependence, client excellence, customised CACEIS new custodian for “Better serving the needs of our clients located in Texas and the Southwest is the primary reasonapproach, and our ability to service both on- Luxembourg SICAV Esperides for our expansion,” said Jorge de Cardenas, co-shore and offshore funds,” Toni Pinkerton, glo- founder and director of KRFS. “Our physical pres-bal head of Maples Fund Services said. Luxembourg SICAV Esperides has selected ence, along with the experience and leadership of CACEIS as the fund’s custodian, depositary James Davis, reinforces our commitment to servePara launched its flagship onshore fund in 1991. bank and its administrative agent. this leading alternative investment community.” 4
  • 5. Until you have the competitive edge you deserve. It’s not our leading-edge technology platforms that will give you the edge. (Although obviously they’ll help.) (Although that too is pretty important.) No. It’s none of these things. It’s one thing. Our commitment to relationships. At UBS, we listen. And we listen hard. You may manage traditional or alternative investments. No one will give you a more competitive edge. Enough of our words. We want to hear yours. E-mail us at or go to Top rated 2009–2011 in Global Custodian Hedge Fund Administration Survey We will not rest© UBS 2012. All rights reserved.
  • 6. NewsInBriefBNP Paribas to provide hedge fund fer agent in Italy, providing it with paying agent The enlarged Vistra Netherlands company will and investor relations management services. be led by managing director Sjaak ten Hoveadministration for Anchor Risk Advisors and executive directors, Tako van Ginkel and Created in 1991, Financiere de l’Echiquier man- Jack Willems.BNP Paribas will provide Anchor Risk Advisors ages a small range of mutual funds invested inhedge fund administration services for its latest the main equities and bonds markets for private LCH.Clearnet to sell majority stakeinsurance-linked investment strategy. and professional investors. to London Stock ExchangeAnchor Risk Advisors, an investment managerfocused on the insurance-linked securities and Vistra looks to Netherlands with Shareholders of LCH.Clearnet supported itscatastrophe risk investment sector, are con- acquisition of FTC Trust plan to sell a majority stake to London Stocktinuing their relationship with BNP Paribas who Exchange Group for €463 million.have provided them with a range of fund ad- Vistra has expanded into the Netherlandsministration services over the years. through the acquisition of FTC Trust, bringing LCH.Clearnet said 94.4 per cent of votes cast Vistra staff numbers in the region to 60. by investors at a meeting in London today wereAndrew Dougherty, managing director and head in favor of the merger, with LSE reporting a 99.9of alternative & institutional solutions at BNP FTC Trust provides services including company per cent agreement to the deal.Paribas, said: “Our service model means that formation, management and domiciliation, andAnchor Risk Advisors has direct access to the corporate services. 
It is expected to be re- The clearing house attracted interest fromoperations and accounting specialists responsi- branded under the Vistra umbrella during the Nasdaq OMX Group (NDAQ) and NYSE Euron-ble for administering its funds at BNP Paribas.” second quarter of this year. ext (NYX) before agreeing to the LSE bid last Director of FTC Trust Jack Willems said: “Cli- month. The firms intend to complete the trans-Another mandate for Italian SocGen ents will be able to benefit greatly from the action by the fourth quarter.Securities Services broader range of services and on the ground presence in other key jurisdictions that Vistra NYSE Euronext, the owner of the New York can offer and at the same time, will find that Stock Exchange, has a stake of about 9.1 perSociete Generale Securities Services in Italy they are still dealing with their existing contacts cent in LCH.Clearnet and plans to stop using(SGSS) has been appointed by Financiere de in the new enlarged company, which will help the venue to clear European securities and de-l’Echiquier to act as an additional local trans- ensure business continuity.” rivatives in 2013. Handelsbanken Custody Services Stability in an evolving environment Find out more at our website: You can also contact our Relationship Management Department, phone: +46 8 701 29 88 or e-mail: 6
  • 7. Bottom line:2 @ Your securities services expert in Central and Eastern EuropeOur network is available for you in Central and Eastern Europe for your securities servicesbusiness. We bring you in-depth local experience and award winning international expertise.ING is your partner in Bulgaria, Czech Republic, Hungary, Poland, Romania, Russia, SlovakRepublic and Ukraine. For more information call Lilla Juranyi, Global Head of Investor Serviceson +31 20 563 6435 or e-mail: Commercial Banking is a marketing name of ING Bank N.V., registered by the Netherlands Authority for the Financial Markets (AFM). Copyright ING Commercial Banking (2010).
  • 8. CountryFocusCentral and Eastern EuropeIt is impossible to stereotype - or even define - the CEE region, butthe financial crisis has led to leaner, meaner operationsGEORGINA LAVERS REPORTSA blanket statement about custody in central tional Monetary Fund and the European Union the regional level, CEE growth appears unlike-and Eastern Europe is no mean feat, con- arguably played an important role in protecting ly to reach pre-crisis levels in the foreseeablesidering the intensely heterogenic nature of the liquidity of CEE and CIS banking markets future, and will fall well below growth rates ofthe region. Custody provision in Serbia and and in helping national governments to devise other emerging markets. At the country level,Montenegro is almost non-existent, while just policy decisions that stabilised the economies the CEE states display wide variations in GDPacross the border, Hungary is recording aver- of the region. growth trajectories that demonstrate the region’sage daily trading turnover of €42.8 million: a increasing diversity.”veritable feast for custodian banks. Technol- However, the recovery that was expected hasogy in Ukraine still, as Matthew Grabois from not materialised. At the beginning of 2011, Katalin Bóta, deputy regional head of SecuritiesBNP Paribas admits, “has got some roadwork the European Bank for Reconstruction and Services for Austria & CEE Region at Deutscheto go”, while IT solutions in Austria are remark- Development (EBDR) predicted a growth rate Bank, comments: “There was a slight windowably mature. So how to characterise a region of 4.3 per cent for the 29 countries in Central when the Arab Spring started; because of riskthat consistently resists definition? and Eastern Europe over the year. However, considerations, they thought the focus may it now expects the combined gross domestic come back to Europe. But that was only a veryThe CEE region’s back story over the last 10 product of central and eastern Europe to grow slight chance. However, things are cyclical: Asiayears has been notably torrid. Significantly by just 1.4 per cent, down from 1.7 per cent in may have the upper hand now, but everythingimpacted during the 2008 crisis, international October 2011. is circular.”banks and their subsidiaries lent a helping handto all countries in the region as they prepared The World Bank’s October 2009 report on the Within the region, there seems to be a mixedto stand on their own two feet. The Vienna Ini- CEE countries, ‘From Stabilisation to Recov- outlook. The EBRD raised growth forecasts fortiative was launched in January 2009 to align ery’, seems accurate in its prediction of growth Latvia, Poland and the Slovak Republic, andthe activities of leading private sector financial to be: “feeble and uneven,” and a report by RSM left those for Estonia and Lithuania unchanged.institutions and support offered by the Interna- International was similarly gloomy, stating: “At Yet Hungary and Slovenia were forecast to 8
  • 9. CountryFocuscontract by 1.5 and 1.1 per cent respectively, pearing and players coming. Along general lines the Baltics. Looking at the greater CEE, ING,with the ERBD stating that governmental do- the main competitors for Austria, Poland, Czech Unicredit, Citi, Deutsche and Raiffeisen havemestic policy mistakes in Hungary had un- Hungary and Turkey are definitely UniCredit, strong positions. The two flagship markets ofnerved investors. Citibank, and I would say ING but to a lesser CEE region are Russia and Poland, and also and lesser extent. I think its focus is different, Hungary and the Czech Republic.”The Russian and Ukraine economies are still because if I go down to Russia, Romania, Bul-expected to grow by 4.2 per cent and 2.5 per garia, historically ING is very strong. If you look Global head of custody at ING Commercialcent respectively in 2012, with the EBRD stat- at Poland, Czech Republic or Hungary, I would Banking Securities Services Lilla Juranyiing that countries further to the east of the euro say it is prominently Citibank, Unicredit and defines her company as a traditional custo-zone, which are less reliant on it as an export Deutsche, and if you go to Russia, it’s ING. But dian, but agrees with Katalin that the marketmarket and a source of credit, will suffer to a we must not forget about the local banks. DTP is changing:lesser extent. is very strong. It is very well-capitalised, and it has the liquidity.” “Currently the main traditional custodians in theAgainst this dynamic background, custodians CEE are ING, Citibank, UniCredit, Deutscheare continually looking at the growth of coun- The need for splitting the region into compo- Bank, and there are a few smaller custodiantries; deciding when to exit markets, when to nent parts is vital when defining competitors, as banks offering their services to special type ofenter - and when to expand. global head of sub-custody at SEB Ulf Norén clients, mainly local ones. What is interesting is notes. “SEB is a sub custodian in five CEE mar- that in the last two to three years we have also kets: Estonia, Latvia and Lithuania, which are seen a few providers who have stepped intoJockeying for front runner all EU Markets, plus Ukraine and Russia. From the CEE region on selective basis to establish our perspective, we need to separate the two. their operations in a few “strategic countries”.In terms of major players, Bóta asserts: “The Talking on the CEE as a whole, you have certain With the local custody business, J.P. Morganmarket is changing: there are players disap- areas where you find SEB is really big, like in decided to build a strategic full-scale 9
  • 10. CountryFocuslocal operation, however they will not be a Cen- Grabois comments: “Global players are more But it does not mean fully harmonised financialtral & Eastern European multimarket service likely to open markets where they see immediate regulation in all the CEE countries. I’ve seen thisprovider. Within their strategy they identified a scale, and scale is important in our business. The as understandable, because the capital marketfew important markets all around the world: in regional providers need these markets for their legislation is related to several other laws andEastern Europe, it is Russia, and J.P.Morgan own scale, so pressure will continue in the region complex regulations including, but not limited toannounced that they intend to extend their local and consolidation is foreseeable. The require- civil law, law on taxation etc., and its complexitypresence there. This strategy of a global custo- ment for sub custody providers will continue from would be near-impossible to implement in a stan-dian is different than that of a multimarket local non-global SIFIs and SIFIs alike, but the global dardised way. On the other side I see operationalsub-custodian like ING, who has a much bigger revenues for the existing regional providers will processes being harmonised, and I believe thatmarket coverage – with the eight major markets be under pressure and SIFIs need to use other institutions that are offering custodian servicesin Central and Eastern Europe. ” SIFIs where big positions are held. This will have can offer a lot of standard service supporting their a dramatic effect on smaller markets but also cre- clients with the harmonised operations as muchThe Asian influence ate opportunities to consolidate there, and gain the requisite scale to continue to be a specialist as possible including reporting to clients as well as reporting to local authorities.”Europe is a mature market where investors for small markets. This will not come without in-have been, and will continue to look for oppor- vestment so those willing to invest will benefit.” The idea of similar regulation across the boardtunities. However, the fast inflow of money into is also difficult due to countries wanting to pro-Asia and Latin America are proving attractive to Noren agrees that further consolidation is possible tect their national identity. Says Bóta: “Theseasset managers. but argues that there is still a considerable time- countries will definitely keep their national fla- line until this takes place. “We will definitely see vour. They try to protect their markets.” MatthewCustodians have opposing views on the effect fewer, especially the smaller single market ones Grabois asserts that whilst larger, more devel-of Latin American and Asian markets on the will be subject to considerable pressure. Predict- oped countries are taking steps to standardiseCEE region. Says Katalin Bóta of Deutsche: “I ing outcomes is hard, because targets are moving regulation within their own country, harmonythink the focus in the whole custody business all the time. I think sub-custodians’ contribution to across the CEE will prove a going away from CEE and everything goes the value chain will increase all the time; not leastto Asia. That’s one of the major obstacles. My from risk absorption and mitigation viewpoint.” “In December 2011, Russia passed the law forfeeling is for the time being, Central and East- one common CSD, which was a good step to-ern Europe is forgotten, and we’re considered Bóta adds that whilst there has been much wards harmonisation. Poland is also moving for-not that important because the balance is not talk of regional providers disappearing from ward with the nominee concept. Furthermore,there, with the only two countries of interest be- Deutsche, sub-custody remains a force to be there is also the Vienna Stock Exchange proj-ing Russia and Turkey.” reckoned with. “I participated in so many con- ect, pushing towards a single exchange market ferences where we discussed the possibility of with a common CCP model. Though cross-CEEGlobal sales and relationship manager at BNP single market providers disappearing. Tiny re- harmonisation is not yet a reality in the near fu-Paribas Securities Services Matthew Grabois gional providers disappearing, with only global ture, I believe it will also improve the overall costargues that the growing attractiveness of Latin providers surviving. Then again, how many situation, since systems and operational pro-America and Asia is beneficial to asset owners times after the crisis have we seen announce- cedures could be used across countries, thusin the CEE region. “Is the growth of Latin Amer- ments that this global provider is withdrawing streamlining overall set-ups.”ica and Asia a worry? Absolutely not. Asset from this location or that location? I would sayowners want growth and so the current growth that the function or role of sub-custodians might The disparity of legislation also means thatmarkets – Latin America and Asia included – are increase, and it’s going to be a reshuffling be- whilst non-EU member states have 900-oddattracting a proportion of the emerging markets tween the big providers. Don’t forget about the pages of Dodd-Frank to contend with, they willrisk based assets. More assets in general will Russians, either. They are starting to buy up be let off from regulation specifically targeted atbe allotted to growth markets including the CEE banks in Central and Eastern Europe: Poland, EU member states such as Basel III and KIIDs.and some of the pocket growth markets. I would the Czech Republic, Hungary - it’s a clear trend. “I cannot say 100 per cent, but the general viewsay that this attractiveness in the Asia and Latin It’s an absolutely changing landscape.” is that non-EU member states will benefit frommarkets will actually help the CEE as more at- not having to comply with this regulation,” says Bóta. Juranyi and Grabois both agree, but statetention will be paid to emerging markets in gen-eral. It’s like what you see in retail psychology; Regulation, legislation and that being a non-EU member means less pro-the opening of a Subway next to a McDonalds. harmonisation tection and a higher risk for investors.Competition is healthy. We’re always interested “There is no doubt that non-EU member states arein emerging markets and the growth of these The so-called ‘flood of regulation’ has become facing less development and organisational costs,”markets will only help the growth of the CEE.” a somewhat worn-out expression, but in cli- says Grabois. “However investors are most likelyNoren takes a more moderate view, acknowl- ché there is truth, as legislation from both the to look first at asset safety and for countries thatedging that SEB’s position as a sub-custodian EU and the US continues to impact on custo- have high risk mitigation and regulation – and thatmeans that Asian growth is not a hot topic. “It dians. Matthew Grabois states that UCITS V also applies in the rest of Europe.”is certainly an indication that Europe has to be in particular will give opportunities to playersaware of its attractiveness in comparison to the with large scale, and with global custodians A future hub?growing attractiveness of other areas. For us as taking liability through to the agent bank witha sub-custodian, that’s not something we worry regulations AIFM and UCITS V, there will be Unlike America, the UK and Asia, a future hub forabout in the medium time perspective.” profound changes as to how the providers investment into CEE countries looks unlikely. “Every choose and organise themselves. bank defines the CEE region differently”, says Bóta.The future of regional custody Yet, in terms of harmonised financial regulation, “We define it as the six locations that we operate in, so I would say that as a hubbing solution, Vienna the consensus seems to be that countries are would make sense. If we look at Turkey, however,Some bigger players in the custodial market in too disparate to offer any kind of congruence in as the gate to a different part of the region, Istanbulthe CEE region are close to offering a pan-Eu- the near future. could be a good solution. And also, you must con-ropean service, although in the smaller markets, sider if it is really necessary to create a hub.”will still require the services of sub-custodians. “To a certain extent harmonization has definitelyWhether the use of regional custodians will happened,” says Juranyi. “The CEE countries “Scale and the best IT will be the drivers,” concludeslessen as these bigger forces move into mar- are trying to harmonise and implement Euro- Grabois. “The market that innovates the fastest will win,kets, is a fiercely debated issue. pean legislation into their own local legislation. but the economy will also play a major role.” AST 10
  • 11. Ten markets, ten cultures,one bank.For further information please contact:Global Head of GTS Banks: Göran Fors, goran.fors@seb.seGlobal Head of Sub-Custody, GTS Banks: Ulf Norén, ulf.noren@seb.seGlobal Head of Client Relations and Sales, GTS Banks: Patrik Thiis,
  • 12. JerseyFocus An island affair AST assembled a panel of experts to look at how Jersey plans to keep its status at the top of the marketAST: Despite economic conditions, Another set of factors is the infrastructure here, professional and institutional end of the market.Jersey has seen increasing levels which comprises major audit firms, law firms, There are fund regime options ranging from the tax advisers, banks and asset managers, and most highly regulated retail funds, through toof business in the alternative funds our 12,000 finance industry professionals. At the more lightly regulated fund regimes and unregu-sector during 2011, with recent fig- same time we are located in the right time zone lated funds for the most sophisticated investors:ures showing 2.5 per cent year on to service Far Eastern as well as European and Recognised Funds, Unclassified Funds, Privateyear growth in the net asset value of North American investors and their advisors. Jer- Funds, Expert Funds, Private Placement Funds sey’s infrastructure is therefore tried and tested. and Unregulated Funds.funds administered. What has madeJersey such a success story? As a centre for asset management andNick Solt: Jersey has a deep pool of talentwhen it comes to professional service providers servicing, Jersey is used by highlywith many organisations like ourselves providingvery specialist and bespoke services. Combine professional, sophisticated investorsthis with a strong reputation for robust regula-tion and you have a jurisdiction that instils a high supported by strong service providerslevel of confidence in investors and promoters. Phil McGowan, State StreetWhilst the global recession has been a difficulttime, recently we have seen renewed interest in Lastly, Jersey is adjusting well to the raft of new Jersey has built up particular expertise in alter-both private equity and real estate fund invest- regulation affecting the asset management sec- native, specialist and institutional funds, with ament and Jersey has created a funds regime to tor. We are well placed to deal with, for example, specific focus on private equity, hedge and realtake advantage of this. the requirements of AIFMD. In addition, Jersey estate asset classes. structures are well known and proven. In sum- Alongside are the long term strengths of the ju-Combining these green shoots of recovery in mary, Jersey presents an attractive package to risdiction. Located within the European time zonethe very areas in which Jersey has become a the global, professional and institutional invest- and through its unique constitutional position,market leader with the constantly adapting Jer- ment community. Jersey has been able to develop and enhance asey regulatory framework, has meant that we legal, regulatory and fiscal environment which hashave been able to continue to grow despite the Geoff Cook: In contrast to other centres that remain focused on specific niche activities or proved ideal for corporate clients including fundon-going economic challenges. single asset classes, Jersey’s overall competi- managers and lawyers structuring fund vehicles.Phil McGowan: A significant driver of the tive position is based on a balanced portfolio ap-growth in net asset values has been the quality proach, offering one of the widest ranges of fund The appeal of political and economic stabilityof the assets held here. As a centre for asset regimes and vehicles. should not be underestimated, nor the inherentmanagement and servicing, Jersey is used by skills that the jurisdiction’s workforce can call uponhighly professional, sophisticated investors sup- The emphasis in recent years has moved to- through decades of growth and diversification intoported by strong service providers. wards alternative investment funds and the more different aspects of financial services. 12
  • 13. JerseyFocusAST: Jersey is working to change its tion 270 of FSMA provides a procedure for the The knowledge required to deal with asset admin-perception from an offshore special- recognition of investment funds established in istration and data warehousing is abundant here. designated territories whose laws afford inves- More generally, Jersey has a very good story toist to a more diversified centre. Do tors in the UK protection at least equivalent to tell and there is an opportunity to publicise itsyou think perceptions are changing, that provided under FSMA. Jersey has obtained capabilities more widely to assist clients with theand if so, what implications might designated territory status under section 270 of regulatory changes that they are seeing.this have for your business and the FSMA and a number of recognised funds have been recognised by the Securities and Invest- Solt: FATCA is one of a number of international leg-attractiveness of the domicile? ment Board. islative and regulatory changes that will no doubt impact how funds services business operate.Solt: Jurisdictions such as Jersey are at risk of A recognised fund which qualifies under thebeing pigeon holed due to a general perception regulations made pursuant to the FSMA (Col- However, the reaction of the funds services in-that often groups all the jurisdictions that are lective Investment Schemes) (Designated Coun- dustry in Jersey to FATCA and other proposalclassed as part of the offshore industry together. tries and Territories) Order 2003 and is granted a changes such as AIFMD demonstrates we have Collective Investment Funds Certificate is freely the regulatory flexibility and high level expertiseThis means that Jersey must constantly adapt itself marketable in the UK and may offer its shares for to meet any challenge that is develop and provide a range of services that are direct subscription by the public in the UK. Jerseynot solely providing structures for what is seen as recognised funds may also be marketed to the At MSFA we have already established workingthe traditional remit of the offshore industry. public in a number of other territories, including parties looking at our approach to these chang- Australia, Belgium, Hong Kong, the Netherlands es to ensure we are compliant where necessaryJersey is working hard to change how it is per- and South Africa and provide investors with ac- and can maintain our high levels of service toceived both within the UK and globally, with cess to a statutory compensation scheme. our clients.Jersey Finance Ltd, several major law firms andother industry bodies establishing secondary of-fices in other, non-offshore, destinations suchas Abu Dhabi, Singapore and Mumbai. Jersey has obtained designated territory statusWhilst the changes in perception are only tak- under section 270 of the FSMA and a numbering effect slowly, we believe that once they areestablished it will mean a wider market and of recognised funds have been recognised byrange of services that are available, whichconsequently will strengthen Jersey’s financial the Securities and Investment Boardreputation and, of course, we see ourselves in Geoff Cook, Jersey Financea strong position to take advantage of the ex-pected resultant expansion. Solt: As a business, the areas that we provide Given that these changes are, perhaps, inevi-Cook: For Jersey one of the telling elements expertise in mean that we have not entered the table given the political pressures in the majorhas been the findings of the Global Financial UCITS arena. However, the fund regime in Jer- economic centres, we believe that these chang-Centres Index (GFCI), which releases rank- sey is such that it provides the framework that es should not be seen as a threat, but shouldings for jurisdictions every six months. In recent has enabled some of the larger organisations to be approached with a positive mind-set and bereports, In addition to being the top ranked off- embrace UCITS compliant funds. seen as an opportunity for Jersey to demon-shore jurisdiction, ranked at no 21, Jersey is the strate that it is a top notch funds centre.only offshore location with a top 10 position in With the constant review UCITS leading to theone of the specialist categories globally. prospect of further changes, we feel that the ability Cook: It is agreed that FATCA will have an impact of Jersey as a jurisdiction and the service provid- across international financial services generallyFor two successive reports, it has been in the ers individually to adapt to such shifts will continue and all locations will be affected. Jersey’s financetop 10 for private banking and wealth manage- to be important to maintain our competitiveness industry is fully engaged with the regulatory au-ment. In the funds arena, Jersey is competing when compared to other financial centres. thorities and government in assessing the poten-with jurisdictions regardless of whether they tial impact of the US regulation across all sectorsare onshore or offshore. I think these factors including funds. We have established a specificare significant in that they demonstrate its fre- AST: Will new regulations such as FATCA Working Party in order to support mem-quently not about being offshore, instead the FATCA will have an impact on Jersey, bers in dealing with the introduction of FATCA.criteria that international investors are looking and how will companies deal withfor are expertise within the jurisdiction, the qual- The FATCA provisions are in the form of guid-ity of the regulation, its reputation for corporate this changing regulatory landscape? ance, which make it clear that the US has takenoversight, the political and economic stability of into account representations from foreign gov-the location. McGowan: The wide range of new regulation af- ernments, of which Jersey was one, in seeking fecting our industry is certain to have an impact. to minimise the reporting burden.AST: How have funds established We are in constant dialogue with our clients to assist them to understand and deal with the de- That said, it is also important to note that not allunder the UCITS directive been em- mands that new regulations will place on them. financial institutions in Jersey will be engagingbraced within Jersey, and what’s in activities that are affected by FATCA or, if theynext for UCITS? Many of the forthcoming regulatory initiatives, are, some to only a rather limited extent. Since such as FATCA, AIFMD and Solvency II, will the FATCA provisions will apply to all jurisdic-Cook: Jersey does not offer retail UCITS funds demand enhanced compliance and reporting tions they should not adversely affect Jersey’s(the units in which can be marketed across Eu- needs. Larger asset servicers such as State competitive position.rope) The ability of offshore investment funds Street, which are experienced and skilled into offer shares directly to investors in the UK data management and reporting, are strongly Jersey also enjoys an excellent relationship withhas been restricted by the Financial Services placed to support clients as they navigate the the US. It has signed a TIEA with them as farand Markets Act 2000 (FSMA). However, sec- new environment. back as 2002 and has a Statement of Co-op- 13
  • 14. JerseyFocuseration between the Jersey Financial Services The PPF regime is part of the on-going evolution- data processing and reporting capabilities. Cli-Commission and the four United States financial ary process of ensuring that Jersey’s fund regu- ents need to be able to identify quickly and withregulators) to formalise existing arrangements lations enable us to provide a competitive and a high degree of granularity exactly where theirfor cooperation and information sharing. (204) streamlined service and it contains facets such as exposures are so that they can react quickly the certification of the application by a regulated to the risks themselves as well as meeting theAST: How do you see the new Pri- service provider that will hopefully be expanded to regulatory reporting requirements.vate Placement funds regime af- other fund products as part of this process. International investors are tasked with having tofecting the industry? report to different regulators globally and they can AST: Taking into account the evolv- only do this to the extent required if they haveMcGowan: Against a background of increasing ing needs of international investors administrators who can help them do so. Larger,lead times for private placement funds in other and the changing nature of global more established administrators with strong trackjurisdictions, the new regime is an additional records are best placed to meet this need.competitive advantage that Jersey has to offer regulation, how do you see 2012professional, sophisticated investors. It helps panning out?sophisticated investors to quickly seize on in- In particular, clients who are launching newvestment opportunities when they arise and Solt: We believe that Jersey is in a strong posi- products need to be able to access supportmake the most of them. in carrying out rigorous due diligence. It ap- tion to continue to benefit as the green shoots of pears that investors are placing more money recovery, hopefully, continue to flourish. with fewer managers and performing deeperAlthough it’s early days yet, the new private due diligence on them, and transparency fromplacement funds regime is a great additional The continuing challenges in the financial those managers for being early investors in newstrength of Jersey’s. It was a good response to sector can also present opportunities for products and funds. We believe that the trendwhat the industry was looking for — something the sophisticated investor and we in Jersey towards outsourcing can only grow as regula-that was quicker, simpler, and also more cost are in a strong position to take advantage of tory pressures increase.effective to set up. this. For example, we have seen real estate funds successfully moving from direct real Cook: The outlook for alternatives in 2012 isCook: Similar in scope to Jersey’s existing estate investment into investing in real estate promising, particularly if you reflect on the statis-COBO (Control of Borrowing Order) private backed loans as a number of banks continue tics in 2011 which was a challenging year. At thefunds, the new Private Placement Fund offer- to divest themselves of parts of the real es- end of 2011, alternative funds business continueding further widens the choice available to inves- tate loan portfolios. to perform strongly, standing at £145 billion - overtors and is designed for ‘fast track’ approval, 75 per cent of the total. Hedge fund business inusually within three business days, providing As far as the changes in global regulation, these Jersey stands at just under £50 billion, and pri-the speed and certainty for investors that is be- should present an opportunity for the service vate equity funds at £39 billion – an eight per centcoming increasingly important in today’s mar- providers in Jersey to demonstrate their ability increase on the previous year and an impressiveket where arrangers need to react quickly to to provide the high quality of service within a 56 per cent increase on 2009. We believe Jer-new market opportunities. well regulated jurisdiction and ensure we are sey’s fund offering has been further enhanced in able to continue expand throughout 2012. 2012 and should encourage more growth.The regime, with its appropriate regulatoryoversight, is expected to be attractive acrossthe alternative asset classes, including real es-tate, private equity, mezzanine, cleantech andemerging market funds.The Private Placement Fund also is positioned Opportunities for the sophisticatedto support fund managers who do not want to investor and we in Jersey are in aoperate funds within the EU and the stringentrequirements of the AIFM Directive and the ad- strong position to take advantage of this.ditional costs of compliance that will inevitablyarise. Jersey’s Private Placement Fund regime Nick Solt, Moore Stephenswill provide fund managers with structuringopportunities to navigate an alternative routearound the Directive.For those specialist private funds which do notfall within the scope of the new Private Place- McGowan: There’s a lot of change and chal- The debate about regulation and changing inves-ment Fund offering, Jersey will continue to oper- lenge in prospect for 2012. This environment tor demands has actually presented specialistate its COBO regime. creates opportunities that it is important for us to jurisdictions like Jersey with an opportunity to en- be prepared for in order to provide solutions to hance their product range, provide more choice our clients. If we can help our clients to be suc- and safeguard their regulatory standards.Solt: The PPF regime is a positive move for the cessful in asset raising, asset management andindustry. This regime will allow us to compete delivering good returns to their investors thenwith, or even be ahead of, rival jurisdictions in we will all be successful. The global funds industry is seeing some realterms of our ability to set up fund structures shifts. However, if Jersey can continue toquickly and efficiently where required. The greater focus on transparency and report- demonstrate an acute understanding of the ing is driving innovation at the moment. Inves- key trends impacting the funds arena, retainIt will be of particular interest to fund promoters tors and asset managers are looking for ever- a commitment to innovation and maintain thewho wish to move quickly to take advantage of increasing amounts of data. Moreover, they regulatory conditions to support the needs ofan investment opportunity and who have a pool need this information increasingly quickly. Con- corporate and private investors, we will en-of sophisticated investors to whom they are able sequently, investment administrators need to be sure the long-term success of our growingto market their products. able to provide clients with industrial-strength funds sector. AST 14
  • 15. A Fresh Perspective.Experience the difference of a highly personalised exchange service with a pragmatic approach and swift, expert response.
  • 16. SebastienChakerAutomated messagingCalastone’s Luxembourg head explains the issues and solution surroundingautomated messaging within the fund distribution marketBEN WILKIE REPORTSAST: Can you tell me a little about in Luxembourg and Ireland. We opened our Lux- AST: What is holding back the moveCalastone - why it was formed, what embourg office in 2010 to cater for the European towards automation? market, and in 2011 we started to expand in offers and who your clients are? Chaker: There has been a myth from the be- AST: How automated is communica- ginning of 2000 that all the players in the fundSebastien Chaker: Despite years of invest-ments in trying to automate fund orders, the tions in the mutual fund industry? industry would all invest in their IT infrastruc-levels of automation in the fund space remain ture in an attempt to move to a single standard.extremely low compared to what we see in the Chaker: There has been 10 years of intensive Many fund managers believed the SWIFT ISOequities space. We were convinced that existing effort and millions have been spent to automate standard would solve the problem and all theirsolutions to automate fund processing did not the space. ISO standards have been created, clients would move to it. But this didn’t happen.completely meet the needs of the industry. and ICSDs have moved into the market by us- Fund distributors have not been willing to invest ing the systems created for bonds and equity in their infrastructure to automate fund ordersWhat Calastone is doing can be compared to to go into the fund space. There are a number by developing new communication standardswhat a travel adaptor does for the international of industry groups who have recommended the solely used by the European fund industry.traveller - it provides a simple, reliable and cost- use of the ISO standards.effective way of electronically connecting fund It’s worth remembering that fund distributorsdistributors and fund managers irrespective of But the latest EFAMA-SWIFT survey on the lev- come from diverse types of organisation - theythe chosen standard used by other parties. el of automation of third party cross-border fund could be banks, brokerage firms, insurance orders shows that in the first half of 2011, the companies, pension firms or even specialisedCalastone was set up as a private company in rate of transactions that use the ISO standards fund platforms. They all have different busi-2007, and we started to operate the first trans- is still quite disappointing, at 37.8 per cent. The ness models, different levels of sophisticationactions in 2008. Our clients are fund manag- rest of the transactions are bilateral flat files and and different IT infrastructures - they do noters who operate across multiple jurisdictions there are still over six million faxes processed necessarily think of themselves as being partas well as fund distributors. Our services were by transfer agents in Luxembourg and Dublin. of the fund industry.initially focused solely on the UK fund market, The scary thing is that this number is increas-but by 2009 clients were pushing us into the ing each year, mainly because cross-border dis- Going back to the analogy of the electric adap-cross-border market. So we started offering the tribution continues to expand into new regions tor, you can see that countries or regions havesame model for cross-border funds domiciled and to new types of distributors. different voltages and frequencies around 16
  • 17. SebastienChakerthe world. But there’s very little debate about from cross-border funds rather than domestic which has a culture of zero defects, there’s nowhether or not to harmonise electrical sup- funds. Luxembourg and Dublin have been very tolerance of errors. And when you’re expandingplies, which is what the fund industry is trying successful in promoting UCITS funds across into other markets, particularly those where theto do. Even if the electrical suppliers were able the world – fund managers with UCITS products time difference is significant, doing everythingto agree on one global standard, which is un- that were initially set-up for distribution in a se- by fax can mean up to two days before the endlikely, just try and imagine the level of invest- lected number of European countries can very investor gets its trade confirmation.ment to change supplies in the countries that easily expand their distribution market acrossneed to adapt. But the main reason why there the globe as more Asian and Latin American AST: Are there particular types ofisn’t a debate is because there is a simple solu- countries adopt UCITS. funds that are seeing the benefitstion - plug adaptors. The impact of this is that distributors in new sooner than others?In the fund industry, we think we can solve the markets often have different operating models Chaker: In terms of cost reductions, retail fundsproblem and accelerate the automation take- and different IT infrastructures, so each time with high dealing volumes from multiple distributorsup by creating this interoperability. Everyone you increase distribution, transaction numbers tend to see the cost savings sooner. But the riskcan keep their own communication standards increase but the level of automation falls. reduction aspect is the key driver for institutional orand we can put the technology in the middle alternative funds - they have the high value tickets,to translate messages from various messaging Cost is one of the main drivers. Some clients where the financial risk of missing a dealing dead-protocols. The ability to communicate orders be- are reporting savings of up to 60 per cent line is much higher. And if you look at service levels,tween counterparties is not new, but the transla- when they move to automated messaging. So everyone benefits in the same way.tion capability is where we add the value. it’s a big driver, but it’s not the only one - scal- ability is vital. As firms expand into new mar- AST: Is there a difference when youAST: What is driving the move to- kets they would need to increase their staff if they kept everything manual, but having auto- implement the solution in new mar-wards automation in this sector - is mated processes make the whole expansion kets, compared to those that areit simply down to cost? much simpler. more established?Chaker: If we look at the UCITS industry we Another very important factor is service levels to Chaker: They have the ability to start buildingcan see there is a strong trend of growth coming distributors and this is particularly vital in Asia, automation more quickly, so in one sense it’s 17
  • 18. SebastienChakereasier. But often they don’t have the ability to ever, all the regulations imposed on fund manag- that our model is exportable in different markets.go onto the SWIFT network. Across Asia, there ers have a big impact on costs and as a result So we have already replicated the Australian ex-are fewer than 10 distributors with SWIFT fund fund managers have become much more cost- perience in Singapore, where people have beenmessaging capabilities. conscious. Automating is an easy way to reduce talking about automation for more than five the cost burden, thereby reducing funds TERs. years with very little achieved. In April we will have four of the largest local distributors runningAST: Who needs this automation? AST: Asia is a growth area for both a pilot with several large domestic and offshore the industry as a whole and for Ca- funds distributed in Singapore, and we will thenChaker: Fund managers are the ones that need roll out our network to all the major players inthe automation - it’s their industry. Fund distribu- lastone. How do you see the market the second part of the year.tors, be they banks or brokers, distribute funds in this region?as well as other financial products, so they don’tthink of it as their industry, they just want to have Chaker: What we have seen over the past three We’re currently setting up similar pilots in Tai-a cost efficient and secured way of processing to five years is a growing number of global fund wan and Hong Kong which we expect to start infund orders. The main costs of manual process- managers either setting up operations in the re- June. I think this proves our model is exportableing lies at the transfer agent level, they need to gion or expanding their presence there. But we - of course every market is different but becausecharge fund managers more for manual trans- now also see large Asian asset management we are interoperable, none of our clients needsactions. There’s one fund distributor we speak companies creating a UCITS product to exclu- to make significant IT investment to take advan-to who says that Asian distribution represents sively distribute back into Asia. tage of the benefits, which is a big difference20 per cent of its total fund holdings but these from the past and makes the whole process to The way we have been operating is by helping move to automation much quicker.distributors account for 50 per cent of its total fund managers to accelerate the automation oftransfer agency costs, simply because the lev- their European distributor base. As Asian flowsels of automation are not yet there. have rapidly grown, we have received an in- AST: How do you see the market de- creasing number of requests to provide a solu- veloping in the future? What is Ca-AST: What is driving the growth in tion in Asia. So this year we have put people oncross-border markets? the ground in Hong Kong to cover this region lastone doing to prepare for this? - essentially following the needs of our clients. Chaker: One trend of particular interest in ourChaker: The growth is coming from emerging When you look at the opportunities in the global space is the changing behaviour of investorsmarkets. At the moment, Asia is the biggest re- markets, for our clients Asia is the most impor- over the next 10-20 years. Current investorsgion for fund managers, but there is an increas- tant region in terms of manual transaction vol- come from the pre-internet days and still rely oning focus on Latin America. umes - at the moment there is very little adop- traditional advice channels - banks, financial ad- tion of automation and several of our clients visers and so on. What we see happening over have seen transaction levels double year on The way we have year for the past few years. the coming decade is the Facebook/Twitter gen- eration becoming the new clients of asset man- been operating is by We tend to work within the more mature mar- agers. This will mean a big change in behaviour kets in Asia, and there are two reasons for this. of clients in relation to professional advice - they helping fund managers Firstly, the likes of Vietnam, Thailand and Ma- are expected to be less reliant on financial inter- laysia are still relying mostly on domestic funds mediaries, to get information directly online from to accelerate the and there is still very little cross-border distri- product providers and to deal into funds online. bution. There’s also the issue of labour costs. automation of The increasing need for automation in Europe This would not be short of a revolution for the their European is generally down to the cost of labour. In Hong Kong, Singapore and Korea, labour costs are fund industry. Transaction volumes could in- crease significantly, payment mechanisms and distributor base still cheaper, but rapidly growing and also be- coming a significant expense for fund manag- investor servicing models would need to be re- engineered. Needless to say that if the major ers. In countries like Vietnam, labour costs re- players do not get the automation levels up to-Fund managers who set up a global distribution main very low, which means the cost of manual day, this could be a big missed opportunity forplatform in Luxembourg or Ireland, for example, processing is not yet a major issue. the industry. ASTbenefit from the economies of scale of hav-ing one fund range distributed globally. InitiallyUCITS were created for distribution in the Eu- AST: You already have a successfulropean market, and that remains about 60 per base in Australia - does this trans- late well for the rest of the Asian Calastone Transaction Network Luxembourgcent of where the assets are sourced from. Butthe rest of the world now often accounts for up market, or are the requirementsto 40 per cent of the assets, and that’s growing. very different?Most of the cross-border fund expansion comesfrom European funds looking outward – UCITS is Chaker: The Australian funds landscape is verycurrently the only true global fund product We don’t similar to that of the UK, with domestic fundssee many US, Asian or Latin American domestic mainly distributed through financial advisers. We set up a base in Australia in 2011 and in less Sebastien Chakerfunds sold on a global basis, it’s a one-way traffic. than nine months we’ve created a pilot group that includes one of the largest wrap platforms Managing directorAST: How much is changing regu- and several large domestic funds. We are nowlation altering the way fund manag- successfully expanding our network to otherers operate? major players in this market.Chaker: I don’t believe that regulation is a direct Although the regulations and dynamics are dif-driver for the automation of the business. How- ferent in every country, we have demonstrated 18
  • 19. China Korea Taiwan Hong KongIndia Thailand Vietnam The Philippines Malaysia Singapore Indonesia AustraliaOne platform,a world of flexibilityMultifonds serves clients, including the world’s leading custodians,fund administrators and top-tier asset managers, in more than 30 New Zealandjurisdictions and supports assets exceeding $3 trillion.Multifonds provides market leading multi-jurisdictional, multi-asset classfund administration software, deployed across North America, Europeand the majority of Asian domiciles including China, Hong Kong, India,Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand, Vietnam,Korea, Australia and New Zealand – all on a single fully integrated
  • 20. SponsoredFeatureAll exchangeThe chief executive of Channel Islands Stock Exchange explains thebenefits of listing on a recognised stock exchangeCISX FOCUSThere are three main benefits to be derived Now more than ever, it is particularly important ny. Of course the stock market mechanism canfrom listing securities on a recognised stock to restore public confidence in the financial mar- be use for other processes which require securi-exchange, of which the CISX is one such ex- kets and exchanges can play a significant part ties to be distributed, such as privatisations andchange within the European time zone: in restoring that confidence by maintaining high open market operations for a central bank.• Transparency standards for the conditions of listing and public• Marketability disclosure of information. In this regard, the ex-• The potential of enhanced liquidity. change’s expectations and that of any code of corporate governance converge: both are inter- There are manyTransparency underpins the expectations of ested in transparency and ensuring the equalityinvestors, regulatory bodies and market partici- of treatment of shareholders. reasons why apants in the post financial crisis environment. Asa result, over the past two or three years there The CISX Market Authority has always worked company may choosehas been greater focus on the transparency to ensure listed issuers understand fully the im- to list. Most often, thebenefits of listing, particularly on an internation- plications and practicalities of the listing rules,ally recognised stock exchange. A listing on any offering information and guidance through main reasons financialexchange should add value and enhance infor- workshops, seminars and conferences – formation flow to investors (and the public general- example, an upcoming workshop on due dili- institutions wishly) and it is the exchange’s role to facilitate this. gence by listed issuers post-listing. This educa- tional role has always been a key element of to list are to createThe exchange’s public disclosure regime is designed the exchange’s work, but in the aftermath of theto provide information flows not only to investors but financial crisis there is even greater emphasis a market valuecredit institutions that may also rely upon the listing on disclosure and transparency and the role ofstatus of securities. The CISX requires directors of listing in achieving these goals.listed companies, including investment funds, to ad- There are many reasons why a company mayhere to ongoing disclosure requirements in relation A stock exchange is traditionally the place where choose to list. Most often, the main reasons fi-to corporate actions, trading activity and adherence companies go to raise capital. It has a further nancial institutions wish to list are to create ato the Model Code. At the heart of the disclosure re- function of enabling the shares which represent market value, to provide investors with an exitgime is the need to ensure that directors of listed is- ownership of a company to change hands at a route, to extend their product’s visibility, to se-suers keep the market informed and to ensure there price that reflects, not only supply and demand, cure a kite mark which demonstrates they haveis equality of treatment of shareholders. but also to some extent, the value of the compa- met rigorous disclosure requirements or to at- 20
  • 21. SponsoredFeaturetract certain types of investors. But regardless level, there needs to be three key elements: ate investment opportunities that would otherwiseof the underlying reason, a listing will enhance • a security the type and quality of which will not arise – whether a technical listing to attractthe marketability of the security in question and be of interest to market makers (A mini- investment, to facilitate market value or to pro-in certain circumstances give the listed issuer a mum of two market makers would be re- vide a potential exit route for investors throughcompetitive edge. This is particularly true within quired in order to optimise price movement secondary market trading. Whatever the reason,the investment funds sector. and generate market activity); the CISX is an internationally recognised stock • how well the issuer/product is marketed exchange whose facilities can open up additionalAs stated, in some instances it is essential for a (both initially and ongoing); and distribution channels and unlock new categoriessecurity to be listed in order to attract a specific • whether there is a mixed shareholder base. of investors such as pension funds, insurancetype of investor. For example, institutional inves- (A large and a more mixed shareholder companies and collective investment schemestors usually have limitations upon the percentage base should correlate to more share ac- and offers a full and unrivalled service. ASTof unlisted securities that may be included within tivity, with some exiting at some point anda portfolio such as a pension fund. Likewise, others entering at different times creating aSIPPS or ISAs require investments to be listed. secondary market in the shares.)Other examples include the desire to obtain thequoted Eurobond exemption or UK REITS sta- There is strong evidence to suggest that regard-tus, both of which require a listing on a recogn- less of whether shares are closely held with in-ised stock exchange in order to be eligible. vestors taking a long term view (and therefore Channel Islands Stock Exchange little secondary market activity may arise) a list-A listing is a definite kite mark that will create ing can also assist issuers in raising additionalinformation flow to investors. This will, in turn, Tamara Menteshvili capital post the initial capital raising.enhance investor relations and raise the pub-lic profile of the listed issuer. A listing may also Facilitating the market for the buying and sellingopen up new distribution channels and it will of shares is one of the main areas of responsi-certainly increase visibility. Chief executive bility for exchanges: to set standards for trading and settlement, rules on disclosure of directors’Enhanced visibility through a listing may also interests and other disclosures in relation tolead to increased liquidity. Whilst is difficult in this price sensitive information.short space to provide meaningful insight on howliquidity may be achieved, on a very simplistic It is reasonable to suggest that a listing can cre- 21
  • 22. IndustryOpinionEyes wide openLinedata’s Noreen Crowe examines the impact that FATCA will have onfirms both inside and outside the USREGULATORY UPDATEThe Foreign Account Tax Compliance Act (FAT- industry lobby groups. However, the final pro- mentation deadlines starting in 2013. DespiteCA) was signed into law in 2010 as a compo- posed regulations, which were released on Feb- these challenges, successful implementationnent part of the HIRE Act which was legislation ruary 8, 2012 encompass most of the provisions is achievable, especially if the project is brokenaimed at stimulating the US economy and en- that become the final law. into smaller more manageable subsets. FATCAcouraging jobs growth. In order to pay for pro- can, for example, be generally distilled intogrammes which seek to raise employment, the three general categories:US needed to look for new or missed revenue Overview • FATCA categorisation of your firm or firms/opportunities and the spotlight fell heavily on tax entities that you manage;evaders. Nobody likes a tax cheat especially in a The primary purpose of FATCA is to ensure the • Identification of US Persons;tough economic climate where ordinary taxpay- proper documentation and disclosure of offshore • Reporting and Withholding.ers have had to shoulder the burden of unprec- investments by US persons. It does this by man-edented bank bailouts. At the same time, the US dating that foreign financial institutions (FFIs)was engaging in a much publicised tug-of-war and non-financial foreign entities (NFFE’s) with Categorising your organisationwith the Swiss banking system over the privacy substantial US ownership provide information tolaws that some US citizens were using for tax the IRS on their US investors and account hold- The correct categorisation of your organisationavoidance purposes. With a jobs programme to ers. In order to ensure that those foreign entities or of entities that are managed by your organisa-fund and with taxpayer sentiment firmly behind comply with the reporting provisions of the Act, tion, such as fund or other investment vehicles,them, it was abundantly clear to lawmakers that the US has introduced a new 30 per cent with- is arguably the most important step in meetingnow was the right time to tackle tax evasion and holding tax on any US source income earned by your FATCA requirements. This step determinesthe provisions that gave rise to FATCA sailed any non-compliant foreign entities. the extent to which FATCA applies to your or-through the legislature. The regulations have ganisation. Firstly, all non-US entities are bro-yet to be completely finalised as the IRS has The scope of FATCA is very broad and will ken into two main categories: Foreign Financialelicited significant feedback from the financial provide significant challenges for institutions Institutions (FFIs) and Non-Financial Foreigninstitutions, foreign governments and various as they try to prepare for the various imple- Entities (NFFEs). FFIs are, generally speaking, 22
  • 23. IndustryOpinioninstitutions that deal in money or investment identify which investors or account holders are The 2017 date is the earliest date on whichwhile NFFEs are foreign institutions which are subject to reporting under FATCA, namely US there will be withholding on foreign pass-thruengaged in a business unrelated to finance. investors. Individual and entity accounts may payments. Pass thru payments were of particu- be excluded from reporting where the balance lar concern to financial institutions in that signifi-The FFI category includes banks, investment is less than $50,000 and $250,000 respectively. cant system and procedural reworks would needcompanies, brokers, traditional funds, alterna- An electronic search for US indicia will need to be to be in place in order to perform this functiontive investment funds and insurance companies. performed on any accounts with balances above correctly. The original guidance stated that anFrom a FATCA perspective there are good and these thresholds. The IRS provides guidelines on investment vehicle would calculate a pass thrubad FFIs, namely participating or non-compliant what comprises US indicia, but, in general, an in- payment percentage which is the percentage ofFFIs. Participating FFIs will enter into an agree- stitution can lean on information obtained as part US assets over total assets. When a paymentment with the IRS by July 1, 2013 and as part of their existing AML/KYC policies. is made from a fund, the amount to be withheldof that agreement report information to the IRS upon (pass thru payment amount) would thenand perform withholding on US source income. If an account has a value of greater than be calculated by applying the pass thru pay-Any FFI that does not enter into this agreement $1,000,000, a more diligent review will need ment percentage to the total payment. Institu-will be deemed non-compliant and will be sub- to be performed including a manual search of tions raised practical concerns with respect toject to a 30 per cent withholding on income and paperwork. In addition, a ‘responsible officer’ the working of these calculations. The IRS tookgross proceeds from the sale of US assets. in your organisation will need to certify that a this on board and extended the withholding date relationship manager has reached out that that to 2017 at the earliest while requesting com-There are some exceptions to the broad FFI investor to validate their status. This certifica- ments from financial institutions and industryclassification, the most notable of those being tion must happen within one year of signing the groups for practical resolutions. Stay tuned.deemed compliant FFIs which do not have the agreement. It will be vital to thoroughly examinesame reporting and withholding obligations as your internal control framework as part of your Aside for some exceptional situations, mostParticipating FFIs. Deemed compliant institu- FATCA preparations, especially as you need an entities in the asset management industry willtions are broken into two categories – Regis- appointed officer to sign-off on compliance. fall into the Participating or Registered Deemedtered and Certified. Registered deemed compli- Compliant categories of FFI which means thatant will still need to register with the IRS andre-certify every three years. A typical registered Reporting and withholding they will need to perform reporting on US inves- tors either directly to the IRS or to their own gov-institution would be a Local FFI or a restricted ernments. Organizations should already have afund. This group would also be made up of FFIs Reporting will be gradually phased with the first FATCA project team in place with representationin countries that have FATCA-related reciprocity phase commencing in 2014. The IRS has not from almost every area of the organization suchagreements in place with the US. Currently only yet released the forms but we can expect that as legal and compliance to operations and IT.France, Germany, Spain, Italy and the UK have reporting for 2014 and 2015 will consist of the A FACTA impact analysis will need to be per-signed information sharing accords with the US. name and address details of all US investors as formed in such areas as the account onboard-We should expect to see more countries enter well as their tax identification number (TIN) and account balances. The account balances can be ing, investor maintenance, tax withholding andinto similar arrangements over the next year. reported in either US dollars or local currency. system design. In addition, organisations will need to analyse their existing databases for USCertified deemed compliant are more or less Most of this information should be readily avail- indicia to determine which investors qualify asself-certifying. They are made up of entities able on existing systems with the exception of US investors or require outreach for additionalsuch as local banks, pension funds, non profits the TIN which many non-US institutions may not information. Plans should also be put in place toor FFIs with a low value (up to $50 million). They have been capturing as part of their normal on- handle the reporting aspects of FATCA once thehave the easiest time from a reporting perspec- boarding process. For 2016 and 2017 reporting reporting details are finalised. From a withhold-tive but they will need to be diligent to ensure will commence on income and gross proceeds ing perspective, organisations will need to de-they maintain their status by excluding US and from US sources. termine if they qualify as a withholding agent inrecalcitrant accounts or non-compliant FFIs. any circumstance and upgrade systems in order Institutions in countries that have an informa- to handle situations where they either withholdThe final FFI subset consists of Limited FFIs and tion sharing agreement in place with the US will or are withheld upon. The road to a success-Branches with affiliates of organisations in coun- report to their own governments rather than to ful FATCA implementation is certainly long andtries where certain aspects of FATCA are prohib- the IRS. These governments will then relay the laden with challenges; however it is achievableited. These organisations can get this limited sta- relevant information to the US. The details of the if the correct plan is in place. ASTtus for two years so that their affiliate group can information sharing agreements are still beingachieve a Participating FFI status. After the two negotiated, leaving institutions in these coun-years, the entire group will lose its status if that tries with a large question mark around detailsbranch has not come into compliance. of their local FATCA reporting requirements. However, we can probably expect that local re-The rules relating to NFEEs are less onerous porting will require information that is similar tothan those of a FFI. When a NFEE, such as a the initial FATCA requirements for 2014.foreign corporation, trust or partnership, makesa US-related investment it will need to either Withholding is an area that the IRS addressedcertify that it has no US investors or disclose in a significant manner in the recent proposedinformation on its substantial US owners. Sub- regulations. For 2014 and 2015, withholding willstantial means 10 per cent ownership or any focus on withholding on income and the grossownership if the institution is a collective invest- proceeds from the sale of US assets. Incomement scheme. Certain institutions are exempted includes interest, dividends, annuities, rent andfrom categorisation as an NFFE such as foreign Noreen Crowe salaries from US sources or interest from for-governments or publicly traded institutions. eign branches of US banks. Gross proceeds are Vice president subject to withholding based on the total grossIdentifying US investors proceeds. For example, if you buy shares at Linedata $100 and sell at $150, you will pay $45 in with-Once you have established that your institution holding which is 30 per cent of $150, resulting inmust comply with FATCA, the next step is to a net profit of $5. 23
  • 24. PanelDebate Asian fund administration Our panel of experts debate the latest developments in the Asian funds market, and discuss how the market will grow Ben Wilkie, editor Francis Braeckevelt Lilian Wong Asia-Pacific COO Head of fund services, Asia-Pacific, BNY Mellon Asset Servicing HSBC Securities Servives Mark Neary Keith Hale Managing director, client relationships Executive vice president, client and & business development, Asia-Pacific business development Milestone Multifonds Colin Lunn Contact me to arrange a meeting at Head of fund services, APAC and Fund Forum Asia. head of business development and CRM APAC Michael Brady UBS Fund Services Asset Servicing TimesAST: How has the past 12 months of capital from West to East as well as the emer- India becoming more prominent, as well as thebeen in the Asian market for fund gence of China will continue to create significant ever increasing levels of regulation. opportunities for asset servicing in the region.administration? Mark Neary: The last 12 months has seen Keith Hale: With the world and particularly the increased competition in the Asian fund ad-Colin Lunn: The past 12 months have been European Union economy stuttering, the re- ministration market as it becomes a point ofchallenging, in particular, for hedge funds. Ac- sultant slowing of the various high growth Asia focus for global providers looking to provide acording to recent research published by Asia- economies made and continues to make the global service and positioning themselves forHedge, a combination of fund closures and neg- markets across Asia volatile. That said, with regional growth.ative returns caused Asian hedge fund assets Asia constituting approximately only 10 per centto decline by eight per cent to US$140 billion in of the global mutual fund market, there remains Lilian Wong: 2011 continued to be a chal-2011. However, encouragingly, growing investor exponential growth potential in the Asia funds lenging year for the Asian funds market gener-demand for Asia-specific knowledge and capa- market, given the global demographics and ally. The aggregate assets under managementbilities is reflected in an increase in the amount relative economic growth. were under pressure and many funds wereof assets now managed in the region to 78 per also performance-constrained. Add to that thecent of the US$140 billion. The expected investor excitement in RQFII increased investor expectations around report- didn’t meet expected demand, but from a fund ing, especially in the alternative segment andTypically, administrator revenue is linked to as- administration perspective, there will be oppor- the uncertainty of regulatory change comingsets under management so consolidation can tunities and challenges for fund administrators from the US and EU impacting Asia meant thatbe expected to have a direct impact on the bot- in the region: from new product and fund struc- 2011 was a challenging year. Fund administra-tom line. However, I am confident that the shift tures across Asian markets such as China and tors in Asia were not immune from those forces 24
  • 25. PanelDebateas their interests are generally aligned with the FATCA regulations will also have a profound impact managers, and consequently adminis-those of their clients. With increased client and impact in Asia on all market participants includ- trators over the next year.investor demands, along with the regulatory ing the investor services providers. As such, itchanges, clients are typically expecting more will be critical in 2012 and beyond to focus on Hale: The FATCA regulation, while instigated byof their fund administrators. Challenging market the ongoing analysis and implementation of the US government, will have significant impactconditions have increased pressure on manag- these new global and domestic regulations. across the industry with any fund with eitherers to look at new avenues in terms of products US investors or US investments impacted. Theand geographies - these place additional de- Even though the details around a lot of the re- Asian fund industry will be affected as much asmands on administrators. The administrators cent measures are still being worked out and European funds. Cost estimates vary betweenthat are better positioned to effectively deal with the full impact may as such not be known yet, 20 and 50 USD per account to identify whetherthese challenges are ones that have sufficient we have noted a heightened focus and interest an investor is US, non-US, or recalcitrant (won’tsize, scale and presence to invest in system by investors and regulators alike to understand say). The impact is huge with very little benefitenhancements, which help them to navigate and prepare for the implementation and impact to anyone other than probably the US IRS (eventhese changes. of the various regulations and we expect this to that is questionable) and no differentiating out- continue and expand during 2012. come other than to be compliant.Francis Braeckevelt: The fund administration Neary: The key challenge with regulation in While there is much talk of some form of Asianservices space in Asia continued to evolve sig- Asia is similar to other global markets where the passport, for the time being UCITS remains anificantly over the past 12 months. Even though rate of change has increased on a number of well regarded fund vehicle across Asia, particu-we continued to note ongoing domestic and off- fronts to address investor protection. This has larly in the cross border funds. However there is,shore fund launches, the speed and size of the resulted in increased demand for operational quite rightly, a lot of concern about the potentiallaunches varied widely by country. In selected transparency. The challenge is magnified in impact of a European financial transaction taxmarkets, regulators have become more conser- Asia as regional firms have to deal with multiple on the funds business. The cost impact of im-vative in their approach to approving new fund regulatory environments and jurisdiction specif- posing a transaction tax within funds could sig-launches whereas in other markets, the lack of ic compliance and tax regimes, often requiring nificantly change the preferred structures usedproduct innovation and differentiation has been multiple operating models and multiple servic- in Asia and damage the reputation of UCITS asreported as an impediment to the growth of the ing arrangements across countries. We see this the international standard for funds, and per-funds segment in Asia. trend continuing in 2012. haps hasten an Asian passport.So even though the number of fund launches Lunn: The Foreign Account Tax Compliance Actand the size of the funds launched have been Wong: Regulatory changes over the last two to (FATCA) and the Alternative Investment Fundnegatively impacted by the recent turmoil, the three years impacting the funds industry are em- Managers Directive (AIFMD) probably have thegeneral trends for future growth appear to re- anating primarily from the West, though many of greatest impact on service providers. Due tomain intact as, across the region, investors ap- these have a global impact including Asia. its extra-territorial scope, FATCA is particularlypear to continue to embrace funds as part of challenging while AIFMD affects both a manag-their overall investment strategy. The regulatory development causing the single er’s ability to raise assets in the EU, as well as biggest stir is Foreign Account Tax Compliance the extent of liability vis-à-vis depositories.In addition, global financial institutions have Act (FATCA). We’ve had a programme runningcontinued to explore Asian manufacturing and since 2010 to understand the impacts and there’s In my view, the developments will be beneficialdistribution strategies, requiring market service no doubt it will be the most challenging for the for the industry in Asia as they have the poten-providers to look at rolling out or expanding funds industry in Asia. 2012 will be the year tial to trigger a shift of capital eastwards. This isupon their trustee or (Sub-) transfer agency ca- where Asian managed funds turn their minds to not to say that Asian regulations are in any waypabilities across the region. readying themselves for the practical impacts of deficient, but rather that Asia’s growth potential FATCA and consider the position their funds will will encourage more investors and so managers take with respect to this new regulation.We ex- to seek an Asian domicile.AST: Which regulations are causing pect most funds to comply and as such becomethe biggest stir in the industry and a participating Foreign Financial Institution (FFI). AST: Has Asia seen the same risinghow do you see them taking shape For us, 2012 will be focused on deploying our demands for transparency in the facein 2012? technology and process changes, and, most im- of increasing market volatility and reg- portantly, supporting our clients in understanding ulatory scrutiny as elsewhere in theBraeckevelt: Unlike the regulations in other what the regulations will mean for them. world? How is this being addressed?regions, which are primarily geared towards There is also residual concern that the Alterna-regulating the capitalisation of the different mar- tive Investment Fund Managers Directive (AIF- Wong: As a general rule, yes. And whilst mar-ket participants or towards mitigating systemic MD), in its final form, may work to effectively ex- ket volatility and regulatory change have playedrisks, the regulators in Asia are focusing more clude Asian managed funds from the EU though a part in driving that change, the expectationsclosely on distribution and investor protection the private placement regimes will continue to of investors has been a significant catalyst forrelated processes. co-exist till 2017. change. In turn, fund managers and service providers are positioning themselves to addressObviously, a number of the global regulations Finally, the Dodd-Frank requirements in terms of these demands. The increased demand onthat are currently being finalised and rolled out registration and disclosures/reporting along with transparency come with cost implications whichin other regions and jurisdictions, such as, but Central Counterparty Clearing requirements for need to be looked at, there’s also a need to en-not limited to, the Dodd Frank act, Basel III or Over-the-counter (OTC) are also expected to sure all investors are treated equally and bear- 25
  • 26. PanelDebateing in mind the proprietary trading information and transparency between managers and service Neary: Transparency is also a key issue forintellectual property of the investment manager. providers, particularly administrators, as it is fund managers who have outsourced elements they who maintain records of the fund. Indeed, of their fund operations to one or more serviceBraeckevelt: Similar to the other regions, the it is not untypical for due diligence today, which providers, particularly those requiring oversightrecent market turmoil has resulted in height- previously may have taken the form of a simple across multiple locations to take advantage ofened investor uncertainty and risk awareness questionnaire, to comprise extensive interviews regional opportunities. Increasingly fund manag-as well as increased regulatory oversight across which, in some cases, last many hours. ers are looking to technology to automate valida-Asian markets. As a result, therefore, transpar- tion of service provider outputs such as NAVs/ency has been and continues to be a critical Neary: Yes. The demand for increased trans- prices and related SLA’s as regulators demandcomponent of the current investor requirements parency is a global phenomenon, and Asia is no increased operational transparency. In summary,which are primarily focused on getting detailed exception. We are seeing the increased politici- transparency barriers are being broken down byinsights in their holdings and activity history, sation of investor interests, particularly in coun- operational efficiency supported by technology.portfolio valuations and risk exposures. tries that have developed mandatory pension savings programmes, such as the MPF in Hong Braeckevelt: Depending on issues such as theInvestors today increasingly recognise they may Kong. Typically larger investment pools result in nature of the fund (eg, hedge fund structures)not necessarily be as well equipped to deal with increased competition and pressure for lower or the underlying instruments the client has in-this renewed focus on transparency as they had administrative and investment fees and more vested in (eg, structured products), there maypreviously thought. As a result, where inves- direct comparability of performance outcomes be restrictions or limitations with regards to thetors previously entered into arm’s length vendor from the perspective of the end investor. We see level of transparency service providers can sup-based associations, they have since moved on initiatives such as the MPFA’s Employee Choice port in their enter into more holistic partnership relation- Arrangement as an indicator that this processships, leveraging the partner’s unique position has commenced in Asia. We expect this to di- As some of the current limitations are structuralas a central repository of their data. rectly impact fee structures, leading to dilution in nature, removing all barriers to transparency may remain challenging in the immediate fu-In turn, providers continue to invest in their of front-end load and exit fees that has occurred ture. However, in a effort to continue to workmiddle and back office infrastructure to provide in other markets such as Europe and Australia. towards a more enhanced level of transparencyclients with more, better and faster information,covering all aspects of their activities, including AST: Is there still a barrier to trans- and more comprehensive and granular report- ing, providers continue to engage in discussionsareas such as valuation, reporting, performance parency and how is this being bro- with individual clients and continue to look forand risk analytics services or investment guide- ken down? better and innovative ways to obtain additionalline reporting assistance. and detailed vendor information to be used orHale: Post the financial crisis, there has been Lunn: The issue here is not transparency itself incorporated in the reporting or analyses.a significant regulatory push and an increasing but rather the need to determine how muchdemand from investors for more transparency, information is necessary. Both regulators and Wong: The main barriers are cost and system capability.particularly for alternative funds. Traditional investors are demanding more informationfunds typically already have reasonable levels which increases the costs of doing business. AST: With the multi-jurisdictionalof transparency incorporated in the structures However, ultimately, it should be left to investors nature of Asia, which domiciles areby the regulation imposed on them. to determine the appropriate level of transpar- creating the best environments for ency and, in turn, at what cost. If left unchecked, growth and where do you see theThe diverse nature of regulation in Asia com- the current model has the potential to create apared with Europe means that transparency regulatory framework in which it becomes too biggest potential?is much more fragmented at a regional Asian expensive to invest.level. For the more mature Asian markets, such Braeckevelt: The multi-jurisdictional nature ofas Singapore and Hong Kong, regulators have Hale: Fund managers, particularly alterna- Asia and the varying stages of development oftaken steps to improve investor awareness and tive and hedge fund managers, are often very the constituent markets create different oppor-disclosure. Fund offering documentation now protective over providing details of their trading tunities in the underlying markets. When lookingneeds to be accompanied by product highlights strategies, as this represents a key part of the at market opportunities, we need to distinguishsheets in Singapore and key fact statements in intellectual property they are offering. As a re- between the potential for domestic fund launch-Hong Kong to explain the investment product sult, full transparency to the underlying details es, offshore fund launches and the possibilityand risks in layman terms to investors. of their portfolio and associated strategies can for global financial institutions to distribute their be a significant barrier to transparency. overseas funds into the domestic market.Lunn: Yes. European and US investors are re- Even though in most markets there may be ansponsible for around 80 per cent of all invest- At a regulatory and IT system level, there can be opportunity for one or several of these seg-ment into Asian hedge funds and seek the same challenges over providing the required data in a ments to be developed and we have noted anstandards from Asia-based managers as they timely, consistent and accurate basis in order to increasing acceptance of the Asian investors todo from those in their home countries. At the make the transparency meaningful. embrace fund structures as part of an overall in-same time, and as evidenced by short selling vestment strategy, the true opportunity in a spe-disclosure requirements and form PF reporting Ultimately a balance needs to be drawn at pro- cific market remains highly dependent on vary-in the US, the regulatory environment is becom- viding sufficient transparency and risk informa- ing drivers such as, but not limited to structuraling more stringent. tion so an investor can make an informed deci- market and product considerations, the current sion, but without compromising the intellectual and expected market regulatory environment orIn Asia, there is an ongoing dialogue regarding capital of the fund strategy. the countries prevailing tax regime. 26
  • 27. PanelDebateNeary: In terms of fund administration, Asiahas traditionally benefited from low labour cost,which has deferred the need for sophisticatedtechnology and higher levels of automation.This is changing rapidly as competition forexperienced staff drives up the cost of labourand brings focus to automation, particularly inrelation to more complex investment productsand high risk operational functions. The biggestpotential in terms of location will not ultimatelybe defined by the lowest labour cost, but bythe rate at which technology is embraced andincorporated into regional and global operatingmodels to unlock efficiency.Hale: Hong Kong has long been and remains agateway to China, and should increasingly offerinternational investors a good access point tothe Chinese markets. The launch of RQFII indi-cates an increased willingness for China to offerinvestment products externally, and presumablythe other way around in time.In the more immediate term, Taiwan as a grow-ing market represents a less risky opportunity. time. Likewise, it is also an area that the Chinese Hale: 2011 has been a challenging year acrossTaiwan doesn’t have the exponential potential authorities continue to monitor very closely. segments with some interesting areas of growth.of mainland China, but is already more open The ETF market in the region has fared well In the retail funds segment, Hong Kong and Sin- over the last year and has seen strong growth.and accessible to international investors. In a gapore continue to be attractive markets though According to a report by Deutsche Bank at therecent report by Cerulli Associates, Taiwan was dominated by the offshore funds (UCITS). end of 2011, there were 396 ETFs and other ex-found to be the only Asia ex-Japan market in China does present a significant opportunity change-trader products in the region, comparedwhich the sale of offshore funds exceeded lo- for fund administrators from an onshore per- with 284 at the same time in 2010. It also sawcally based funds. Around 62 per cent of total spective once the regulatory position is resolved. cash flows in 2011 ($19.9 billion) that were twiceassets under management were in offshore We are hopeful of this happening sooner rather those of 2010 ($10.8 billion). Whilst the major-funds at the end of June 2011 compared with than later. Growth in India has been stymied ity of these are equity trackers, they have seen53.2 per cent in 2007. followed by the regulatory clamp down on respectable growth even in light of recent poorLunn: From a hedge fund perspective, Hong distributor commissions. equity markets performance, and it is a goodKong remains the most popular location, fol- indication of increased interest from new provid-lowed by Australia and Singapore. However, The Malaysian regulator has been working on ers in the region.Korea and China have also either developed longer-term financial market reforms and we areor are developing hedge fund-friendly regula- hopeful of a positive impact on the funds market. In 2011, the revised capital market regulationstory environments. Korea’s retail fund market did not really see the permitted South Korea to promote hedge funds desired impact of the Consolidation Act. Indo- and grow its financial industry and as a result,China’s demographics give it unparalleled po- nesia is a large untapped market offering huge this is likely to be a large growth area in 2012tential. Indeed, the hedge or “sunshine” fund population where less than one per cent invest with increased investment into hedge there already stands at US$60 billion, in mutual funds. The regulator there is conduct- Whilst it is early days, the revision should createalthough the figure does not appear in most ing an overhaul of the mutual fund regulations in a new alternative market in Korea and add todatabases. As the market matures and funds an attempt to attract a greater proportion of the Asia’s alternative fund growth.move into the mainstream the potential for population to save via mutual funds. Thailand isgrowth is exponential. one of Asia’s largest mutual fund markets, how- Asia’s insurance market will also see sustained ever it remains dominated by local banks who growth in 2012, with emerging markets continu-Wong: Asia is a large and diverse region with have distribution capabilities. The proposed ing to outpace developed markets according tojurisdictions at various stages of maturity with introduction of open-ended funds in Vietnam global reinsurer Swiss Re. Life insurance pre-respect to the alternatives sector. Jurisdictions would open up new opportunities for managers miums in Asia are projected to grow by 4.4 persuch as Hong Kong and Singapore are mature and administrators albeit the size of the overall cent in real terms.and where most of the region’s alternative fund market might still be relatively small.managers tend to reside. That said, Australia Braeckevelt: In general, Asia is considered ashas a well-established alternative sector that AST: Beyond traditional fund manage- the future world growth engine and is widely ex-achieved impressive rates of growth in 2011. ment companies, how are other client pected by the analysts and market participants to continue its growth in line with what we haveJapan had a sluggish year in 2011. WhereasKorea introduced, and passed, regulations al- segments faring in the region and are witnessed in recent years or even accelerate itslowing local hedge funds to launch for the first any showing potential for growth? growth rates going forward. 27
  • 28. PanelDebateAs with the traditional fund sector, the other cli- While some larger funds have the potential in particular smaller alternative managers whoent segments have been subject to the same to benefit from appointing a prime custodian, may have been performance-constrained orchallenges and opportunities during the past smaller funds are likely to view buying this type have not been able to reach and sustain a criti-financial market turmoil. Given the current and of insurance as prohibitively expensive. cal mass in assets under management in orderexpected changes in the various market me- to sustain a viable business model.chanics, the anticipated demographic develop- Wong: The safe custody of hedge fund assets and the on-going management of counterparty risk is an We will also see a number of sizeable new en-ments and the ongoing asset and liability pres- issue that continues to be at the front of the minds of trants in to the Asian alternative space.sures across segments and markets, we expectthat both the pension and insurance sectors will fund managers & investors alike. Investors want to Existing funds will continue to focus on as-become the growth engines for the region. understand what the funds’ exposures are and how set raising and performance as well as deal they are being managed. Fund managers want with regulatory change and uncertainties associ-As the participants in the pension and insurance to protect their portfolios in a transparent, timely ated with these changes. Funds will also be fo-sectors typically rely on external fund manag- and flexible manner. They also want to deal with cused on dealing with increasing investor demandsers for part or all of their asset allocations, we a counterparty that their investors are comfortable whether it be enhanced due diligence or reporting.expect that the fund sector will be positively im- with. A prime custody solution that can effectivelypacted as well as a result. ring-fence assets, with a counter party that inspires From an overall administrator’s perspective, we do confidence will become more common place. Safe- see the demands on data increasing significantly,Neary: We see continued growth in fund distribu- keeping of assets and related depositary liabilities be it as a result of regulatory change or other cli-tors as a significant client segment. Given that a are also a key component (and one of most hotly ent/investor reporting needs. This will become anlarge proportion of distribution is undertaken by debated issues) of the AIFMD regulations. increasingly important differentiator with playersretail and private banks in Asia, we see some dif- having nimble, flexible platforms and efficient dataferences in how administrators will need to pres- AST: How do you see 2012 develop- delivery models being seen to be at an advantage.ent their offerings to address this key segment. ing and what can you share about Administrators will also be required to supportWong: There are significant opportunities for as- your plans in this region? growth plans of asset managers both in termsset managers in the sovereign wealth funds sec- of new products and new markets. Lunn: I am extremely positive about the future andtor in Asia as these portfolios continue to grow expect this year to be characterised by significant Players having a strong regional footprint and globaland increase their allocation to overseas mar- growth. As the regulatory environment becomes expertise in various products would stand to gain askets. There are also opportunities riding on the clearer, I am confident that there will be an influx managers aspire to grow. Besides product and ser-back of pension fund reform throughout Asia as of investors and managers into Asia. The develop- vicing capabilities, there will be a continued prefer-jurisdictions move at different paces from loosely ment of the asset management industry in China, ence for providers who have the financial strength,regulated savings schemes to mandatory provi- in particular, will present huge opportunities. scale and commitment to withstand a challengingdent funds, often managed by the private sector. environment and meet client requirements. Braeckevelt: Even though the full effects of theAST: Are we seeing a move to prime recent financial turmoil may not be known yet and HSBC continues to invest across various ini-custody? Why might clients make it is probably a bit too early to look at the current tiatives and markets in the region. We havethis choice and how do you see it situation as a business as usual environment, we significant investment programmes across both our do believe that, as suggested above, the region isdeveloping further? well positioned for the anticipated future growth. traditional and alternative fund servicing segments.Hale: Without doubt there is a convergence of tradi- Hale: The markets will remain volatile with some What has become increasingly apparent is that alltional and mutual funds, due to institutional investors potential bright spots in Asia that is seen as market participants have been affected to somehaving increased appetite for hedge funds, in turn a safe haven from the woes of the West, par- extent by the recent turmoil and that in Asia, givencausing hedge funds to become more traditional in ticularly the sovereign debt issues in Europe. the large home bias, most segments have cometheir liquidity, risk and transparency characteristics. The waves of new regulation will be further debat- through the turmoil somewhat less scathed com-Similarly retail investors looking for better returns in ed, analysed and adopted throughout 2012 and pared to the same sectors in the global markets.the form of absolute return funds are making mutual there will be increased convergence between tra-funds become more alternative in nature. Even though we believe that the growth will con- ditional and alternative funds globally and in Asia. tinue unabated or even pick up, further diversifica-As a result the service providers such as traditional tion and liberalisation processes in the domestic From a Multifonds perspective, we continue toand hedge fund administrators as well as prime markets will fuel that growth, which, however, will partner with and support our leading servicebrokers and global custodians are converging in the remain uneven between countries and segments. providers including Standard Chartered, HSBC,services they offer to support hybrid structures. As a Citi, BNP Paribas, Societe Generale and Brownresult, the fund administrator that covers long only and Therefore, these new opportunities will also Brothers Harriman across 13 of the major Asianalternatives together and similarly prime custody, a mix create ongoing challenges for all market partici- jurisdictions providing fund accounting, transferof part global custodian and part prime broker, are pants, including the service providers, and will agency and/or portfolio accounting capabilitiesvery likely to be service provider models of the future. require everyone to continue to review and as- to our administrator clients. sess the countries, segments and changes veryLunn: Prime custody has its benefits but in Asia closely and remain flexible to respond to oppor- Multifonds is well placed to meet the growingthe trend has been towards the development tunities as and where they present themselves. demands for efficient fund administration soft-of a multi-prime model. Funds launching today ware in the region and we will focus on workingtend to have a minimum of two prime brokers Wong: 2012 is expected to be characterised closely with our existing clients as well as creat-rather than a prime custodian. by a contraction in the number of managers, ing new relationships. AST 28
  • 29. 201 2 IndustryEvents 03 March 04 April 05 May 06 June M T W T F S S M T W T F S S M T W T F S S M T W T F S S 1 2 3 4 1 1 2 3 4 5 6 1 2 3 5 6 7 8 9 10 11 2 3 4 5 6 7 8 7 8 9 10 11 12 13 4 5 6 7 8 9 10 12 13 14 15 16 17 18 9 10 11 12 13 14 15 14 15 16 17 18 19 20 11 12 13 14 15 16 17 19 20 21 22 23 24 25 16 17 18 19 20 21 22 21 22 23 24 25 26 27 18 19 20 21 22 23 24 26 27 28 29 30 31 23 24 25 26 27 28 29 28 29 30 31 25 26 27 28 29 30 30The 6th Annual Securities Financing NeMa 2012 – the 12th European ClearingFundForum Forum New York Annual Network and Settlement 2012Asia 2012 Management ConferenceLocation: Hong Kong Location: New York Location: Budapest Location: LondonDate: 23 – 27 April 2012 Date: 22 May 2012 Date: 12 - 13 June 2012 Date: 27 - 28 June www.informaglobalevents.comWhether you are an established The Data Explorers Securities Fi- With over 350 attendees from the European Clearing & Settlementmember of the Asian investment nancing Forums bring together the Network Management and Securi- 2012 will bring together the mostmanagement community or just world’s most influential securities ties industry in 2011, NeMa has be- important people in the clearing andsetting up business in the region, financing professionals, including come THE most important event of settlement community giving you aFundForum Asia is an unmiss- beneficial owners, hedge funds, the year for the network manage- cost-effective and time-efficient op-able opportunity for you to show- prime brokers, agent lenders and ment community - bar none. portunity to meet with your peers andcase your expertise, learn from regulatory experts; all of whom come clients all in one place, at one time.the industry leaders and make together each year to engage in de-vital new contacts. bates that will help define and drive the future of securities financing AST Covering all areas of ASSETSERVICINGTIMES securities services Don’t miss out. WWW.ASSETSERVICINGTIMES.COM Subscribe FREE ONLINE 29
  • 30. PeopleMovesIndustry appointments ASTTim Jones will act as AIS Fund Administration’s Jason Cholewa will serve as the new vice presi-new senior vice president and sales manager dent of Alps Fund Services, a fund administratorof the London offices. to the alternative asset management industry.Formerly director of business development at Cholewa, formerly the head of Alps’ Boston opera- ASSETSERVICINGTIMESHedgeServ, Jones will be responsible for AIS’ tions, will now be responsible for its growing hedgeEuropean sales effort. fund administration business on the East Coast.“I have wanted Tim on our team for many years, “Jason has been an integral part of our team here Publisher: Justin Lawsonand I am thrilled he has joined AIS to help steer at ALPS over the past several years and brings a justinlawson@assetservicingtimes.comour growth in Europe, said Paul Chain, presi- wealth of knowledge and experience to his new Tel: +44 (0)20 8249 2615dent of AIS Fund Administration. “This comes role at the firm” said Mike Procter, senior vice Office fax: +44 (0)20 8711 5985at a very good time, as we are currently rolling president and director of business development.out a new reporting platform.” Editor: Ben Wilkie New York Portfolio Clearing (NYPC) has ap- benwilkie@assetservicingtimes.comFund services provider Maples Fund Services pointed Alexander Broderick as CEO. Tel: +44 (0)20 3006 2710hopes to expand its European operations withthe appointment of Steve Lewis as director of A joint venture of The Depository Trust & Clear- Journalist: Georgina LaversEuropean business development. ing Corporation (DTCC) and NYSE Euronext (NYX), NYPC was created to deliver capital and Tel: +44 (0) 20 3006 2888Based in London, Lewis will be responsible for ex- operational efficiencies to the US futures market Commercial manager: Michael Bradypanding the fund administration and middle-office by evaluating and cross margining a clearing michaelbrady@assetservicingtimes.combusinesses across the firm’s European offices. member’s risk on a portfolio basis across relat- Tel: +44 (0)20 3006 2859 ed cash fixed income and derivative positions.He will work closely with Scott Somerville, CEO Published by Black Knight Media Ltdof MaplesFS, and Toni Pinkerton, global head HSBC Securities Services has appointed Geoff Provident House, 6-20 Burrell Row, Becken-of fund services, as well as the regional heads Pullen as head of sales and business develop- ham, BR3 1AT. UKof fund services for Dublin and Luxembourg, to ment for UK Alternatives. Company reg: 0719464execute the firm’s growth strategy. Pullen will report to Tony McDonnell, head of Copyright © 2012 Black Knight Media Ltd.Rene Keller will act as chief operating officer sales and business development of Alternatives All rights reserved.for Information Mosaic, a US-based post-trade in Europe, and will be responsible for sales tosolutions provider. new and existing clients in the alternatives sec- ISITC (The International Securities Association tor in the UK, and building out a business devel- for Institutional Trade Communication).Keller will guide the company’s IT team as they opment coverage model for existing HSS hedge Jersey Finance has appointed Heather Bestwickprovide global support to Information Mosaic’s fund relationships in the region. to the new role of deputy chief executive solutions. Pullen joins HSBC from BNP Paribas Securities She will maintain the role of technical direc-“Information Mosaic is a dynamic and growing Services where he was a senior sales manager for tor, leading the Jersey Finance technical pro-company”, said Keller. “What’s more, its people the UK and global hedge fund business. Previous- gramme, but will have additional responsibilityroutinely execute solutions to problems that are ly, he worked in prime brokerage consulting roles at for several operational functions including hu-very hard to solve. I am pleased to join a team Bear Stearns and Lehman Brothers in London. man resources, finance and IT.of this high calibre.” Tony McDonnell said: “We are pleased to wel- Geoff Cook, Jersey Finance CEO, comment-Information Mosaic CEO John Byrne said: “The come Geoff into this newly created strategic ed: “Heather’s appointment to the new role ofnew regulatory and legislative environment means role. Geoff will be instrumental in continuing to deputy CEO reflects the growing remit of Jerseythat post-trade functions within the capital mar- build our alternatives franchise in the UK.” Finance and in particular, our strategy to sup-kets industry are changing rapidly, putting new port the industry in expanding into high-growthdemands on systems. We look to Rene to further XSP announced the appointment of Esmeralda emerging economies, such as China, India andbuild on our track record of rapid execution.” Estrella as marketing committee co-chair of the Gulf Region.” AST Raising The Bar In Recruitment Telephone: +44 (0)20 7653 1911 | Email: Web: www. | Postal: Albert Buildings 49 Queen Victoria Street London EC4N 4SA hornby Chapman.indd 1 30 2/3/12 15:49:45
  • 31. Pl F Network Management 2012 Di ea K 10 cou se P2 s g % n qu 326 ot AS e VI TA 12th Annual P D t co Over 350 de Attendees in : “Once agai update of n a sharp and compa 2011 the m ct in the busi ost important topi exceptiona ness right now, an cs l possibili d colleague s, compe ty to meet your at one plac titors and clients al e an l Janne Pal d one time.” valin (attendee , NORDEA at NeMa 20 11) Maintaining A Resilient Network In A Globally Shifting Environment cial More Than 70 Top Level Insights Will Be Plus Spe ers Key Industry Speakers Taking Part This Year Include: Guest Speak Made By The Following Industry Leaders: � HSBC SECURITIES SERVICES � UNICREDIT Júlia Király � JP MORGAN Vice-Chairman � DEUTSCHE BANK of the Monetary � BNP PARIBAS SECURITIES SERVICES Council NATIONAL BANK John Gubert Colin Brooks Jeffrey Holland � THE BANK OF NEW YORK MELLON UNICREDIT HSBC SECURITIES SERVICES BROWN BROTHERS HARRIMAN OF HUNGARY � BANK OF AMERICA MERRILL LYNCH � BROWN BROTHERS HARRIMAN � UBS � BANQUE PRIVEE EDMOND DE ROTHSCHILD EUROPE � BANK JULIUS BAER & CO. LTD Andrew Walker � NATIONAL BANK OF HUNGARY Co-Founder � MORGAN STANLEY TWEETMINSTER Kevin Molloy Philippe Kerdoncuff BNP PARIBAS Beatriz Molina Aragonés THE BANK OF STATE STREET SECURITIES SERVICES NEW YORK MELLON � CHINA CONSTRUCTION BANK � STRATE � JEFFRIES INTERNATIONAL LIMITED � CLIFFORD CHANCE LLP Don’t Miss � SUMITOMO TRUST & BANKING CO. (USA) � SMARTSTREAM TECHNOLOGIES This Year! � STATE STREET Workshop Stream On Jean-Michel Godeffroy John Whelan Kelly A. Mathieson � NORTHERN TRUST EUROPEAN CENTRAL BANK OF AMERICA J.P. MORGAN CHASE & CO. NEW Afternoon of Day One BANK MERRILL LYNCH � CITI � ING COMMERCIAL BANKING SECURITIES SERVICES Guest Out-Of-The Box � STANDARD BANK NEW Speakers � NSD � Bigger And Better “Network � NORDEA Risk” Summit Day � THOMAS MURRAY LIMITED � EUROPEAN CENTRAL BANK � The 3 NeMa Evening Dominic Hobson György Dudas Odessa Weber GLOBAL CUSTODIAN KELER GROUP JEFFERIES � EUROCLEAR Receptions: 18+ Hours Of INTERNATIONAL LIMITED � SEB Networking Accompanying The � GLOBAL CUSTODIAN Conference � CLEARSTREAM � “Off The Record” Lunch � SOCIÉTÉ GÉNÉRALE SECURITIES SERVICES Roundtables - New � FINANCIAL SERVICES RESEARCH Perspectives And Informative � UBS Discussions Thibaud de Maintenant Paul Harrington Ben Parker � CENTRAL DEPOSITORY AND SETTLEMENT CORPORATION LIMITED DEUTSCHE BANK MORGAN STANLEY UBS (KENYA) � TWEETMINSTER � KELERPLUS Pre-Conference One Day Summit � FRIED, FRANK, HARRIS, SHRIVER & JACOBSON (LONDON) LLP Network Risk � STANDARD CHARTERED BANK � INFORMATION MOSAIC � SWIFT Taking Proactive Steps To Ensure The Safety Of Client Assets Through A Rigorous Programme Main Conference 12th & 13th June, 2012 Of Risk Monitoring & Assessment Network Risk Summit 11th June, 2012 Monday 11th June, 2012 Intercontinental Budapest, Hungary To Register: Lead Sponsors: Tel: +44 (0) 20 7017 7200 Fax: +44 (0) 20 7017 7807 Email: For the latest agenda or to register please visit: Media Partners: Marketing partner: Scan with smartphone QR Reader App: Arranged by Follow Us On: Supporting Organisation: NeMa Forum NeMaEventTV