Ten Markets, Ten Cultures, One Bank. Newsinbrief

ISSUE042

ASSETSERVICINGTIMES 27.06.2012 WEDNESDAY AST assetservicingtimes.com ASTINBRIEF Latest news All hands on deck for Ultimus linkup with p r i v a t e e q u i t y fi r m L L R P a r t n e r s page2 Latest news BNY Mellon wins $1 billion Baton Rouge custody mandate for pension scheme page5 Latest news Eurozone CSDs Euroclear Belgium, France and Nederland will sign up to eurosystem’s T2S project State Street acquisition could create page5 fund admin superpower Conference report AST reports the latest from the NeMa con- NEW YORK 22.06.2012 ference in Budapest It has been reported that State Street is on the cusp State Street currently services 21 percent of the $2 tril- page6 of buying Goldman Sachs’s hedge fund administra- lion hedge fund market, according to a 30 April investor tion business. presentation. The third largest custody bank added $170 Industry insight billion of hedge fund and private equity assets when it Discussion with Lisa Martensson of A source close to the issue said that Goldman Sachs bought Jersey-based Mourant International Finance HSBC Securities Services on fund ad- is set to let go of its fund administration division due Administration in 2009. ministration in Ireland to declining revenues, and it is focusing its efforts on page8 core trading and investment banking. Goldman Sachs has made some acquisitions, such as Bermuda-based Ariel Reinsurance on 10 April. However, The source added that it will be interesting to see if Asia Insight the Wall Street firm is seeking outside investors for its Keith Hale of Multifonds talks UCITS and Citi, which is one of the world’s largest fund adminis- REDI Technologies trading-software business, which technology in Asia trators, follows Goldman Sach’s lead. is used by Goldman Sachs’s hedge fund clients, asset managers and brokers that employ the firm’s electronic- page10 If State Street did acquire the division, which looks trading services. after assets of roughly $200 billion, the bank would People moves be the largest hedge fund administration provider in It has also been curtailing its investment portfolio, re- SocGen SS adds two, Confluence adds the world, as it currently has $506 billion assets un- cently selling $1.2 billion of its stake in Kinder Morgan three, and SGX renews S$1,000,000 contract der administration. State Street would surpass Citco, and $2.3 billion of its stake in Industrial & Commercial page11 which has held the top spot for years. Bank of China. readmore p2

Argonaut drops Ignis and welcomes IFDS DST lends China a hand with RQFII scheme

Ignis Asset Management has lost its role as the administrator to Argo- DST Global Solutions is helping its Chinese asset management clients pre- naut Capital Partners’s fund range, with IFDS now taking on the role pare for participation in the recently launched RQFII scheme through its as of 16 July. asset servicing solution HiPortfolio. readmore p2 readmore p2 Ten markets, ten cultures, one bank. NewsInBrief

State Street acquisition could create fund admin superpower Continued from page 1

New regulations have also put additional risks on Goldman Sachs’s fund administration unit.

The upsurge in oversight of companies that do business with hedge funds is in response to Bernard Madoff’s Ponzi scheme and industry losses in 2008.

Goldman Sach’s fund administration unit is currently number four in an industry ranking, behind BNY Mellon.

York Capital, Och-Ziff Capital Management and Bill Ackman’s Pershing Square Capital Manage- ment use Goldman Sachs as their administrator.

“As a matter of policy, we don’t comment on ru- mour or speculation,” a State Street spokesperson said. A Goldman Sachs spokesperson also declined to comment. Argonaut drops Ignis and welcomes IFDS Continued from page 1

The £292 million Ignis Argonaut European income fund will now be known as the IM Argo- naut European income fund, and the £269 million Ignis Argonaut European alpha fund will be the IM Argonaut European alpha fund. Eagle Investment Systems their own, for pre-trade pricing, yield curves, payoff and horizon analysis, extends the reach Argonaut is a concentrated European high alpha release V12.0 of Numerix analytics through a new and inno- boutique that was set up as a 50/50 joint venture vative web-based interface.” Eagle Investment Systems, a subsidiary of BNY between fund managers Barry Norris and Oliver Mellon, will release Eagle Version 12.0 at the Russ, and Ignis Asset Management. It currently end of June. “Powering our solution with Numerix revolution- has £1.1 billion of funds under management. ises the way in which traders, sales profession- John Lehner, the president and chief executive als, and risk and IT managers, price, structure DST lends China a hand with officer of Eagle, said: “Whether clients leverage and manage risk,” said Ralph Horne, the global our secure private cloud, Eagle ACCESS, BNY CEO and managing director of Dion. RQFII scheme Mellon’s OnCore service offering, or have soft- Continued from page 1 ware installed on premise, we are committed to providing solutions that can help them operate China launched a RQFII pilot scheme at the end Vermeg acquires a stake in BSB more efficiently.” of 2012 to hasten Chinese yuan renminbi inter- Vermeg, which specialises in securities pro- nationalisation and further facilitate backflow of “We significantly invested resources in V12.0 cessing and fund administration software, has the currency. on enhancing and developing all aspects of our acquired an equity participation in the capital suite to address the demands global market The RQFII guidelines were released in late of BSB changes are imposing on investment manag- 2011, with an initial investment quota of RMB 20 ers,” said Jeremy Skaling, the head of product billion allocated to nine Chinese asset manag- BSB is a provider of business solutions and IT ser- management at Eagle. ers and 12 securities brokerages. vices for insurers, private bankers, portfolio managers, wealth managers, holding companies, inde- In April 2012, China expanded its RQFII Numerix welcomes financial pendent financial advisors and investment funds. scheme by increasing the investment quota to software provider Dion RMB 70 billion. Under this agreement, Vermeg subscribes to a Dion Global Solutions has joined the Numerix capital increase of €5 million and will own 24.45 Geoff Harries, the global head of asset servic- partner programme to offer Numerix Powered percent of BSB’s capital. The company will join ing at DST Global Solutions, said: “With the Analytics within its valuation and risk manage- BSB’s board of directors. launch of the RQFII scheme, our clients in the ment solutions. fund management industry require a solution Numerix is a provider of cross-asset analytics for All hands on deck for Ultimus that is designed to work in global markets as derivatives valuations and risk management. well as help them meet the requirements of the linkup with LLR Partners Chinese fund management industry.” Steve O’Hanlon, the president and COO of Nu- LLR Partners, a middle market private equity DST Global Solutions has been operating in merix, said: “Dion’s conscious decision to lever- firm with more than $1.4 billion under manage- China since 2003. age Numerix model libraries, rather than build ment, has put an undisclosed amount into Ulti- 2 www.assetservicingtimes.com NewsInBrief Custody Services No investment is too small for business class service

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top rated by GC between 2004-2009 Member of Millennium Group Bank Millennium www.bankmillennium.pl Custody Department [email protected] Stanisława Żaryna 2A tel.: +48 22 598 33 86 / 98 02-593 Warsaw fax: +48 22 598 33 83 / 84 Poland SWIFT: BIGBPLPWCUS NewsInBrief mus Fund Solutions, a provider of fund account- SEI also provides daily security reference and tions to the identity of the fund’s portfolio man- ing, fund administration, distribution, transfer position data to support Credit Suisse asset agers, the advisory or administrative services agent and shareholder services to the mutual management’s order-management system, as fees that are paid by the fund, or the services to fund industry. well as their internal data warehouse. be provided to the fund.

Co-founders of Ultimus Bob Dorsey and Mark Additionally, Credit Suisse’s asset management Pyxis is a non-diversified, closed-end man- Seger will maintain control of the company. division will access comprehensive data management investment company that invests in “LLR was the only firm we talked to that looked agement, performance, and risk reporting for secured and unsecured floating and fixed rate at Ultimus as a partner, not just another trans- all middle-office services that are performed by loans, bonds and other debt obligations, debt action,” said Dorsey. “The team’s expertise in SEI via its online manager dashboard. obligations of stressed, distressed and bankrupt financial and business services enabled them issuers, structured products and equities. to understand our business quickly and speak “We’re seeing more and more firms look to out- our language.” sourcing, not only as a means of gaining efficiencies and technology, but as a way to gain Sun International looks to BNY “Their willingness to craft a deal that provides access to timely and accurate information that Mellon for ADR programme the capital and strategic guidance we need to can better inform critical investment decisions,” grow, but allows Seger and I to continue to run said John Alshefski, senior vice president of South Africa-based Sun International has the business we created.” SEI’s investment manager services division. appointed BNY Mellon as the depositary bank for its American depositary receipt Jim Ashton, the former CEO of the financial (ADR) programme. systems division of SunGard Data Systems, SunGard extends algorithms to Mitchell Hollin, a partner at LLR Partners, and Canadian market Each Sun International ADR represents one ordi- Michael Bishof, the president of Independ- nary share and trades on the OTC market in the US. ence Capital Partners, will join the Ultimus SunGard has extended its suite of algorithms to board of directors. cover the Canadian equities market, as well as Sun International invests in and manages the US. businesses in the hotel, resort and gaming in- dustries. It focuses on the development, man- Migdal Stock Exchange Services Traders can trade in one currency and settle in agement and operation of hotels, resorts and another, providing access to traditional and non- joins SunGard casinos in South Africa, other parts of Africa, traditional trading venues in both regions. and South America. Migdal Stock Exchange Services, the broker- age arm of Israeli investment group Migdal Cap- Sang Lee, the managing partner at research ital Markets and a member of the Tel-Aviv Stock and advisory firm Aite Group, said: “As the Ca- Rob Becker, the CFO of Sun International, said: Exchange (TASE), now offers trading services nadian equities markets accelerate the use of “We are delighted to partner with BNY Mellon and research expertise on the Israeli capital electronic trading and move beyond the cash in establishing a Sun International ADR pro- markets via the SunGard Global Network. equities market, trading firms are looking for so- gramme and to be traded on the US OTC mar- phisticated algorithms.” ket. This is a key initiative in building offshore Philippe Carré, global head of connectivity for market awareness of Sun International as we look to grow our business in international mar- SunGard’s capital markets business, said: “Buy- “The buy side is becoming accustomed to lev- kets and facilitate a new source of potential in- and sell-side firms are expanding their trading ac- eraging more advanced trading tools, such as vestors in our company.” tivities to reach dynamic economies such as Israel.” smart order routing, which is adding to that demand. The quality of the algorithms will become “As the addition of Migdal shows, SunGard a critical factor for the buy side when they select “By establishing its new [ADR programme], Sun continues to extend its emerging markets con- platforms, putting the impetus on brokers to pro- International has confirmed its commitment to nectivity to help customers reach more trad- vide them.” attracting greater investment from the US mar- ing destinations quickly and efficiently, help- ket,” said Michael Cole-Fontayn, the CEO of ing them capitalise on trading opportunities in BNY Mellon’s depositary receipts business. these countries.” NexPoint to administrate Pyxis fund Alliance Bernstein begins clearing SEI to provide middle-office NexPoint Advisors is the new investment advis- OTC IRS services for Credit Suisse er and administrator to the Pyxis Credit Strate- gies Fund. Asset management firm Alliance Bernstein has SEI will provide Credit Suisse’s asset manage- started clearing OTC interest rate swaps (IRS) ment division with middle-office services for the NexPoint is an affiliate of Pyxis Capital, the fund’s through LCH.Clearnet’s SwapClear service. firm’s municipal bond portfolios. current investment adviser and administrator. In connection with the change, the fund will be re- Citi executed and cleared the initial trades, These will include fixed-income analytics, trade named NexPoint Credit Strategies Fund. which were affirmed using MarkitSERV. processing, investment accounting, end-client invoicing and reporting, as well as amortisation However, a statement from the company said Alliance Bernstein’s decision to begin clearing and updated portfolio positions and pricing. that the change would not result in any altera- its OTC IRS comes ahead of regulatory chang-

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es in the US that are aimed at pushing OTC de- tlement of Euronextzone Securities) platform J.P. Morgan offers sec lending rivatives into clearinghouses. to settle €87 trillion of securities transactions in 2011, representing 31 million transactions, and to services in Malaysia James Wallin, senior vice president, fixed in- hold approximately €6 trillion of assets for clients. come, at Alliance Bernstein, said: “Clearing J.P. Morgan Worldwide Securities Services ahead of the regulations makes sense for us. The aim of T2S is to provide a single pan-Euro- has rolled out its securities lending capabilities It means we can plan for the changes in market pean platform for securities settlement in central in Malaysia. structure and optimise our clearing solutions in bank money. line with our portfolio requirements.” It is the first international lender in the Malaysian market to offer a securities lending product, ac- The parent company of the three CSDs, Euro- cording to the bank. “Alliance Bernstein is the latest in a rapidly clear, has provided its support and their boards growing and diverse group of clients to adopt have agreed for each CSD to sign the T2S J.P. Morgan now offers securities lending so- central clearing. These firms are reaping the Framework Agreement. capital and operational efficiencies of being at lutions to major prime brokers and clients with Malaysian assets. the vanguard of change,” said Daniel Maguire, They engaged in extensive market consultation the head of SwapClear US. “We are delighted and dialogue with national regulators before Its customised solutions allow lenders to define that they—like the others—selected SwapClear committing to T2S. as their clearing service of choice for our broad their own structures to meet their risk/reward re- product range, unrivaled liquidity, and superior quirements, and its comprehensive indemnifica- They intend to finalise their assessment of CSD risk management capabilities.” tion programme against borrower default allows outsourcing arrangements with relevant regulators lenders to mitigate counterparty risk across their before signing the T2S Framework Agreement. Christopher Perkins, the global head of OTC programmes, according to J.P. Morgan. clearing at Citi, added: “Mandatory central clearing for some members of the buy side is Euroclear Belgium, Euroclear France and Shaun Parkes, the CEO of Asia (excluding Ja- rapidly approaching, and we’re seeing many Euroclear Nederland will outsource settle- pan) and Australia at J.P. Morgan Worldwide clients, like Alliance Bernstein, making an early ment transaction processing to T2S. Clients Securities Services, said: “The future for securi- transition ahead of regulation because they be- of the three CSDs will continue to have ac- ties lending in Asia Pacific continues to demon- lieve it makes commercial sense.” counts directly with the respective CSD and strate significant potential. Malaysia represents receive the full range of post-trade services an important part of our regional growth strat- from that CSD. egy, and is a key value-add for our institutional Canadian mutual fund manager client base that is looking to diversify their in- re-signs with Citi The migration date and fees for connecting to vestments and mitigate their risk.” and using T2S will be determined after comple- Citi has renewed its agreement with Chou Associates tion of market consultation. BNY Mellon wins $1 billion Baton Management and will continue to provide fund accounting, transfer agency, custody, and trust Joël Mérère, the chairman of the boards of Rouge custody mandate and securities lending services for the $600 mil- Euroclear Belgium, Euroclear France and Eu- BNY Mellon’s asset servicing arm has been lion that it oversees in mutual fund assets. roclear Nederland, said: “The three Euroclear named custodian for the Employees’ Retire- group central securities depositories are reflect- ment System of the City of Baton Rouge and Chou Associates Management, which being local market sentiment by taking the deci- Parish of East Baton Rouge, Louisiana, which is came a Citi client in 2007, has agreed to a sion to sign the T2S Framework Agreement.” five-year deal. worth approximately $1 billion.

Gurmeet Ahluwalia, the head of Citi’s securities “As the first and only group of markets in con- BNY Mellon will provide custody and admin- and fund services business in Canada, said: tinental Europe to have consolidated and har- istration, accounting, and cash management “The renewal of this mandate with such a re- monised transaction settlement and custody services for the employees’ defined benefit spected market participant is a compliment to the services on a shared platform, we appreciate pension plan. individuals on our team, who work so diligently to the benefits of large-scale processing consoli- ensure our level of service remains unmatched.” dation and harmonisation that T2S has the ca- Created in 1953, the plan covers 3,500 active pacity to provide.” and 3,400 retired members. It provides lifetime “It is also a testament to our bundled investor pension benefits to both non-public safety and services offering, which we are able to con- Valérie Urbain, the CEO of the three CSDs, public safety employees of the combined city- stantly enhance by leveraging Citi’s operations added: “Euroclear has been preparing to oper- parish government. around the world, where we are in more mar- ate within a T2S environment for some time. kets than any other competitor.” Our asset servicing capabilities are expanding, Jeff Yates, retirement administrator for the City of and we are introducing collateral management Baton Rouge, said: “BNY Mellon’s level of qual- services for clients in the Belgian, French and ity and attention to client service was apparent Euroclear’s eurozone trio sign Dutch markets, as well as with some local cen- throughout the custodian bidding process. We’re up to T2S tral banks.” confident in their ability to help us effectively manage and administer system assets for the benefit Eurozone CSDs Euroclear Belgium, Euroclear “The depth and breadth of the domestic and of our many active employees and retirees.” France and Euroclear Nederland will sign up to cross-border post-trade services we offer will the eurosystem’s T2S project. clearly help clients get the most out of the Samir Pandiri, executive vice president and Euroclear Belgium, Euroclear France and Eu- new operating environment in the easiest head of asset servicing-Americas at BNY Mel- roclear Nederland are a group of CSDs within way possible.” lon, added: “In today’s more complex and the eurozone that process client transactions on regulated environment, municipal employee a shared platform and operate with harmonised CSDs such as the Bank of Greece Securities systems like Baton Rouge rely on us for a wide market rules and practices. Settlement System (Greece), Clearstream array of securities services as well as the tech- Banking (Germany) and Iberclear (Spain) have nology infrastructure that allow them to focus on The three CSDs used the ESES (Euroclear Set- also agreed to sign up to T2S. investment management.” 5 www.assetservicingtimes.com ConferenceReport Budapest bound AST was at NeMa 2012, which brought some familiar faces together as the key concerns of the industry were revisited GEORGINA LAVERS REPORTS Key players from the central banks, global and of entry, high ongoing costs, market interfaces, meaning better governance, improved trans- sub-custodians, investment strategists, CSDs and upgrades and loss of economies of scale. parency, but still “exciting” developing markets. CCPs, consultants and brokers met at NeMa’s However, he did admit that substantial diversity conference in Budapest to network and discuss BNP Securities Services’s Alan Cameron asserted remains across the region. the major issues facing the industry today. that network managers can reshape the operating model, arguing that improving return of earnings is Clearstream’s Phil Brown discussed the next evo- On day one, Júlia Király of the National Bank of Hungary vital, even if revenues do not increase. “Network man- lution in the post-trade space, stating that while explained policies to reduce external vulnerability in agers must deliver process simplification, economies 1980 to 2000 was about de-regulation, globalisa- Hungary, stating that the ideal is an export-led growth of scale and capacity planning … the selection of tion and consolidation, the current decade would model that is based mainly on internal saving. which services are sought from vendors will be driven be about profit hunting. When asked where we by the usage of capital, collateral and liquidity,” he said. “Since the crisis, the Hungarian economy has gone go from here, he answered: “After four years of through a sizable adjustment process. Domestic de- It wouldn’t be a conference without regulation challenged earnings, the industry needs a shot in mand dropped due to higher risk premia and looser discussion, and Tim Reucroft from Thomson the arm. ‘Waiting for higher interest rates’ is not labour market conditions moderated wage growth, Murray led the talk. Of AIFMD, he said: a credible nor sustainable business strategy, and increasing export competitiveness. The banking regulatory pressure will exacerbate the earnings system accelerated the adjustment process—to an “This is effectively the hedge fund directive. This was challenge. Acquiring scale is a questionable strat- extent that may even be detrimental to growth.” highly controversial for its attempts to make the cus- egy, especially if it just means acquiring new cost todian of the hedge fund completely responsible for problems. Partnering with specialist suppliers is Colin Brooks of HSBC talked of the need to re- the safety of the assets of the hedge fund and invert- the next logical step for our still immature industry.” duce costs for sub-custodians, and with a sub- ing the burden of proof. [Custodians] fought this vig- custodian bill of $2.5 billion annually, it would ap- orously and managed to gain some concessions.” Finally, John Byrne of Information Mosaic talk was pear that the time is ripe for change. Insourcing entitled Asset Servicing 2.0—Redefining the Global to save costs was one strategy, with Brooks indi- Tomasz Grajewski of UniCredit expounded the Operations Landscape. He argued the case for a cating the pros of saving custody fees, a visible benefits of the Central and Eastern Europe re- global hub and offered a solution by playing with presence in market and regulator contact, were gion, such as its cost advantage over much of the words of Jimi Hendrix: “If you want to change only offset by disadvantages including high cost EU, and markets adopting EU harmonisation, the world, you have to get your hub together.” AST

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6 www.assetservicingtimes.com Bottom line: Your securities services expert 2in Central and Eastern Europe @ Our network is available for you in Central and Eastern Europe for your securities services business. We bring you in-depth local experience and award winning international expertise. ING is your partner in Bulgaria, Czech Republic, Hungary, Poland, Romania, Russia, Slovak Republic and Ukraine. For more information call Lilla Juranyi, Global Head of Investor Services on +31 20 563 6435 or e-mail: [email protected]. www.ingcommercialbanking.com

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Business unusual AST talks to Lisa Martensson of HSBC Securities Services about fund administration in Ireland and further afield GEORGINA LAVERS REPORTS

How has the financial crisis affected The knock-on benefit is that it has enabled firms As a large universal bank with a substantial the market in Dublin? here to become more competitive in the global fund network of sub-custodians, we are well placed industry. This is supported by the fact that manag- to deal with the liability requirements as many There is no doubt that the market environment in the ers continue to gravitate to a jurisdiction where the of our own HSBC entities are acting as sub- financial services sector over the last few years has regulator is considered efficient and the service custodians, and the operational complexity and taken its toll, and the fund sector is not immune to it. providers understand their product. The absence of oversight responsibilities that will be thrust on a language barrier also helps. If you look at things the depositary. Oversight, look-through, recon- That said, the impact has not been as significant as from an investor perspective, managers that are ciliations and cash monitoring are all functions with some other sectors. We see the Irish fund in- targeting an institutional European investor base that the traditional administrator has not had to dustry growing both in terms of assets managed and require regulated or listed products. This leads to focus on too deeply because the board of the number of funds serviced. That’s testament to the the final point, which is related to the regulations fund had responsibility. way the industry in Ireland has positioned itself over coming downstream, and which plays nicely into the last twenty years and the body of experience the product set on offer in Ireland. The relationship between the depositary and the that has been developed. HSBC Securities Services prime brokers has not yet been fully defined and in Ireland has some major ongoing projects in mi- The statistics would appear to reinforce the above so there will be grey areas where people will be grating new business to our Dublin office, which will view. According to Irish Funds Industry Association guessing for some time. The legislation promises establish us as the hub for alternative fund services figures, Ireland is the number one centre globally for complete investor protection but it comes at a globally. This is a strategic decision that enables us the servicing of hedge funds, serving some 40 per- cost, a cost which the industry has not yet fully to continue to invest the significant sums we need to cent by assets of the world’s hedge funds. In fact, Ire- surfaced. Whether investors wish to have this invest in our product, in an ever-changing regulatory land attracted nearly twice as much as all the other level of protection remains to be seen. Propor- environment where demands on service providers jurisdictions put together during 2011. tionality and relevance has been largely ignored. will increase exponentially. What’s your opinion on AIFMD and There will undoubtedly be managers who choose In my view, Ireland will continue to have a reputa- its effect on the industry? not to market to European investors due to the ad- tion for being the European domicile of choice. This ditional cost of these regulatory requirements. At is especially true for alternative fund managers, for At HSBC, we are pressing ahead with our prep- the same time, there will also undoubtedly be man- a number of reasons. Firms are now operating in arations for implementation because our clients agers who re-domicile funds into Europe to attract a tougher financial environment and the previous will need to know our response. We have until investors who demand they are AIFMD compliant. challenges we had in Ireland around staff turnover 22 July 2013 to put AIFMD into practice across Although fund re-domiciliation is not a requirement and cost base control have eased considerably. our European network. of AIFMD, it is a trend that is gathering pace. 8 www.assetservicingtimes.com IndustryInsight IndustryInsight

What additional services are asset Even then, only a select few can claim to leverage Thirdly, is the administration solely a product offer- managers looking for? off of the pricing models in place in their global mar- ing or can it be extended to a broader suit? Many kets divisions. At HSBC, our dedicated valuation managers find it valuable to partner with a provider The hedge fund industry continues to move to- function leverages complex instrument valuation that can offer access to global markets (for execu- wards the institutional model, driven in many cas- expertise and knowledge from our quantitative risk tion, financing and prime), corporate bank account es by regulation, risk management and investor and valuation group, within our global banking and and treasury services, wealth management solu- demand. Correspondingly, there is an increased markets division. This includes independent model tions for the managers’ partners, and so on. focus on managers seeking to maximise their vari- review and development of analytic solutions. able cost base and minimise their fixed cost base. Clients require service providers that can assist Will fund administrators have We have witnessed an increased appetite for our al- with the need for increased price transparency become 24-hour providers? ternative middle-office offering, an area where we are and have the ability to calculate independent in- It depends on what client base the administrator making significant investment. Managing the chang- ternal valuations, as opposed to relying solely is targeting. The number of hedge and absolute es to the OTC derivative model on the back of the US on external vendors. return funds requiring daily NAVs have increased Dodd-Frank Act and the EU’s EMIR provisions will be and the pressure to deliver a flash NAV as early as key. Similarly, FATCA requires significant attention for Significant investment has been made in ourop- 7 to 8am, makes it necessary to provide extended managers and service providers alike and will require erating model, implementing Calypso (a cross as- hours. Many providers, including us, leverage off additional support with investor classification, with- set class platform) that allows us to handle large offshore centres of excellence to support the NAV holding and annual reporting requirements. volumes of OTC instruments. It allows multiple valuation points intra-day and growing scale with- process overnight. At HSBC, we also have staff An ability to fully service managed accounts is out large increases in headcount. Some fund ad- on early and late shifts on the ground in Dublin, now a basic requirement for any hedge fund ministrators have attempted to address instrument in order to deal with the extended time coverage administrator, enabling our clients to respond to complexity by building spreadsheet solutions rather that is demanded by our client base. the increasing investor demands for transpar- than addressing the technology gaps. At HSBC, we ency. In such cases, a cost effective operating are moving onto a fully STP technology platform, Do you think consolidation will model is key and an ability to leverage global which improves turnaround time for responses that improve or reduce competition? talent pools represents an increasingly impor- go back to our NAV accountants and verify com- tant component of the offering. plex instrument valuations, both for net asset val- From a service provider’s perspective, I think the com- ues and collateral management purposes. petition will intensify. The smaller independent players Are asset servicing firms becoming have been able to offer a nimble, often cheaper and more specialised? Previously, supplying the mark to market of an in- more flexible product offering that has been attractive strument would satisfy client and auditor require- to alternative managers. They have built up a worthy Most of the bigger servicing firms are broaden- ments. In exceptional circumstances, additional as- client base over the years that is now appealing to the ing their offering rather than becoming more spe- sumptive data behind that price would be required. larger banks. By acquisition, the banks can get a bet- cialised. As managers are focusing on producing Much more data is now the standard requirement. ter product, increase their asset base further and the alpha and managing tail risk, they are looking for economy of scale will drive down costs. their administrator to provide a broader offering How much value can a third-party (the build-out of middle office and collateral man- In summary, the fund service providers can expect agement services being a typical example). administrator add? to face a more competitive market with broader and better products that are offered at a reduced Outsourcing from the big providers are more driven The last couple of years have been very chal- price. In contrast, for funds captured by AIFMD, it by the aim to create efficiencies in the processes, lenging for managers, in terms of market condi- is generally expected that costs will rise to reflect for example, by using offshore locations for pro- tions, compliance burden and regulation. A fund the increased liabilities being sought by regulators. cessing, vendors for distribution of investor state- or money manager needs to be able to focus From a fund manager’s perspective, they may ments and annual reports. To reduce valuation on what they are doing best—to generate alpha have fewer service providers to choose from in the risk and provide truly independent pricing, there is and value for their investors. future due to new capital requirements. probably also an increased use of external pricing vendors, along with the development of internal This is where a third party administrator can add pricing capabilities, which only the top-tier provid- value to your business. Firstly, consider counter- What’s the outlook for the hedge ers can accommodate (and at that, only those with party risk. We continue to see increased scrutiny of fund administration business? a global markets division can claim to be leveraging administrators including more due diligence of their an existing infrastructure/knowledge base). processes, controls and reporting. A strong brand is The increased burden of fund manager compli- crucial. It gives investors a level of comfort that the ance represents a challenge for the hedge fund How do you cope with very illiquid organisation they are dealing with is a reputable or- industry, and in some cases an opportunity for assets in terms of valuation? ganisation with an appropriate risk governance and the administration business. compliance culture, that ultimately removes a head- HSBC has significant experience in this area, ache for investment managers when it comes to in- The burden is such that it is likely to drive con- with a dedicated OTC valuation function, head- vestor due diligence. Brand and reputation remains solidation of hedge fund managers and service quartered in Dublin since 2005. key for hedge fund managers hoping to raise addi- providers. Service providers that already have This function works with our expanding complex tional or new capital from investors, especially man- scale in their operations and infrastructure client base to ensure that the valuation of illiq- agers targeting experienced institutional investors. alongside highly developed compliance and risk uid assets is undertaken in a manner that meets capabilities will be particularly well placed. the increasing needs of regulators, auditors and Secondly, consider an administrator with a full ultimately investor requirements for valuation service offering—core administration topped up The increasing requirement for service provid- transparency and increased independence. with a full middle-office solution, so that clients ers to demonstrate very strong capital creden- can outsource partial or full back- and middle- tials will also drive the service provider model Are administrators developing their office functions. The investment manager toward the large global banks. maintains the oversight function, but is able to own independent pricing models? leverage off the strength and scale of what the Generally, the cost of compliance across the val- Only the top-tier providers have the ability to attract the fund administrator can offer. Many of the top- ue chain is going to raise the barriers to entry for intellectual property and technology to enable them to tier administrators can offer end-to-end services smaller managers, and perhaps drive the mar- put in place pricing models for complex instruments. similar to what we provide ourselves. ket towards fewer, but larger, hedge funds. AST 9 www.assetservicingtimes.com AsiaInsight

Asia’s a-changin’ AST talks to Keith Hale of Multifonds about the latest happenings in Asia

GEORGINA LAVERS REPORTS

In Asia, how popular are UCITS funds? What are technology services like there hasn’t been the overwhelming rush into in Asia? these funds as expected, perhaps due to inves- My view is that UCITS funds continue to gain tor cautiousness of Chinese corporations and popularity in Asia, but I don’t think that they The maturity of technological services differs the yuan renminbicurrency situation. are as ubiquitous as Europeans seem to think, from country to country in Asia. We follow our although UCITS have a good structure and a clients as they build their fund administration The whole world, not just Asia, is becoming good reputation. services across the region. Some are global stricter about regulation in the wake of the players, such as BNP Paribas and RBC Dexia, financial crisis. From an Asian perspective, The financial transaction tax is a disaster, and which traditionally focused on supporting UCITS traditionally their concern has been, ‘Does purely politically-inspired. All it will do is put ad- distribution in the region, whereas some others the UCITS regulation give appropriate inves- ditional basis points on the cost of a structure. A are more focused on domestic Asian markets, tor protection for the Asian investors?’, but I fund administration charge is usually five to 15 such as HSBC and Standard Chartered. think that globally regulators are over-reacting. basis points, and you’re looking at doubling that. These changes may have unexpected knock- If the financial transaction tax happens, it will kill Singapore and Hong Kong are the most mature on effects. For example, FATCA was not in- UCITS outside of Europe—in Asia for example. markets, particularly for cross border funds, tended to discourage Asian investors from in- and therefore are perhaps the most technologi- vesting into funds with US investment or direct Looking at distribution statistics, Taiwan is quite an cally advanced, but quite small relatively. It may into US corporations, but that is what ultimately interesting market for UCITS. In the short term, Tai- sound strange to call China an ‘emerging’ mar- could happen. AST wan as a growing market represents a less risky ket, given that it is the second largest economy opportunity. It doesn’t have the exponential poten- in the world, but countries like China and India tial of mainland China, but is already more open are less technologically mature in areas such and accessible to local investors. In a recent report as fund administration, and they often rely on a by Cerulli Associates, Taiwan was found to be the local system that may not have the global cov- only Asian (excluding Japan) market in which the erage or efficiency of more global technology sale of offshore funds exceeded those of locally- platforms. In these countries, where traditionally based funds. Around 62 percent of total assets un- the labour cost was much cheaper, automation der management were in offshore funds at the end and efficiency was not as important; hence the of June 2011 compared with 53.2 percent in 2007. lack of maturity of the technology. This put it ahead of South Korea, China and India. What about the regulatory landscape? In the same report, as of the end of November 2011, Taiwan boasted 1,103 offshore funds with There’s been a lot of talk of regarding an Asian assets under management of NT$ 2.4 billion passport, but whether it sees the light of day is (US$81.43 million), while onshore funds num- another question. bered 550 with assets of NT$1.9 billion. The other main centres for UCITS are Singapore The recently launched Chinese yuan renminbi- and Hong Kong, but these countries are small denominated QFII (Qualified Foreign Institution-

in size compared with the likes of Taiwan. al Investor) had significant interest, but in fact Keith Hale Executive vice president for client and business development Multifonds 10 www.assetservicingtimes.com AsiaInsight PeopleMoves Industry appointments

Societe Generale Securities Services (SGSS) vice president positions, as well as a HR lead- has made two new appointments, both of ership role. whom will be reporting to Mathieu Maurier, global head of sales and relationship manage- Dave Moore, James Smith and Dan Torrens ASSETSERVICINGTIMES ment at SGSS. have been promoted to fill the roles, whileJanis Shaw has joined Confluence to fill the HR role. AST Michael Le Garignon, formerly of J.P. Morgan, will be head of sales, business development Moore has become senior vice president of Editor: Mark Dugdale and relationship management in the UK. professional services. He joined the company [email protected] in 2007 and previously held financial services Tel: +44 (0)20 8289 2405 Le Garignon has spent the past 25 years work- technology management positions with Metavante ing within the finance sector, and will be respon- Corporation, Corillian, Visa and Fiserv. sible for developing SGSS’s overall product and Journalist: Georgina Lavers services offering to its UK clients, which are Smith, who has been at Confluence since 2010, [email protected] made up of institutional investors, asset man- is now senior vice president of product develop- Tel: +44 (0) 20 3006 2888 agers, insurance companies and alternative ment. He previously worked as a senior technol- investment managers. ogy and operations executive with Fiserv and Commercial manager: Michael Brady J.P. Morgan. Andrew Duffin, will be the new head of sales [email protected] for emerging markets. Prior to this appointment, Torrens has become senior vice president of cli- Tel: +44 (0)20 3006 2859 Duffin was a senior sales and global relationship ent services. Before joining Confluence, where management executive for SGSS. he has been since 2001, Torrens held fund Publisher: Justin Lawson accounting and administration positions with [email protected] In his new role, Duffin will be responsible for BISYS Fund Services (now a part of Citi) and developing the commercial franchise of SGSS Federated Investors. Tel: +44 (0)20 3006 2859 in the 13 emerging markets where it is currently present. Shaw has joined Confluence from Germany- Marketing Director: Steven Lafferty based Draeger Safety, where she was vice [email protected] Bernie Hughes has joined Mercer Investments president of human resources. In the role of vice Tel: +44 (0)7843 811240 as a senior consultant in the annuity settlement president of people, she will oversee human re- Group, as Mercer seeks to expand its capacity sources globally for Confluence. to support pension risk transfer assignments. Published by Black Knight Media Ltd Provident House The Singapore Exchange’s (SGX’s) board of 6-20 Burrell Row, Beckenham “Mercer is well positioned as a market leader directors has renewed the contract of the ex- BR3 1AT UK in pension risk transfer,” said Rich Nuzum, the change’s CEO, Magnus Böcker. head of Mercer’s investment business in the Company reg: 0719464 US. “As we expand our capacity to support His current contract was due to expire on 30 No- Copyright © 2012 Black Knight Media Ltd. such assignments, hiring Bernie Hughes is tan- vember, which he signed when he joined SGX All rights reserved. gible evidence of our commitment to invest in in June 2009. this business.” Böcker’s new contract extends his stay at “Hughes joins Mercer after working for Towers SGX until 30 June 2015 and becomes effec- Böcker has signed on for another term in office. Perrin, and later Towers Watson, for nearly 20 tive 1 July. He will provide known leadership for the SGX years. He is one of the most experienced spe- organisation in the uncertain times ahead.” cialists in this field.” SGX chairman Chew Choon Seng said: “Given that the tensions and anxieties that have weak- SGX revealed that Böcker’s new deal gives Automated data management solutions pro- ened global financial markets are likely to per- him a fixed base salary of S$1,000,000 per vider Confluence has created three senior sist for some time yet, we are appreciative that year. AST

Raising The Bar In Recruitment

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