Wednesday 1st June 2016
NEWS TICKER: TUESDAY, May 31st: The 90+ day delinquencies of the French prime RMBS slightly increased to 0.42% in March 2016 from 0.38% in December 2015, according to the latest indices published by Moody's. The cumulative defaults increased to 0.50% in March 2016 from 0.45% in December 2015. Moody's annualised total redemption rate decreased to 15.97% in March 2016 from 19.04% in December 2015. As of March 2016, the 7 Moody's-rated French prime RMBS transactions had an outstanding pool balance of €69.32bn, compared with €63.17bn in August last year, constituting an increase of 9.73% following the issuance of a new transaction FCT CREDIT AGRICOLE HABITAT 2015 since the last index publication. The European Central Bank's (ECB) interest-rate cuts have forced down the cost of mortgage loans in France and borrowers are taking full advantage of the conditions by renegotiating their loans - First Names Group has confirmed it has agreed terms to acquire independent trust and corporate services provider Nautilus Trust Company (Nautilus). The acquisition (which remains subject to regulatory approval) will significantly expand the Group’s presence in Jersey, Hong Kong and London. Nautilus was originally founded in 1999 as Beachside Trust Company by shareholders of BBA Chartered Accountants; the company rebranded to Nautilus Trust Company in 2000. The deal will considerably strengthen First Names Group’s existing international presence and service offering particularly in Jersey, increasing its headcount to over 300 ‘First Names’ in the island. It will also add to the Group’s existing private client offering in Hong Kong and London. Following the completion of the transaction, the trust and corporate services business will be integrated into First Names Group’s Private Client and Corporate Service Lines – The human rights subcommittee of the European Commission has been hearing evidence of widespread violence and violence and subjugation against Christians, Yazidis and other religious minorities in Iraq. It appears that mass killings by ISIS and mass movement of refugees is putting the existence of some of these groups at risk of extinction in Iraq. Minority representatives from the region shared their first-hand observations with the committee, though it is not yet known what the European Union can achieve in the short term or the extent of aid and support that it can provide to these groups. Archimandrite Emanuel Youkhana, leader of the Assyrian Christians noted: I thank the Parliament for this discussion but Iraq's minorities are tired of hearing statements of solidarity. We need immediate action. People are being removed from their homes, women and girls are being taken as slaves and churches are bombed and looted. 120,000 Christians were driven out of their towns and villages in the Nineveh plains and Mosul and for the first time in 2,000 years there are no Christmas services in the biblical city of Nineveh. The existence of an indigenous community that is 2,000 years old and predates Islam is now seriously endangered. There were over one million Christians in Iraq in 2003, now the most optimistic estimates are of 250,000. The richness of the Middle East comes from its diversity yet from primary school right through to university an Iraqi child will never learn a word about non-Muslim minorities like the Jews, Mandaeans, Yazidis and Christians. Daesh is uprooting us physically but we have already been uprooted from the national consciousness”. - Moody's has today affirmed the Baa2 long-term issuer rating of SES (SES), the (P)Baa2 rating on the backed senior unsecured MTN program of SES and SES Global Americas Holdings GP (SES Global), the Baa2 rating on the backed senior unsecured notes issued by SES and SES Global and the P-2 rating on the commercial paper program of SES and SES Global. Moody's also assigned a Ba1 long-term rating to the proposed perpetual deeply subordinated fixed rate resettable securities (hybrid bonds) to be issued by SES with a guarantee from SES Global. The affirmed and new hybrid bond ratings follow SES's announcement on May 26th last week that it intends to increase its fully diluted ownership of O3b Networks (O3b, unrated) from a 50.5% controlling stake (as announced on 29 April 2016) to 100.0%. The transaction is expected to close in H2 2016 and is subject to the receipt of regulatory approvals. The rating outlook remains stable. SES intends to increase its stake in O3b by exercising a call option it has, under a previously arranged shareholder purchase agreement, to acquire the remaining 49.5% of O3b shares for a consideration of $710m. As a result, the Board of O3b will no longer evaluate an IPO process and there will be no changes to the management of O3b as a result of the transaction. "The stable outlook recognizes the transaction's sound strategic fit as well as the announcement of SES's balanced funding plan for this transaction," says Alejandro Núnez, a Moody's vice president -- senior analyst. Moody’s says the rating affirmation reflects: (1) the strategic fit and revenue contribution from O3b's satellite constellation to SES's geostationary satellite fleet; the cautious approach SES has taken with respect to increasing its stake in O3b, in line with its return requirements for infrastructure investments; and the financing plans announced by SES to fund its own peaking capex program and the acquisition of O3b's minorities in a manner consistent with SES's financial policies and within our credit metric expectations - Independent investment banking firm Freitag & Co is expanding its advisory board: From tomorrow (June 1st), Robert Steven Miller, Dr Stefan Schmittmann and Matthias Wissmann will join the board. Miller is known for restructuring AIG, Bethlehem Steel, Chrysler Corporation (Vice Chairman), Delphi, Federal Mogul, Hawker Beechcraft, United Airlines (Director). Currently, he is CEO of IAC, Luxembourg, a director of AIG, Dow Chemical, Symantec, and MidOcean Partners (Chairman). Meanwhile Schmittmann has extensive experience in risk management and banking leadership. He was chief executive of Vereins- und Westbank as well as member of the executive boards of Bayerische Hypo- und Vereinsbank and Commerzbank. Currently, he is chairman of the supervisory board of Commerz Real AG and member of the supervisory board of Schaltbau Holding. Matthias Wissmann was German Federal Secretary of Transportation. He is president of the German Association of the Automotive Industry (VDA) and Vice President of the Association of the German Industry (BDI and a member of the supervisory board of Lufthansa - Eastmain Resources has appointed Joe Fazzini as chief financial officer & vice president corporate development based in Toronto, effective today. In addition to his duties as CFO, Fazzini will also oversee corporate development activities including company strategy, project analysis and financial modelling. Most recently he worked at Dundee Capital Markets where he served as vice president, senior mining analyst covering Precious Metals Equities. While at Dundee, he modelled, analysed and advised global institutional investors as well as mining companies ranging from junior gold explorers to intermediate producers. Claude Lemasson, Eastmain's president and chief executive officer says, "Over the past decade, Fazzini has been extensively involved in the mining industry as a trusted advisor to colleagues and institutional investors. His enthusiasm and expertise in all facets of finance and strategy will be an asset to our team, ensuring the company is well-supported and well-funded as we increase the scope of work on our Triangle of Success in the James Bay gold district.” – Axioma says that HedgeMark International, LLC has completed the implementation of Axioma Risk. HedgeMark, a BNY Mellon company, provides hedge fund dedicated managed account and risk analytic services. Axioma Risk is a multi-asset class risk management platform that allows clients to support their risk reporting across diverse and innovative investment strategies more seamlessly and with increased efficiency. “Existing risk management solutions rely on legacy systems and technology that cannot meet the demands of modern multi-asset class investing,” explains Sebastian Ceria, CEO of Axioma. “As our clients increasingly look for customization options for their hedge fund investments, it’s critical that we employ flexible technology that can accommodate the layer of complexity this adds to managing risk,” adds Andrew Lapkin, CEO of HedgeMark. “Axioma’s modular cloud-based platform was clearly the best solution for us to deliver detailed risk analysis on global multi-asset class portfolios for our clients.” - Russia’s National Settlement Depository (NSD) is stepping up its role in the sovereign debt market, in the process picking up business that is traditionally the preserve of either Clearstream or Euroclear (or both). The Russian finance ministry appointed the NSD as the clearing system for last week’s $1.75bn eurobond without involving the world's largest clearing banks, Euroclear and Clearstream; which apparently took investors by surprise but which did not stop them utilising the Russian depository, having bought $1.2bn of the Russian finance ministry’s $1.75bn issue. The sovereign is expected to issue a further $1.25bn/$1.5bn this year and will focus on using the country’s own market infrastructure to clear and settle the transaction. The issue, the first in three years, will help the government, battered by an economic slowdown and still in play western sanctions, to fill gaps in its budget. Sanctions do not forbid anyone from investing in or handing Russian sovereign debt. Demand for the issue was over US$7bn. The final yield was set at 4.75%, in the middle of an initial range of 4.65%–4.90% in a transaction brought to market by VTB Bank. In the event it raised $7bn in commitments. Russia last issued a eurobond back in 2013. "The NSD has fiduciary accounts with most of the largest global custodian banks," NSD chair Eddie Astanin told Reuters in a written statement "So foreign investors may buy into a new Eurobond issue also via (the banks') Moscow units,” he explained. The NSD also has fiduciary accounts with both Euroclear and Clearstream, and vice versa, making it easy for investors to access other markets, Astanin added. In an interview with Russia's Tass news agency yesterday, Astanin also said the depository was gearing up to handle further sovereign Eurobond issues and was seeking to widen its base of investors - Chinese property development firm China Resources Land has come to market with a RMB5bn ($760m approximately) panda bond in the mainland debt capital markets. The issue is in two tranches: an RMB2bn three-year note priced at 3.2% and an RMB3bn five-year note priced at 3.6%. The issue was oversubscribed by a factor of two. Panda bonds, or yuan-denominated bonds sold by foreigners on the mainland, have been growing steadily in volume since when the World Bank subsidiary the International Finance Corporation (IFC) opened the market with an RMB1.13bn issue back in 2005. However, the pace of growth, while steady has been slow, as each issue needs approval from market authorities. However, the market has picked up some pace in recent months, as HSBC, British Columbia and Hungary have tapped the market - Morningstar has placed the Neptune US Opportunities fund Under Review. The fund previously held a Morningstar Analyst Rating™ of Bronze. Fatima Khizou, manager research analyst at Morningstar, comments: “James Hackam, who joined Neptune in 2012 and currently runs the US Equity Income fund, has been appointed lead manager on the fund and head of US equities concomitantly. The Compound Edge investment philosophy, which uses a proprietary quality composite score screening tool that Hackam helped develop, will now be used across the whole range, including this fund. We will be meeting with the new management team to discuss this approach in further detail.” - Over the long weekend, India’s ONGC Videsh Ltd (OVL), the overseas arm of state-run explorer Oil and Natural Gas Corporation (ONGC), today announced it has signed a Memorandum of Understanding (MoU) with SOCAR Trading SA, the trading arm of Azerbaijan's government-owned energy firm SOCAR, for foraying into oil trading business. The agreement covers joint marketing of OVL's crude oil portfolio by leveraging SOCAR Trading's experience in oil trading, OVL says in a statement. "Initially, both the parties agreed to initiate discussion on joint marketing agreement in respect of OVL's equity crude from ACG, Azerbaijan,” the firm says.the Azeri-Chirag-Guneshli (ACG) field is located off the coast of Baku and is the largest oilfield in the Azerbaijani sector of the Caspian basin. OVL owns a 2.7% stake in the field, which it acquired from US-based Hess for $1bn - According to the provisional data published yesterday by ELSTAT real GDP growth in Greece contracted by 1.4% year on year in Q1 on the back of lower private consumption, gross fixed capital investments and exports - Statistics Canada will provide its latest read on how the economy is performing later today when it releases gross domestic product results for the first three months of the year. The consensus view is that the economy grew at an annual pace of 2.9% for the quarter, though the prediction is for a small contraction in March. Worrying for the Bank of Canada is that the Q1 figures will not take into account the damage done by the recent wildfires in Alberta - Telia Company AB (formerly TeliaSonera AB says it is inviting holders of its outstanding £400,000,000 4.375 per cent notes due 5 December 2042 (XS0861990173) to tender any and all of their securities for cash in an offer memorandum released today. The firm says the offer will help it optimise its liability structure and that it will use some of the money (alongside revenue from the sale of Ncell) to reduce its overall debt exposure. To tender securities for purchase eligible securities holders should deliver the securities either via Euroclear or Clearstream. Details of the final principal amount of securities up for purchase and the tender price will be distributed at or around noon GMT on June 8th -

Latest Video

Raising the stakes in fund administration

Wednesday, 08 February 2012
Raising the stakes in fund administration The financial crisis has created new business opportunities for European fund administrators, the green eye-shade bean counters who crank out valuations and account balances for everything from UCITS-qualified mutual funds to hedge funds and private equity vehicles. Lower market values have clipped asset managers’ revenue, forcing them to re-examine costs and focus on their highest value-added skills in research, trading and portfolio management. They are hiring fund administrators to take over middle office tasks, including risk management reporting and compliance, which used to be handled in-house but were never the managers’ core competency. It’s a win for both sides: the managers get an essential service at lower cost thanks to the administrators’ economies of scale, while the administrators book incremental revenue at higher margins than their core business, reports Neil O'Hara. http://www.ftseglobalmarkets.com/media/k2/items/cache/1fcc20496540a7e06827d47c4b246d7d_XL.jpg

The financial crisis has created new business opportunities for European fund administrators, the green eye-shade bean counters who crank out valuations and account balances for everything from UCITS-qualified mutual funds to hedge funds and private equity vehicles. Lower market values have clipped asset managers’ revenue, forcing them to re-examine costs and focus on their highest value-added skills in research, trading and portfolio management. They are hiring fund administrators to take over middle office tasks, including risk management reporting and compliance, which used to be handled in-house but were never the managers’ core competency. It’s a win for both sides: the managers get an essential service at lower cost thanks to the administrators’ economies of scale, while the administrators book incremental revenue at higher margins than their core business, reports Neil O'Hara.

Clients are demanding more from administrators in their traditional role. Philippe Ricard, head of asset and fund services at BNP Paribas Securities Services, says investors and managers now insist on independent pricing of OTC derivatives and other illiquid securities. Valuations have become more frequent, particularly for managers that have launched UCITS-qualified funds employing investment strategies similar to their principal hedge funds.
As a result, BNP Paribas built ample processing capacity and has long been able to handle short positions as well as long.  “The incremental cost of higher volume is very limited because of our design,” says Ricard, who notes that other fund administrators may not be so fortunate.
The cost varies among clients depending on their own systems capabilities, too. If a manager uses a distributor that cannot send subscription and redemption information electronically, or the client does not use BNP Paribas’s tools for work flow, then the administrator bears higher costs for which it will charge—provided the market is receptive. “It is important to create incentives for efficiency,” says Ricard.  “I will offer the best rate for an efficient client, one willing to improve with us. For a less efficient client, I will provide a fee structure that shows the difference between what it pays now and what it could pay if it were more efficient.”
Administrators are no longer prepared to absorb the incremental costs of more frequent valuations, greater transparency, independent pricing verification and other services that have increased their workload. The bundled pricing of yore has given way to a menu of services from which clients can choose what meets their particular needs.
“When a client says it wants to go from weekly to daily pricing, the answer is, ‘Of course, but there is a cost implication’,” says Hans Hufschmid, chief executive officer of GlobeOp, a fund administrator that handles $173bn of fund assets worldwide.  “All the administrators are becoming more disciplined about pricing.”
While clients and investors have driven most recent changes, the European fund management industry also faces a slew of new regulations that will take effect over the next few years. The new rules typically do not apply to administrators per se, but the proposed rules will affect their clients. In early January, for example, BNY Mellon hosted a workshop on the EU Solvency II insurance regulations in London—and found the session jammed with fund managers, who do not normally attend such events.
“Managers want to understand what data the insurance companies will demand from them,” says Frank Froud, head of EMEA, BNY Mellon Asset Servicing in London.  At the time of going to press, Froud was in the last stages of his tenure in this role at the bank. His role has now been assumed by Hani Kablawi, the bank’s Middle East expert.
“When the companies have worked out what they need, the managers will ask us for detailed solutions,” says Froud. The job is tailor-made for fund administrators, who have enormous capacity to manage and massage wholesale data and deliver the results in whatever format their clients, or regulators, require.
The regulatory onslaught includes UCITS IV and the proposed Alternative Investment Fund Managers Directive (AIFMD), which Anne Deegan, managing director of SEI Investments Trustee & Custodial Services (Ireland), expects to ramp-up demand for risk management reporting. SEI, which has $250bn under administration worldwide including $60bn in Dublin, has a deep commitment to technology that gives the firm a competitive edge. “We need to offer clients timely risk–management reporting so that they can comply with AIFMD,” says Deegan. “We are keeping a close watch on that.” UCITS IV tightened up corporate governance for funds, including a requirement for close monitoring of OTC derivatives—and managers have asked their administrators to generate those risk reports, too.
Administrators are paying more attention to corporate governance in the aftermath of a recent Cayman Islands judgement that held two fund directors personally liable for $111m of losses at the Weavering Macro Fixed Income Fund. The case highlighted the risk for directors who serve in name only on multiple funds and routinely rubber-stamp fund documents presented to them without review. It emphasised the importance of maintaining proper books and records, too. “Administrators will have conversations with fund boards of directors to ensure there is clarity about what services are and are not being provided,” says Deegan. “It will require more monitoring of governance on our part.”
AIFMD as currently proposed would also impose a fiduciary duty on custodians to supervise not only their sub-custodians but even the types of instruments and markets in which their clients invest, a requirement that could extend to regulated funds under UCITS V. In effect, the rule would import the European depot bank model into the Anglo-Saxon world—and pricing would have to reflect the enhanced business risk.  “On a day-to-day, transaction-by-transaction basis, we will have to exercise oversight,” Froud says. “If that risk is transferred to the investment services organisations instead of the fund managers, we have to tool up for that and be rewarded for it.”
Like all EU directives, UCITS V and the AIFMD will be subject to local interpretation when each member state enacts legislation to implement the directive. The directive language could change, too—the custody banks are lobbying hard to eliminate or water down the fiduciary obligations—but William Slattery, head of European offshore domiciles at State Street Corporation, worries that in its current form the directive could ratchet-up systemic risk.
Slattery is responsible for a business that administers $600bn—half in regulated funds and half hedge funds—in Dublin, and another $350bn of regulated funds in Luxembourg. He points out that if depositaries are held liable they may feel compelled to require clients to abandon a particular market at the first sign of trouble, whether it is the financial distress of a local sub-custodian or a political threat to the legal environment. The herd mentality almost guarantees that if one leading player pulls the plug, others will follow—triggering a stampede for the exits.
“It could create serious systemic instability in either individual or multiple markets,” says Slattery. “Almost no economy is spared the potential threat.”
The markets have a poor track record of evaluating events that are highly improbable but devastating, which are almost always underpriced relative to the havoc they cause. Black Swan events occur in the financial markets with a frequency that belies their statistical probability, too. “They are only supposed to happen once in 1,000 years,” observes Slattery, “but we have had 1987, 1994, 1998, 2000 and 2008.”
Unlike State Street and BNY Mellon, GlobeOp is not a custodian and would not be directly affected by the proposed fiduciary liability. Nevertheless, the firm has a well-deserved reputation for being able to handle OTC derivatives and other complex investment products, a skill that has attracted sophisticated clients whose investment strategies rely on these esoteric instruments. Hufschmid dismisses the very notion that custodians could take fiduciary responsibility for hedge funds. “Administrators can perhaps ensure that instruments and assets are priced independently, that reconciliations are independent and so on,” he says. “It is one thing to take on fiduciary responsibility if you can monitor it completely, but it is naïve to think a custodian bank can supervise a hedge fund.”
The ability to handle anything a hedge fund wants to trade comes at a price to the client: GlobeOp fees run about 12basis points (bps) on average, compared to the industry norm of 6bps-7bps. Net margins are nowhere near double those of its competitors, however; the cost of administering complex instruments is higher than average and Hufschmid says the firm’s clients are “very demanding—the most demanding set of clients you can imagine in any industry anywhere.” The forthcoming shift to central clearing of most OTC derivatives will have a disproportionate impact on GlobeOp relative to its competitors but Hufschmid does not foresee any difficulty in making the transition. GlobeOp already uses DTCC’s matching service for credit derivatives trades, which operates like a clearing house but without the central counterparty guarantee. “One of our core competencies is fully functioning data pipes to all the different service providers: data vendors, exchanges and other trading venues,” says Hufschmid. “It will be just another pipe for us.”
All the major players are preparing for central clearing of OTC derivatives, of course. Clive Bellows, country head, Ireland, at Northern Trust, which administers about $300bn in assets in Europe, has clients who expect clearing to go live during the fourth quarter of 2012—and he will be ready to support them. It requires a significant incremental investment in technology to handle the substitution of a central counterparty, but it also simplifies valuation and improves transparency. “It’s a fantastic idea. It will solve a lot of the issues surrounding OTC derivatives,” says Bellows. “It will go a long way to commoditising the funds that invest in derivatives and make it easier for fund administrators to move up the value chain.”

The ever-increasing demands for technology capacity and capability tilt the playing field in favour of large administrators who already operate on a global basis. The required investment is driving industry consolidation, too. For example, Northern Trust bought Bank of Ireland’s security services business last year, which added $100bn in assets and the ability to service exchange-traded funds. The business was sound—clients have begged Northern Trust not to alter the legacy client service ethos—but lacked scale, and the Bank of Ireland no longer had the balance sheet strength to support it.
Northern Trust also bolstered its ability to service hedge funds when it picked up Omnium, a $70bn administrator that was sold by Citadel, a Chicago-based hedge fund. “The bigger providers who already have good technology in place, the resources to continue to invest and a strong balance sheet, will be the winners,” says Bellows.
Acquisitions have become the easiest way to bring in new clients in the current environment. The more middle office functions fund administrators perform, the deeper they are embedded in clients’ infrastructure and the harder it is for clients to contemplate a change. “A huge amount of our growth does come from our existing clients,” says Bellows. “Without a doubt, the number of managers looking to change providers has decreased. It is done only as a matter of last resort.” In fact, the best new client opportunities do not even originate in Europe: they are non-EU fund managers seeking to set up UCITS funds in Europe—which is why Bellows’ sales team now pitches primarily to managers in the United States and Asia.
In today’s European fund administration market, the global leaders stand to inherit the earth—and the meek to be swallowed whole.

Current Issue

TWITTER FEED

Related News

Related Articles

Related Videos