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Review

  1. 1. An Update for the Investment Management Industry Ju n e 2009 Investment Management Review The Next Move Future of Investment: The Next Move Welcome to the Age of ‘Hedge Fund Lite’ Bringing Asset Pooling to a Broader Market A Step-By-Step Approach to Mastering Risk Back to Basics in Securities Lending Redefining the Custody Landscape Middle East Markets on Recovery Path Europe, Africa and the Middle East
  2. 2. Contents 1 Introduction 3 Future of Investment: The Next Move 6 Welcome to the Age of ‘Hedge Fund Lite’ 10 Bringing Asset Pooling to a Broader Market 14 A Step-By-Step Approach to Mastering Risk 19 Back to Basics in Securities Lending 22 Redefining the Custody Landscape 26 Middle East Markets on Recovery Path 30 Industry Recognition 31 Contacts Investment Management Review An Update for the Investment Management Industry
  3. 3. Seeing the world through the clients’ eyes - a key determinant to success.
  4. 4. Introduction Welcome to the summer edition of Investment Management Review. Timed to coincide with Fund Forum, which Citi has supported since 1994, this issue picks up on the main theme of the event: the future of the asset management industry. We report on a ground-breaking study by the independent think tank, CREATE-Research, co-sponsored by Citi and Principal Global Investors, which surveyed 225 investment asset managers in 30 countries to assess how client behaviour is expected to change in the wake of the bear market — and how firms should respond. For anyone expecting a return to ‘business as usual’ the findings make for a must read report. Of note is the need for firms to reassess their business model and move to a variable cost structure — in both pay and processes. They must focus on what they do best and streamline their product offerings. Above all, the survey suggests the winners of tomorrow will be those firms that work to understand what different client segments want and deliver it in a high-service environment. Seeing the world through the clients’ eyes will be a key to success. In another forward-looking article, we look at the continuing convergence between the long-only and the alternative ends of the investment management spectrum. Old labels are becoming increasingly outworn as more ‘hedge fund lite’ UCITS products emerge from traditional and hedge fund firms alike. Also in this issue we look at recent developments in cross-border asset pooling, risk management and custody. In all these areas, Citi is helping to create new structures, products and services that address major issues of cost, efficiency and control or facilitate our clients’ growth plans. We remain committed to developing market-leading solutions to help our clients take on the challenges of a changing world. I hope you enjoy this edition of IMR. Jervis Smith Global Head of Client Executive Global Transaction Services, Citi 1
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  6. 6. Future of Investment: The next move Amin Rajan, Chief Executive Officer, CREATE-Research, details the results of a ground-breaking study that explores how the market dynamics of the funds industry will change following the events of the past 18 months. The message is clear: firms must adapt their business models and focus on what the client really wants. In the space of just seven years, the subject depth. Together they Three Scenarios the asset management industry provide key insights into recent has been hit by two of the four events and their future impacts. How will these trends affect worst bear markets to have the investment management occurred in the past 100 years. One message stands out: once the industry? Three scenarios present The last one wiped out USD15 worst of the current turmoil is over, themselves. At one extreme is a trillion in assets and destroyed there will be a flight to quality, commoditised industry in which 15 years’ of capital gains in the simplicity and safety. Quality will be clients’ investment choices are space of 18 months. The defined by consistent, risk-adjusted largely driven by capital protection. CREATE—Research study, returns; simplicity by transparency The pace of commoditisation co-sponsored by Citi and Principal and liquidity; and safety by capital may accelerate in the event of Global Investors, sets out to protection. Clients’ new mantra will regulatory overdrive. Some 34 determine how these events will be ‘back to basics’. per cent of survey respondents affect client behaviour going subscribe to the commoditisation Mainstream asset classes will far scenario, which is in line with forward, how investment managers outweigh alternatives in client what has already happened in should respond, and what will choices. Granted, there will also be Japan. However, many are not differentiate winners periodic opportunism to capitalise from losers — in terms of business tooled up for products with low on areas such as distressed debt return, low risk, low volatility and model and products alike. while high-net-worth individuals high liquidity features. The study is based on a three- will remain in the active space tiered survey of investment and seek alternative investments. At the other extreme is what one managers involving focus groups, However, retail clients will be drawn might term ‘a vibrant industry’ in an electronic survey and follow-up into products that offer capital which managers put their clients’ structured interviews. In all, some protection and tax efficiency. interests first. Some 17 per cent 225 investment managers from of respondents subscribe to this Loss aversion here will be rife — scenario. Here, the winners will be 30 countries participated. They as it will be for defined benefit those firms that align the interests managed a combined USD18.2 clients that are being forced to of managers and clients with a trillion in assets — down from a change the way they invest by value-for-money fee structure, peak of USD25.4 trillion in July persistent losses, covenant risk products that ‘are fit for purpose’ 2007. The survey provided the and demographic dynamics. and high quality service. global reach, the interviews and 3
  7. 7. The winners will The third scenario sits between the other two. It envisages a be those firms segmented industry with a fragmented food chain and a capable of seeing focus on different client segments. Nearly one in two respondents the world subscribes to this scenario. Each client segment is expected to have a special theme: liability- through their driven investment in the defined benefit space; advice in the clients’ eyes, defined contribution space; capital protection in the retail space; and meeting the active management in the high- net-worth individual space. product Introducing a Variable office. The number is expected to double in the future. One in requirements of Cost Base five firms has outsourced the middle-office. Again, the number The starting point for dealing with a changed the new challenges is to review is expected to double. the business model. That, in turn, The effect of this process marketplace. needs to start with costs. Gross revenues across the industry fell by is to create a distinct craft focus at the investment end, around 35 per cent in 2008, with a customisation at the distribution further 15 per cent drop in prospect end, and standardisation at the in 2009. A variable cost model is administration end. Actual and essential in providing the shock virtual boutiques are being created. absorbers capable of cushioning These moves are important exceptional revenue falls. Yet, only in blowing away entrenched 13 per cent of respondents say processes that have long conspired their costs vary ‘to a large extent’ against client interests as well as with levels of activity. operating leverage. The psychological barriers to Focus is Key a variable cost model are now crumbling. More firms are The second area is to streamline introducing variable pay structures the product base to focus on core and considering outsourcing competencies. More than ever, elements of their front, middle large firms are now recognising and back-office activities to create that they cannot be ‘jacks of all economies of scale and scope. trades’. They are forced to make a Some 37 per cent of respondents choice between manufacturing and have already outsourced the back- assembly. The latter is emerging 4
  8. 8. Managers have identified four Three messages emerge from sets of features for a winning the survey. Firms need to review business model: their business model. Many have operated bloated cost bases 1. Investment capabilities that with inflexible pay structures. centre on people talent, Now, they must become ‘lean fundamental research, and mean’. Above all, they need disciplined replicable processes to put a variable cost structure in and deep insights into asset place covering both people and allocation, cross correlation and processes. trade-offs between risk, return, liquidity and volatility. Second, they need to slim down as a major competency in its own their product range and focus on right, underpinned by external sub- 2. Clear alignment of interest core capabilities, retooling where advisory alliances. A new supply between managers and their necessary to meet changing chain is emerging in which fees clients. In addition to a value- client needs. They need to make have a low fixed component and a for-money fee structure, a choice between manufacturing variable component. this includes performance- and assembly. Already, 17 per cent based incentives, transparent of respondents have outsourced Some 41 per cent of respondents compensation systems and manufacturing and their number is have already pruned their execution costs, and regular expected to quadruple. product range. In some medium inter-industry cost comparisons. and large firms as many as 300 Finally, the industry needs a products have gone. Hitherto, in 3. Service excellence — this means radical shift in governance and the absence of flexibility on the understanding client needs, attitudes to align managers’ cost side, large houses had relied selling products that are fit for interests with those of clients — on on an ‘all weather’ portfolio to purpose, giving accurate and charging, reporting, service and maintain revenue in bad times as timely information, providing administration. The winners will be well as good. As with outsourcing, periodic investment reviews and those firms capable of seeing the many now recognise that product establishing internal world through their clients’ eyes, pruning has to have a strategic panels to protect and further meeting the product requirements intent that clarifies what the core client interests. of a changed marketplace. In short, capabilities of the business are and investment managers need a new how they can best be deployed. 4. Top-level business capability. Firms will need the executive narrative on what they stand for and what they can deliver. Putting Clients at the Centre skills to manage alliances, good customer relationship The third, and perhaps most management, dedicated vital, area of change is in client innovation and quality engagement. The study clearly assurance processes. shows that tomorrow’s winners will be those firms that espouse the Refusing to Change is ‘vibrant industry’ scenario detailed Not an Option above. That means putting the client at the centre of all they do. The worst of the crisis is seemingly In the past, the asset management over, but it has triggered a chain industry has been too supply- reaction that will endure long after driven. Firms have sold what the markets recover. Of interest they have in their range, not is the fact that a clear majority what clients have needed. That of survey respondents expect at must change. least one more systemic crisis to occur in the coming decade. The implication of this is there will be no return to ‘business as usual’. 5
  9. 9. Welcome to the Age of ‘Hedge Fund Lite’ The divide between long-only and hedge fund managers is becoming increasingly blurred as convergent approaches emerge in the UCITS space. More than ever, investment managers need an administrator with expertise in both areas. Tentative signs of convergence Global Head of Client and Sales having to rethink their role after between traditional and alternative Management for Investors at the disaster that was 2008. Even investment managers have been Citi’s Global Transaction Services. some well managed funds that around for some time. Lately, they ‘Increasingly, firms will be viewed beat their index benchmark by have been apparent for all to see. not as long-only or alternative but as several percentage points in 2008 A new vehicle, dubbed ‘hedge fund alpha or beta managers, depending lost money and failed to endear lite’ has emerged — and is being on whether they generate absolute themselves to their investors. sponsored as a Undertakings or relative return. While beta for Collective Investments in products such as exchange-traded ‘An absolute return capability is a Transferable Securities (UCITS) funds are becoming increasingly useful weapon in the armoury for product by firms from both ends of popular, people will pay a premium long-only managers that have lost the industry spectrum. At the same for genuine alpha.’ inflows to alternative managers time, a small number of hedge fund in the past,’ says Mr Ernesti. More managers have started turning Several factors have combined and more multi-manager funds their hands to long-only investment. to accelerate the convergence are investing in absolute return Convergence is fast becoming reality. process in the alpha space. products for their alpha and ETFs Traditional managers that have for their beta. Relative return ‘The old labels are starting to look lost inflows to their competitors products are being squeezed. a bit worn,’ says Richard Ernesti, in the alternatives market are 6
  10. 10. 7
  11. 11. The UCITS III regime, with its reduce its applicability to some more relaxed approach to the use hedge fund strategies. Nonetheless, of derivatives and leverage, has Aquila Capital, a German investment provided long-only investment manager, broke new ground earlier managers with a platform on which this year by launching what is to spice up their strategies. A believed to be the first managed recent survey by Bank of America futures fund to comply with the Merrill Lynch found that 76 per UCITS rules. With a minimum cent of institutional managers investment of just EUR1,000, the were planning to use derivatives in fund was partly targeted at the their mainstream funds. Many are retail investor market. The ability to already using Over-the-Counter diversify the investor base is clearly (OTC) instruments while hedge a major stimulus for many of these fund-style performance fees fund launches. are also making an appearance. Absolute return (or ‘hedge fund There is one cloud on the horizon. It lite’) funds are proliferating. is the ability to apply Value at Risk (VaR) budgeting measures in so- On the other side of the fence, called ‘sophisticated’ funds that has hedge funds are being pressed allowed many hedge fund managers by their investors to deliver more to work their way around the UCITS transparency. In the wake of the restrictions. However, the Committee Madoff affair, well regulated, of European Securities Regulators European-domiciled funds have (CESR) is currently reviewing the two suddenly become hugely attractive. risk measurement methodologies ‘We are seeing a lot of enquiries permitted in the UCITS regime — VaR from Cayman-domiciled groups and the commitment approach. If looking to re-domicile in Europe and VaR were to go, it would hamper a convert to UCITS,’ says Catherine number of strategies. Brady, EMEA Head of Fund Services, Global Transaction Services, Citi. Limited convergence is also taking ‘They are not looking for in-country place in the opposite direction. registrations to go retail: they just Hedge fund firms, such as Thames want the UCITS label,’ she says. River Capital, have bolstered their range with the addition of Several hedge fund groups have long-only funds. Marshall Wace already taken the UCITS III route. has taken a team with long-only One of the earliest was Marshall management experience and is Wace, which launched an open- contemplating following suit. ended UCITS version of its Amsterdam-listed hedge fund, The All Seasons Fund, managed MW Tops, in November 2007. Also by IKANO Fund Management in 2007, Insight Investments, the in Luxembourg, highlights the asset management arm of HBOS increasing convergence between which spans both the absolute and the traditional long-only approach relative return markets, replicated and the hedge fund marketplace. a range of Cayman-domiciled Launched over three years absolute return funds under ago, the multi-manager fund UCITS III. Since then, the likes recently moved from a strategic of GLG Partners, Odey Asset to a ‘dynamic asset allocation’ Management and Brevan Howard approach. Says Henk van Eldik, have all followed suit. IKANO Fund Management’s Head of Fund Distribution: ‘We realised While more liberal than previous that just trying to generate alpha regimes, UCITS III still imposes was not enough. In most funds, certain limitations on asset asset allocation is not reviewed eligibility and leverage, which often enough. We were looking 8
  12. 12. at the top of the pyramid for the our global footprint to develop 1 per cent of alpha rather than centres of excellence that give the bottom where 90 per cent of us the capability to manage big returns are realised. volumes quickly and effectively,’ says Ms Brady: ‘One example is ‘We start from a cash base with a in the area of pricing where we long list of investment ideas,’ he have centralised teams in the US, Managers must says. ‘Rather than diversify across all India and Europe, who can ‘follow- asset classes, we boil our ideas down the-sun’ and meet the toughest partner with their to a short-list, identifying those areas reporting deadlines. Another is where there is a good reason to the provision of customised and providers like never invest at that time. We then decide ‘off-the-peg’, modular solutions where there is value from an active from across the font-, middle- and before to implement manager or whether we should go back-offices. An area in which Citi passive, then we invest’. The fund is practically unrivalled. resilient business is currently heavily concentrated in Japanese smallcap shares, and Will the convergence process models that can corporate and high yield bonds. continue? UCITS III has given both sides of the investment withstand the tests Mr van Eldik notes a number of trends in the marketplace. management industry a highly flexible tool with which to promote of the future. Increasingly, he says, bank- owned investment managers are advanced strategies. The hedge fund industry is responding to expanding into alternatives such the pressure to launch regulated, as real estate and private equity European-domiciled funds, to complete their product offering. while at the same time taking ‘The problem is that they lack the opportunity to broaden its competence in managing lots of customer base. Traditional long- different asset classes. Others, only managers are responding with good records, are taking the to old-fashioned competitive opportunities offered by UCITS III pressures and increasingly tackling to seek additional returns with the hedge funds in the alpha space. 130/30 funds. But you need to be The asset management industry a good market timer as well as a is changing — and quickly. That stock picker,’ he adds. change looks irreversible. With the increasing use of Clearly, investment managers must derivatives and the spread of partner with their providers like absolute return products, it is vital never before to implement resilient that firms have an administrator business models that can withstand with a depth of experience in the tests of the future and deliver the administration of both long- the value they have long promised only and alternative funds, says to their customers. Catherine Brady: ‘There is no one platform that will process the full spectrum of instruments. The challenge is to streamline the information into common data warehouses and deliver it to the client in a standardised fashion as part of a consolidated view.’ As a leading hedge fund administrator, Citi has developed solutions to cope with a broad diversity of portfolios, styles and instruments. ‘We have leveraged 9
  13. 13. Bringing Asset Pooling to a Broader Market 10
  14. 14. A new, multi-client asset pooling platform from AEGON Global Pensions, developed with Citi, brings pan-European pensions pooling within the reach of smaller and medium- sized multinational companies. The pan-European pension scheme ways by different countries and While Luxembourg, Ireland, Belgium has been a long time coming. The harmonisation is some way off. and the Netherlands have all sought Pensions Directive of 2003 was Consultations on improving the to establish themselves as centres supposed to pave the way for a directive continue, however, a for European pensions by launching single entity to provide pensions European pensions ‘big bang’ seems pension pooling vehicles tailored to across the European Union. However, as far away as ever. In a recent panel the needs of pension schemes; the there is still much to be achieved discussion in Brussels, it was claimed creation of a pan-European pension before this can happen. The cross- that only five new cross-border scheme still requires a host of tax, border provisions of the directive pension schemes had been set up regulatory and legislative obstacles have been implemented in different since the directive was adopted. to be addressed. 11
  15. 15. Asset Pooling is Here In one area — asset pooling — progress has been made. Pooling involves the co-mingling of assets in a single account within a tax- transparent vehicle, such as those mentioned above. This avoids, or minimises, the loss of any tax advantages that would accrue to pool participants were they investing directly. Where the tax status of different participants varies, a global custodian must manage multiple tax rates and account accordingly to each participant. A number of very large multinationals, including Unilever, Shell, IBM and Nestlé, have either introduced cross-border asset pooling for their European pension schemes or are in the process of doing so. The attractions of pooling are clear. Schemes achieve better governance, improve operating efficiency and risk control, and gain the benefits of unified investment management and custody arrangements. By being part of a large pool, smaller country funds get access to top-of-range investment managers and are better able to achieve diversification of assets. The Pressure Mounts schemes, some of which may now be materially underfunded. The European Federation for The pressure to apply a centralised Multinationals, particularly those Retirement Provision has estimated approach to pensions has intensified that have grown rapidly through the benefits of cross-border of late. With the implementation acquisition, often find themselves asset pooling for the average of the IAS 19 accounting rule, saddled with a plethora of different multinational at EUR1.2 million a pensions are now highly visible consultants and investment year. Other estimates have put the on the balance sheet. The savage managers. Not unreasonably, they annual gains at around 20 basis bear market experienced over the want to achieve the same benefits points. They stem in the main from past two years has increased the for pensions that their international lower administration costs, reduced urgency of achieving optimal control scale has achieved in treasury brokerage charges and custody and governance over multiple management, IT and administration. fees and the avoidance of tax drag. 12
  16. 16. However, there is substantial upfront The AEGON platform uses the Dutch The market for cross-border pensions cost to putting a pooling entity in Fonds voor Gemene Rekening (FGR) may still be in its infancy but research place. Only the biggest corporates structure as a tax-transparent by consultants Towers Perrin two can justify the outlay. It is also vehicle, thereby minimising the years ago found that one in four very time-consuming. And to date, impact of withholding tax. The companies surveyed was planning single-company pooling solutions solution is the result of a three to set up a European pension fund have largely been restricted to self- year collaboration between AEGON within ten years. ‘Asset pooling is administered funds. and Citi, which will also serve as another methodology to bring all custodian of the assets. Karen Zeeb, the assets together,’ says Mr Tans: Off-the-Shelf Asset Director, Head of Pooling Product ‘It should be viewed as the first, and Pooling Solution EMEA, for Citi’s Global Transaction at the moment most practical, way Services says: ‘The tax implications of achieving a harmonised, unified Now an off-the-shelf pension asset are only one aspect of the structure. solution — with all the economies of solution is in place for multinational Our solution has been built to scale, governance benefits and cost corporations that either do not accommodate everything from savings that implies.’ wish to set up their own platform securities lending to performance or lack the scale to do so. AEGON Until now, however, that route has measurement. It is unique in many Global Pensions, part of the Dutch only been open to the very biggest ways; incorporating the ability life and pensions concern, AEGON schemes. Says Mr Tans: ‘A single to meet the diverse investment Group, has established a multi-client scheme solution is only feasible for objectives of different investment platform with Citi that permits the a fund with EUR2 billion or more in managers whilst being scalable and tax-transparent, cross-border pooling assets. Now asset pooling is a highly flexible.’ of assets held by different types of reality for a much broader group institutions — from pension schemes Multi-Manager Approach of companies.’ to insurance companies. The pooling solution has been developed The AEGON pooling vehicle is offered primarily for the pension schemes of medium-sized multinationals and as a complete, bundled solution including asset management and The new platform is currently available for pooling funds domiciled in the Netherlands, custody. Asset management is provided by AEGON subsidiary TKP, makes asset the UK and France. Its scope will be extended further over time. which operates a highly successful multi-manager platform. With 23 pooling a reality ‘The new platform makes asset multi-managed investment pools, TKP blends the styles of the world’s for a much pooling a reality for a much broader leading investment managers to group of companies than before,’ says Martijn Tans, Director Marketing and fit the strategy of its pension fund broader group of clients. It draws on a diverse range Product Development, AEGON Global Pensions: ‘Until now, asset pooling of asset classes — from equities and companies than fixed income to alternatives and real has been the preserve of the very largest multinationals and required estate. It won the European Pensions Multi-Manager of the Year award before. a fully bespoke solution that could in 2008 and has been short-listed take years to implement. What we again this year. are offering is more standardised. It is much easier to put in place. 13
  17. 17. Risk management is now a hot topic in the investment management industry. From the front-office to the back, from the management board to the compliance team, the ‘R’ word is now on everyone’s lips after a year that proved even the most hypothetical of risks could become manifest. Investment managers experienced a rare combination of extreme investment, liquidity, counterparty and operational risks in 2008. That has heightened the need for robust processes, systematic monitoring and a reporting system that goes to the top of the organisation. Whether that last element of the jigsaw is always in place is a moot point. A global survey of A Step-By-Step investment managers earlier this year by the Copenhagen-based firm, SimCorp StrategyLab, found Approach to that, while three-quarters of the 90 firms surveyed saw the need to increase the strategic influence of risk management functions, the Mastering Risk number with risk-control officers reporting to the board had actually dropped since 2007. The events of 2008 were a reminder that risk comes in ‘The culture has to change,’ says many forms. Investment managers need a multi-layered Sean Quinn, Head of Fiduciary approach to managing them. Services EMEA, Global Transaction Services, Citi. ‘In big organisations, there is often conflict and confusion between the roles of risk management, compliance, audit and legal. Risk managers are often tucked away looking at credit risk or portfolio risk but nobody has a complete overview.’ Identifying Risk Exposures External pressures on investment managers to demonstrate good risk controls are mounting. Undertakings for Collective Investments in Transferable Securities (UCITS) legislation requires funds that use complex derivatives to monitor risk on a regular basis. There is a similar obligation under International Financial Reporting Standards 14
  18. 18. (IFRS), which require all risk exposures — by currency, asset class, counterparty, etc. — to be monitored. Institutions such as pension funds are placing more emphasis on risk analysis, management and reporting in their manager selection criteria. Additionally, as more investors insist on using managed account structures to access hedge funds, so too are they demanding detailed reporting on everything from portfolio positions to the placement of cash. Given the close correlation experienced in the performance of so many different asset classes last year, portfolio managers are being asked to look beyond asset- class diversification in assessing investment risk. Increasingly, factor-based models are being applied that identify the worst- case scenario for each of a portfolio’s major risk factors and that quantify the extent to which each asset class is exposed to tail risk in that area. Risk management solutions have historically been seen as front- office tools to support the portfolio manager. Increasingly, given the IFRS and UCITS requirements, management companies are turning to independent sources for a regular Value-at-Risk (VaR) analysis, which, in turn, can be shown to the auditors. As part of its middle-office services, Citi offers a full VaR analysis that can be decomposed by country, sector, asset class or security. The same service can be run for the portfolio manager on a daily basis if required to monitor risk within the portfolio. James Neill, Middle-Office Product Manager EMEA, Global Transaction Services, Citi, says the VaR analytics service uses market- leading software. ‘A key advantage is that it offers full coverage of all assets — including derivatives,’ 15
  19. 19. he says. ‘The tool is extremely Mr Quinn stresses the benefits the part of Citi’s fiduciary clients flexible. Using customised of a single provider delivering was collateralised, according to parameters, clients can use the administration, custody and Mr Quinn. That was the key to Value at Risk (VaR) analytics for related services in reducing preventing losses. And with a local their own stress testing. They can risk: ‘Where there are multiple presence in all the key markets, also complement this analysis by providers, they all have to deal Citi was able to talk directly using our compliance tool to flag with one another. With a single to Lehman’s local agents and up any breaches in investment or provider, there is one set of counterparties. ‘That was a big counterparty limits.’ systems and one point of contact. advantage,’ he concludes. It is a lot easier to manage.’ Getting a Top-Level Picture There is one other big advantage: In the exchange-traded derivatives ‘Where Citi provides everything arena, many firms are now using A concerted attack on risk needs futures clearers as a means of from custody, securities lending, to be multi-layered — and with spreading margin deposits around fund administration and fiduciary substantial support at the fiduciary and diluting counterparty risk. In services, level. ‘The director of a fund may both exchange- through to not have the expertise to deal with traded and OTC compliance every area of risk, so it is vital that monitoring The message is derivatives, the trustee or depotbank partner timely is able to bring together all the and prime clear: investment information brokerage, we information on a timely basis in an intelligible form,’ says Mr Quinn. can internalise managers need to and reporting most of the on settlements, It is also important that a provider controls, he apply a step-bystep valuations and of fiduciary services can deliver says, ‘With approach to risk counterparty exposures the information within the context benefits for the of the fund domicile, so that clients in terms management that are crucial to good risk international directors get the of reduced complexity recognises the management. local regulatory perspective. Citi’s Global Transaction Services’ and therefore diversity of areas Citi’s front- reduced to-back OTC experience in managing risk and controls across more than operational in which risk is derivative trade processing 50 centres around the world risks.’ trapped. and valuation on behalf of clients based in A good service is fully multiple domiciles — all supported custodian automated to by continuous tracking of the should be able to provide crucial meet the most demanding daily changing regulatory environment management information on reporting schedules. — gives it a good understanding counterparties to help clients of the issues that investment Liquidity Management reduce risk in this area. ‘In management boards face. emerging markets, or Over-the- Despite the recent improvement in Dealing with Counterparty Risk Counter (OTC) markets where sentiment in the money markets, there is no central counterparty, the management of cash — either In the hedge fund world, many fail trade analysis and the ability to within a fund or directly on behalf investment managers have look at the custodial performance of clients — remains an important responded to last year’s events by of other providers can identify issue for investment managers. diversifying the number of prime areas where there could be The proposed new European brokers they use in order to spread exposure for Citi or the client,’ he directive will require investment risk. Citi’s ability to offer both says. Citi’s local custody network managers to put in place a prime broking and custody — and in emerging markets allows for transparent liquidity management its development of ‘Prime Custody’ more control in the release of system, stressing that liquidity spanning both services, allowing cash, says Mr Quinn. must be considered a primary unencumbered assets to be held A solid approach on the part of a issue by managers. by the custody arm and delivering combined reporting for all the custodian should prevent client Control and visibility are the keys assets — allows firms to gain all the assets from disappearing in the to minimising the risks inherent in benefits of a single provider while event of a broker default. In the the management of surplus cash. minimising risk. Lehman collapse, all exposure on 16
  20. 20. Increasingly, investment managers control of client cash and calculate are looking for safety through the maximum amount per client diversity by spreading cash around sub-account that will qualify for a range of counterparties — and deposit insurance with any one that is prompting many to turn to bank, allowing firms to demonstrate investment portals that provide a that they have managed their single access channel to the clients’ money effectively. Money money markets. Citi’s Online can then be switched quickly in an Investment (OLI) portal, covering automated environment. 21 countries and 18 currencies, offers a wide range of instruments, Step-By-Step Approach from instant access and time The message is clear: investment deposits to more than 30 AAA- managers need to apply a step-by- rated money-market funds. step approach to risk management Wealth managers, and investment that recognises the diversity of managers running segregated areas in which risk is trapped. accounts, face a particular From the investment process to challenge: to account clearly operations, from compliance to for the cash they hold on behalf cash management, every element of multiple clients. ‘Around of the business has a contributory USD2 billion of cash is held role to play in mastering risk. by intermediaries within the And, crucially, the monitoring Eurozone,’ says Roger Brookes, and reporting process needs Director, Financial Institutions to be coordinated centrally and Cash Sales EMEA, Global supported by strong fiduciary input. Transaction Services, Citi. ‘Many In all these areas, Citi has targeted are faced with having to open product offerings that build thousands of separate accounts on its skills and expertise as a and then struggle with internal leading fund administrator in both systems that do not integrate the traditional and alternative with bank systems,’ he says. investment management sectors. ‘There are lots of potential points The offerings also draw on of failure and major issues of Citi’s wider strengths in global control and compliance.’ custody and trade processing, The issue has lately become more fiduciary, middle-office services pressing — for two reasons. First, and liquidity management. As wealth managers concerned with the external pressures for better counterparty exposure want risk management mount, Citi is to maximise available deposit ideally placed to help investment protection on behalf of each client. management firms respond by That requires strong customer- instilling best practice in every level accounting. Second, the area of their business. UK’s Financial Services Authority is working on new standards for accounting for customer-level holdings that, it is estimated, could cost UK firms GBP1 billion or so to implement. Citi’s response has been to develop a virtual accounting platform that delivers clear, segregated and fully audited client-level accounting through a single bank account. It will provide robust and cost-effective 17
  21. 21. Demand has certainly not gone away. The conclusion is that things look a lot rosier around the corner. 18
  22. 22. Back to Basics in Securities Lending After the traumas of late last year, For all that, activity held up real-time price information and there are important lessons to be well, demonstrating clearly that automated trade execution have learned for securities lenders. But securities lending plays a key role also played their part — as has the demand has not gone away and the in the smooth functioning of capital removal of tax, regulatory and outlook remains positive. markets — and is likely to continue other barriers to stock lending doing so. around the world. The securities lending industry had everything thrown at it International securities Market Volumes in 2008. While the collapse lending has grown rapidly in 4,000,000.00 20,000,000.00 of Lehman Brothers critically the past 20 years. It has been 3,000,000.00 15,000,000.00 undermined lenders’ confidence in driven by the expansion of Total Balance (M) Lendable (M) market counterparties, the drying- hedge funds, broker–dealers 2,000,000.00 10,000,000.00 up of liquidity in areas such as the and custodian banks as asset-backed securities market well as the growth of the 1,000,000.00 5,000,000.00 raised the threat of major losses international derivatives 0.00 0.00 July 07 January 08 July 08 January 09 on the reinvestment of collateral. markets; and the introduction Total Balance (Group) Lendable (Group) Meanwhile, the move by many of book-entry settlement Source: Data Explorers borrowers to reduce the size of systems (which have resulted their balance sheets and a sharp in greater processing volumes). Lendable assets have mushroomed. contraction in the hedge-fund Technological advances such as The Risk Management Association industry reduced demand the much-enhanced computer has tracked market volumes since for borrowing. processing power, access to the first quarter of 1999, when 19
  23. 23. it calculated lendable assets at doubled. There are some “haves” programme that fully meets all of USD2.3 trillion. At their peak in the and “have-nots” out there.’ their credit and risk requirements. second quarter of last year, they were approaching USD13 trillion The area most affected by the In the past, a lot of lending has with Data Explorers putting this at downturn in activity is general been driven by cash reinvestment USD15.1 trillion for August 2007. collateral lending. This is high- strategies. ‘At Citi we believe Then came the contraction. volume low-margin lending in collateral should be viewed first which brokers typically borrow and foremost as a precious Between January 2008 and early a bundled range of different commodity,’ says Mr Staunton. March 2009, the gross inventory securities, all meeting minimum ‘Clients should remember why value in the world’s top 50 shares credit criteria, to collateralise they are lending. There should tracked by Data Explorers’ DESLI other trades such as swaps. Brian be an intrinsic value to the loan. Global 50 index fell by a half. Staunton, Head of Securities That is not to say lenders should Much of that decline was down Lending EMEA, Global Transaction decline the opportunity to engage to the sharp fall in share prices Services, Citi says: ‘General in general collateral lending, but over the period. But, says Jules collateral lending has dropped they should only do so if there is a Pittam, the firm’s Managing dramatically because many fee or the prospect of a reasonable Director, lenders also pulled brokers do not want to commit yield on their reinvestments.’ around 15 per cent of worldwide risk capital to this activity inventory out of the market late and because there is a lack of Vigilant collateral management, last year and early this. clarity surrounding the suitable involving daily mark-to-market, reinvestment of cash collateral.’ is a top priority in the post- ‘There were two reasons for this,’ Lehman world. Haircuts and he says. ‘First, many lenders did So what does the future margin requirements must be not understand the risks involved. continuously evaluated to ensure A lot of people have subsequently hold for the securities lending is as robust and bullet- demanded more or higher-rated lending market? proof as possible. The much- collateral or changed their increased volatility witnessed in guidelines on reinvestment.’ There are some signs of recovery. the markets over the past year has The volume of lendable assets also reinforced the importance of The other key reason was has begun to pick up again, says accurate portfolio valuations. concern at the impact of short Mr Pittam. The volume of loans selling. ‘Irrespective of how many has also recovered since hitting a As never before, says Mr Staunton, academic treatises demonstrate low at the start of the year. ‘Many lenders should understand that short selling has no impact on of the lenders that suspended the risks associated with the share prices, investors with a large lending last year have returned,’ programme they undertake: proportion of the lendable amount says Mr Staunton. ‘Indeed our ‘They should research collateral in a given stock are going to ask experience is that the vast types and amounts, reinvestment themselves whether they should majority are now back.’ guidelines, counterparty be lending,’ he says: ‘Now, with restrictions and any collateral more transparency around short Understanding Risk is Key indemnification provided by the selling, lenders can at least make lending agent. The responsibility more informed decisions — and There is, however, a new works both ways. Agents have to that can only be a good thing.’ appreciation of risk on the part help lenders fully comprehend all of lenders. ‘The market is going aspects of the programme while Lending rates are still significantly back to basics,’ says Mr Staunton: lenders should likewise appreciate higher than before the Lehman ‘That means picking good quality their accountability as principals in collapse. Says Mr Pittam: ‘The counterparties and only accepting the lending process to understand rates at which lending agents lend collateral that fits the lender’s the particulars of the programme.’ to broker–dealers have risen about risk profile.’ Mostly, that means 15 per cent since the Lehman government bonds, which can be Looking Forward a Year collapse. Agents are demanding liquidated quickly. Far fewer deals higher fees, there is less liquidity are being done for cash collateral One big factor will continue to and there is greater transparency. and there is less cash reinvestment affect the lending market for But the rates at which broker- taking place. Lenders can still some time to come. A number of dealers are lending to their hedge accept cash as collateral and big lenders are sustaining their funds clients have more than participate in a cash re-investment lending for one reason only: they 20
  24. 24. are reluctant to close out holdings in asset-backed securities they purchased for their collateral reinvestment pool before the worst of the credit crunch eliminated liquidity in much of the asset- backed securities market. If they stop lending now, they will have to Short-Sell Ban take big losses on the securities. ‘Much of that paper will mature Misses Target, at par by the middle of next year,’ says EDHEC report says Data Explorers’ Jules Pittam. ‘As the paper rolls off, the pressure on those institutions to maintain The debate over the impact of short selling — which lending at all costs will ease and provides much of the demand for stock borrowing — fees will rise. Demand has certainly remains a lively one. The ban on the short-selling of not gone away. The conclusion is financial stocks, introduced in a number of markets last that things look a lot rosier around autumn, failed to stem the downward pressure on banks’ the corner.’ share prices but had a major impact on market volatility. Those are the key conclusions of a study produced by the Certainly the case for securities French business school, EDHEC. lending remains as firm as ever. The bottom-line benefits of lending Its author, Professor Abraham Lioui, says that the period that attracted participants to the covered by the short-selling ban in the US was clearly marketplace still exist. ‘We believe distinct in nature. ‘It was marked by an increase in volatility the opportunities in the core across the board,’ he says. ‘That led to an increase in business for lenders to achieve idiosyncratic risk for the short-ban stocks. In other words, positive performance, consistent these stocks moved still further from their fundamental with their objectives and risk value. Above all, no reduction in negative skewness of tolerance levels, remain sound,’ returns was observed.’ says Mr Staunton. The study shows there was no reduction in downward It is also clear that the liquidity pressure on the market. ‘Negative expectations were not provided to the world’s capital changed,’ he says. ‘In addition, there was a spillover to markets by securities lending will the rest of the market with the range of daily movements continue to play an important role increasing during the period.’ in their smooth functioning. ‘At the peak, around USD3.9 trillion in One of the key findings of the report is that the market as a securities were on loan as of May whole reacted negatively to the short-selling ban. ‘There is 2008,’ ends Mr Staunton. ‘Without a major lesson here,’ says Professor Lioui. ‘The regulators’ this liquidity, markets would simply mission is to guarantee the fairness of trades. The ban not behave in the same way. There was seen as a deviation from that mission and it was done would be significant distortions without adequate explanation. in asset pricing as liquidity dries ‘The market needs consistency. In 2007 and 2008, all up and settlement systems restrictions on short selling were removed. Then, suddenly, become less efficient. Securities the regulators said the short sellers were manipulating lending is firmly embedded in the prices. If regulators consider it part of their job to intervene capital markets and I remain very to change prices they need to tell the market.’ optimistic about its future.’ 21
  25. 25. Redefining the Custody Landscape Global custody is moving on. Today a good custodian is a provider of investor services solutions, not just a securities processor, employing a modular approach that can be tailored to any client challenge at any stage in the securities lifecycle. 22
  26. 26. In a recent research report on the securities processing industry, be enhancing their offerings in the middle-office, the report concluded. The ability to deliver Booz & Company, the management consultants, highlighted the key For Citi, the Booz report is, in many added value at role securities processors are respects, old news. Citi’s global custody offering already features different parts of the playing in helping investment managers keep a lid on costs and end-to-end automation based on a single global platform, which is now trade cycle is the key handle a spectrum of non-core services in the current difficult supported by a network of more element of the climate. That said, Booz meant than a dozen regional centres of securities processors should not be excellence where everything from solution mix. retrenching during the crisis. The trade processing to pricing can report concludes: ‘Instead, they ‘follow-the-sun’ to deliver the most should be improving their offerings timely results for clients. Citi has in three ways — re-engineering also anticipated the Booz advice on processes, automating services enhancing middle-office services and optimising the use of the and continues to develop new global facilities.’ They should also initiatives here. 23
  27. 27. Citi is fast Adding Value new services introduced to the industry. In the hedge fund market, redefining what Vital as it is, a processing powerhouse is only part of the there have been demands for more transparency in the wake of the custody means. story. ‘We believe the role of Stanford and Madoff affairs. Citi a custodian has shifted from has used the leverage of its twin traditional safe-keeping and roles as prime broker and custodian settlement to more of a risk to develop a hybrid service called management and cost-containment Prime Custody. This allows a hedge function,’ says Nick Titmuss, Head fund’s unencumbered assets to of Global Custody EMEA, Global be held by the custody arm while Transaction Services, Citi. ‘It is delivering combined reporting for about reducing the total cost of all the assets — including those held ownership for a client through at the prime brokerage. the entire investment lifecycle. At Citi, we have a fully integrated The same driver has increased execution-to-custody approach. It the number of asset classes Citi is allows us to deliver direct access being asked both to process and to markets at one end of the chain to safekeep. ‘With our continued and remove cost and improve investment, we have expanded our transparency at the other. We call middle-office trade operations to it enhanced custody — and it is deliver a complete solution in both about delivering tailored solutions exchange-traded and Over-the- that can draw on one or more of Counter (OTC) products,’ says Nick our capabilities at any point in the Burr, Investment Administration securities value chain.’ Product Head EMEA, Global Transaction Services, Citi. ‘Using the The two key targets are in helping data flow, we can deliver a full risk clients manage risk and improve management and analytics service cost efficiency. In the traditional to help clients manage and monitor area there has been a number of their exposures.’ Separately, Citi has built a comprehensive custody and cash- analytics solution that consolidates reporting for daily portfolio Enhanced custody accounting, compliance, risk and performance — all on one integrated reaches into every platform. Treasury Analytics, part of CitiDirect® for Securities, operational area, fully integrates a client’s portfolio including front-office management, trading, operations and reporting functions to facilitate execution, in an timely decision-making, irrespective of where the assets are held. integrated manner. End-to-End The ability to deliver added value at different parts of the trade cycle — irrespective of whether or not the investment manager is a Citi custody client — is the key element of the solution mix. Foreign-exchange execution is a case in point. Clients that manage 24
  28. 28. large numbers of segregated ‘It delivers enormous efficiencies infrastructures in a fully automated accounts often have to deal with for clients,’ says Mr Titmuss. ‘E2C process as is it about post-trade multiple custodians. Citi can was originally launched with small- asset servicing and safekeeping. capture trade data from the or medium-sized broker-dealers Securities processing has evolved middle-office and, through its in mind. They can use it either into investor servicing. AutoFX service, give clients the to access markets where direct benefit of its renowned pricing access is uneconomic or take a power in foreign exchange to bundled service for all markets. deliver better execution. But increasingly bigger institutions are using E2C, prompted by the In the drive for cost efficiencies, Citi best execution rules introduced can often deliver major savings on with the Markets in Financial the back of scale economies that Instruments Directive (MiFID). E2C only a global provider can achieve. saves them having to shop around Take the middle-office. ‘With a for the best price,’ he says. E2C single, global technology set, we remains the only service of its kind are able to leverage our regional supported by a comprehensive centres of excellence to deliver custody service. major efficiency savings. We offer same-day confirmation and have Taking the Modular been achieving Straight-Through Processing (STP) rates in excess of Approach 95 per cent,’ says Mr Burr. Citi offers Throughout its span of custody and a complete range of middle-office related services, Citi’s approach is outsourcing services, including a modular — a requirement that is all fully automated service for full, the more important for investment front-to-back OTC derivatives trade managers according to the, Citi processing and valuation. sponsored, CREATE-Research report (see page 2). ‘New centres of excellence are constantly evolving to cater for To prepare their businesses for different asset classes,’ says the future, investment managers Mr Burr. ‘These provide pools are turning to providers who can of expertise into which we can provide the blend of customised plug. We can service clients more and ‘off-the-peg’ solutions holistically in a consistent, 24/7 consistently across multiple service environment while still markets. Through Citi’s leading communicating with them locally.’ network and platform, clients can access local execution and services Offering Full while still enjoying a global and Execution-to-Custody consistent view of their account — with a single point of access and Nowhere is the end-to-end consolidated reporting. integration of services more apparent than in Citi’s Execution- With a continuing flow of new to-Custody (E2C) service that was products and services, and launched in 2008. It is a single a commitment to ongoing integrated solution that draws on investment, Citi is fast redefining both Citi’s capital-markets and what custody means. Old-fashioned, securities-processing capabilities back-office definitions are a thing to deliver an end-to-end trading, of the past. Enhanced custody settlement and custody service reaches into every operational spanning all major execution area, including front-office venues. Clients can trade through execution, in an integrated manner. either Citi Global Markets or a It is as much about accessing third-party broker. trading platforms and market 25
  29. 29. Middle East Markets on Recovery Path With mounting wealth and a deepening equity culture, the Middle East was viewed as a major growth area for investment managers. Then came last year’s brutal shake-out. What are the prospects for asset gatherers now? And is the long-term growth story still intact? 26
  30. 30. The Gulf Cooperation Council global gas reserves. Between ‘Abu Dhabi is still working hard (GCC) region poses something of a 2000 and 2007, the GCC at getting its Formula One racing conundrum right now. On the one generated USD2.5 trillion in oil circuit up and running. Qatar hand, predictions of a mass exodus and gas revenues. That money has big modernisation plans. on the part of foreign workers and has to go somewhere.’ There has been some slowdown professionals over the summer in infrastructure projects but suggest economies such as Dubai’s, The key to the future, he says, is Saudi Arabia recently earmarked with its hard-hit property and demographics: ‘There are 160 USD400 billion for infrastructure banking markets, have yet to touch million people in the region of spending over five years. That bottom. On the other, the recent whom more than 53 per cent are includes four new economic cities.’ strong rally in the oil price has under 30 years of age. So there is been a shot in the arm for local real demand for investment in For all the doom and gloom, many stock markets, many of which are infrastructure, housing, schools, firms are still adding to local now showing gains on the year, and hospitals, highways and so on. headcount, he says. ‘Consultants most parts of the region are still set Saudi Arabia has 25 million people and lawyers continue to come to to turn in GDP growth for the year. and has not been spending like the region. Insurers have also been Dubai in the past. Now it is spending increasing their numbers here. Whatever the short term holds, the out of need, not out of luxury.’ Citi itself is still augmenting its long-term growth story remains local analyst teams on the back of intact, most observers agree. Richard Street, Head of Securities demand for the broking side.’ ‘On the macro-economic front,’ and Fund Services for the Middle says Habib Oueijan, Managing East at Citi’s Global Transaction Citi’s Global Transaction Services Director of Majid Al Futtaim Asset Services, who is based in business also sees the present as Management (MATAM), ‘the Middle Dubai, says modernisation a good time to invest, he stresses: East North Africa (MENA) region and diversification away from ‘We opened a direct custody and accounts for 51 per cent of global dependency on oil are two themes clearing operation in Dubai earlier oil reserves and 30 per cent of that bode well for the future: this year — covering all three UAE 27
  31. 31. As confidence returns to the region and the wider industry, investment managers must formulate their long term strategy in conjunction with a stable, in region provider. 28
  32. 32. markets — and are due to open swaps for Dubai’s debt crossed the liberalisation combined with tighter another in Kuwait shortly. It is 1,000 basis points level — rating regulation. The fact that the Saudi likely that Bahrain and Qatar will the emirate on a par with Iceland. authorities are beginning to allow be added next year.’ Traditional bonds and Sukuks alike foreign participation in their traded at big discounts throughout market is also a good sign. ‘Such Citi’s custody operations the region. events will encourage governments complement a wide range of issuer, in the region to bring in best investor and intermediary services ‘Historically, the GCC markets practice,’ he says. in the GCC, including in-region fund have demonstrated low correlation administration and distribution with international markets,’ says Mixed though the short—term servicing. Mr Street says that Mr Oueijan. ‘From mid 2005 until outlook may be, as confidence although a number of fund launches mid 2008, correlation was no returns to the region and the wider and IPOs were pulled earlier this higher than 0.1. But, there has industry, investment managers year, there is still a lot of activity. been a dramatic shift over the must formulate their long term last 12 months, with correlation strategy in conjunction with a The big question is when investor rising to 0.8 or 0.9. There was stable, in region provider who can confidence — shaken by two no decoupling. Now, in a high provide consistent service big corrections in the space correlation world, people are standards locally and throughout of three years — will return in expecting the pick-up in the US the rest of the world. Providers force. GCC markets enjoyed a and European markets to flow such as Citi whose direct local strong bull run over the first through to the MENA markets — market and product experts, half of the decade as money was and that is what has happened supported by an unrivalled global repatriated to the region in the since March 2009.’ network of securities services wake of the US response to the operations cannot be underestimated September 11 attacks, and then as There are signs that confidence is as the partner of choice. major spending programmes by returning among local investors. governments and property firms Much of the recent rally has been Over the long-term the GCC encouraged first-time investors regionally driven and trader- continues to offer outstanding into what were still small markets. led. Majid Al Futtaim Asset opportunities to international The bubble was first pricked in late Management has just launched investment managers, for whom a 2005, leading to a 40 per cent the Elite MENA Equity Fund, regional marketing presence should pullback in prices in 2006. seeded with USD150 million of remain a key element of Majid Al Futtaim family money. any global strategy. The strong In 2008, however, the MSCI Arabia ‘A lot of interest is being shown base of high-net-worth individuals, index fell 55 per cent, with the by international investors,’ says sovereign wealth funds and Dubai market suffering worse still Mr Oueijan, ‘But whether that institutional money, combined — registering a 72 per cent fall. will translate into real investment with a burgeoning middle class The extent of the falls is partly money remains to be seen.’ and strong demographics, all point explained by wholesale selling by in the long-term direction. foreign investors who had piled ‘In my opinion from a longer- Moreover, with a fast-recovering oil into local markets in the hope of term standpoint’, continues Mr market, many of the short-term currency revaluations that failed to Oueijan, ‘The markets present inhibitors to growth may be materialise. The panic was visible a good opportunity’. He points evaporating with clear and present in the pricing of local government to attractive valuations in many opportunities emerging. debt by international investors. In areas, low currency risk for dollar- February 2009, the credit default based investors and increasing 29
  33. 33. Industry Recognition Technology Global Awards 2008 Best Treasury and Cash Management Banks and • Custody and Securities Services Award Providers Awards 2008 Technology Awards 2008 • Best Overall Cash Management: Global, Latin America • Best Custody and Security Services • Best Bank for Liquidity Management: Asia, Middle East and Latin America • Best Bank for Risk Management: Africa, Latin America, North America Awards of Excellence 2008 World’s Best Internet Bank Awards 2008 • Best Cash Management House Globally • Best Overall Internet Bank Cash Management Poll 2008 • Best Corporate/Institutional Internet Bank: Global, North America, • Best Cash Management Bank Globally: Financial Institutions Latin America, Central and Eastern Europe and 68 countries • Best Online Cash Management Site: Global, Asia, Central and Eastern Europe, Europe, Latin America, Middle East and Africa, North America • Best Investment Management Services: Global, Latin America, HFMWeek Hedge Fund Administration Survey 2008 Europe, North America • #3 in Top 10 Administrators by Single Fund AUM • Best Information Security Initiatives: Latin America, North America Best Investment Bank Awards 2008 • Best Global Investment Bank Global Custody Survey 2008 • #3 Global Castodian • Top Rated in Asia Mutual Fund Administration Survey 2008 Global Custody Survey 2008 • #1 in Asia • #1 Global Custodian (weighted) • #1 for Funds Between US$1–5 billion AUM • #1 Global Footprint • Top Rated in Equity • #1 by Mutual Fund Managers (weighted) • Top Rated in Fixed Income • #1 by Mutual Fund Managers — Americas (weighted) • Top Rated in Other Funds • #2 by The GI 100 (weighted)* Securities Lending Survey 2008 • #2 Americas (weighted) • #2 Rated for Clients with Less than US$1 billion AUM • #2 Asia (weighted) • #3 Rated Multi-Provider • #2 Sole Custodian EMEA (weighted) • #3 EMEA (weighted) Hedge Fund Administration Survey 2008 • Top Rated for Simple Strategy • Top Rated for AUM up to US$100 million • Top Rated for East Coast Location Prime Brokerage Survey 2008 Global Awards 2009 • Top Rated Global Provider • Global Mutual Fund Administrator of the Year • Top Rated for Clients with Assets Between US$1–5 billion • Global Mutual Fund Administrator of the Year: Asia Pacific • Top Rated for Clients with Assets Between US$5–10 billion European Awards 2008 • Top Rated for Clients with Assets Over US$10 billion • Securities Services Provider of the Year • Top Rated by Multi-strategy Clients • Regional Sub-custodian of the Year: South European region • Top Rated by Multi-PB Clients Global Custody Survey 2008 • #2 Cross-border Custody Offering 30
  34. 34. Contacts Jervis Smith This publication is produced by Citi’s Managing Director Global Transaction Services business. Global Head of Client Executive Global Transaction Services, Citi We welcome your feedback and Tel: +44 (0)20 7986 3132 suggestions for future articles. Email: jervis.smith@citi.com Editors Nadine Teychenne Richard Ernesti Email: nadine.teychenne@citi.com Managing Director Global Head of Client and Sales Management for Investors Gene Peterson Global Transaction Services, Citi Email: gene.peterson@citi.com Tel: +44 (0)20 7500 5043 Email: richard.mf.ernesti@citi.com Global Transaction Services www.transactionservices.citi.com © 2009 Citibank, N.A. All rights reserved. CITI and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates, used and registered throughout the world. The information contained in these pages is not intended as legal or tax advice and we advise our readers to contact their own advisers. Not all products and services are available in all geographic areas. Any unauthorised use, duplication or disclosure is prohibited by law and may result in prosecution. Citibank, N.A. is incorporated with limited liability under the National Bank Act of the U.S.A. and has its head office at 399 Park Avenue, New York, NY 10043, U.S.A. Citibank, N.A. London branch is registered in the UK at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, under No. BR001018, and is authorised and regulated by the Financial Services Authority. VAT No. GB 429 6256 29. Ultimately owned by Citi Inc., New York, U.S.A. GRA20125 06/09 31

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