Section 2 - FTSE

FUND ADMINISTRATION: GOING WITH THE FLOW
52
While the savaging of the major market indices has kept many
players frozen in their tracks, Kathleen Cuocolo, managing director of
US fund and ETF services for The Bank of NewYork Mellon,
nevertheless sees a return to the kind of dynamics that have been
driving the market all along.That is, investment managers assessing
which responsibilities they need to keep in house, and which can be
outsourced.“I think that will continue—with the issue for all
administrators going forward being the level of assets on which fees
are paid, governing all types of services,”says Cuocolo. Photograph ©
Sebastian Kaulitski/Dreamstime.com, supplied December 2008.
THE HEART
OF THE MATTER
While putting added pressure on fees, the recent market contraction has at the same time hastened
the flight to quality. Well-established, highly diversified administrators who are capable of
providing the full range of asset servicing needs, from performance calculation to trade processing
and more, will likely weather the seismic shifts better than most. Dave Simons reports from Boston.
THE UNPREDICTABLE AND erratic investment
climate—which in turn has increased demands for
transparency and the need for accounting and reporting
independence—continues to work to the advantage of the
industry’s leading fund administrators. Though licking their
wounds from a brutal fall while adjusting to life without big
leveraging, hedge funds remain the heart and soul of the
administration business. With budgets being trimmed and
competition on the rise, alternatives will continue to offload
non-core activities in order to make room for the business of
generating alpha, depositing even more business at the door
of well-placed service providers
“We anticipate that, in an analogy to the hedge fund
industry, the administration space will experience further
‘barbelling,’[sic]” says Isabel Schauerte, analyst with Bostonbased
research group Celent and coauthor of the recent report
Trends in Hedge Fund Administration 2008. “The ongoing
institutionalisation of hedge funds will ultimately lead to a
two-tiered market, with large multi-service administrators on
the one hand and niche players left to service startups and
independent boutiques on the other,”she notes.
While the savaging of the major market indices has kept
many players frozen in their tracks, Kathleen Cuocolo,
managing director of US fund and ETF services for The
Bank of NewYork Mellon, nevertheless sees a return to the
kind of dynamics that have been driving the market all
along. That is, investment managers assessing which
responsibilities they need to keep in house, and which can
be outsourced.“I think that will continue—with the issue
for all administrators going forward being the level of
assets on which fees are paid, governing all types of
services,”says Cuocolo.
Despite the ongoing spate of redemptions, hedge funds
continue to build out their infrastructure with an eye
toward the future, says Marina Lewin, managing director,
alternative investment services for Bank of New York
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Marina Lewin, managing director, alternative investment services for
The Bank of New York Mellon.“It is true that there has been real
retrenchment within the fund business, and yet from our point of
view, the industry will still move forward, particularly as toxic debt is
absorbed,” she says. Lewin sees hedge funds continuing to operate with
a lean infrastructure, affording considerable back- and middle-office
outsourcing opportunities for administrators.“More and more, these
funds are asking their service providers to get involved in performance
calculation, trade processing and trade flow, liquidity and so forth.
That’s where we’ve seen the greatest emphasis,” she adds. Photograph
kindly supplied by The Bank of New York Mellon, December 2008.
Mellon. “It is true that there has been real retrenchment
within the fund business, and yet from our point of view,
the industry will still move forward, particularly as toxic
debt is absorbed.” Lewin sees hedge funds continuing to
operate with a lean infrastructure, affording considerable
back- and middle-office outsourcing opportunities for
administrators. “More and more, these funds are asking
their service providers to get involved in performance
calculation, trade processing and trade flow, liquidity and
so forth. That’s where we’ve seen the greatest emphasis.”
While putting added pressure on fees, the market
contraction has at the same time hastened the flight to
quality, says Lewin. Diversified administrators who can
also provide custodial support are much better suited to
weathering seismic shifts within the market.“Many of our
current customers have legitimate concerns about
counterparty risk, and are looking for a safe haven. As a
financial institution that can offer custodial, short-term
money management as well as corporate-trust services, in
addition to administration services, we feel we are in a very
good position, particularly as the industry finishes its
retrenchment and begins to gradually recover.”
Peter Cherecwich, head of global product and strategy for
Northern Trust’s asset servicing business, agrees that
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
administrators with custodial ties have a competitive advantage
in this type of environment.“Custodians have the flexibility to
shift clients in and out of strategies with much greater ease, he
says,adding:“If your entire infrastructure is only geared towards
alternative classes, you may not be able to adapt as quickly.”
Though the momentum has slowed for the time being,
Cherecwich believes that alternative classes will not be
down for long.“We’ve seen anywhere from 30% to 50%
growth in the derivatives market over the past few years,
and that has obviously flattened out. In the meantime,
there has been this great push towards risk management
and, along with that, better administrative tools to help
measure that risk. Which, in turn, compels us to go to
provide our clients with the kind of tools and information
that can help them better understand what they’re
getting into.”
The overriding factor, says Lewin, is the constant need
for reporting independence, and those who haven’t yet
outsourced will likely get on board over the near term.“In
order to keep their institutional investors satisfied,
managers are looking to go to the highest-quality type of
financial institution for their administrative needs—
whether it is an accounting division looking for
independent price verification, or providing institutional
investors the security of knowing that their portfolio is
being carefully monitored. All of these things will work as
a benefit to the stronger administrators.”
Tech Still Tops
A report issued by Celent calls for a decrease in technology
spending among investment managers throughout 2009.
As a result, managers will likely continue to outsource IT in
an effort to keep pace while lowering costs, says Alan
Greene, executive vice president and head of US
Investment Servicing for State Street Corporation. “The
weakening economy will lead managers to trim this
portion of their budgets at a time when implementing new
functions could be more necessary than ever. This
highlights the benefit in shifting the expense obligation
and responsibility for technological enhancements to a
third-party provider.”
It is difficult to envisage any administrator maintaining a
competitive offering in the fund services industry without
investing in the kind of software that can meet the increased
demand for transparency, argues Richard Harland, business
development manager for Mourant International Finance
Administration. “Mourant continues to invest in market
leading software solutions across our global office network
and our systems enable bespoke solutions to client needs
and serve as powerful reporting tools,”he says.
Servicing alternative fund structures, the impetus
behind last year’s acquisition of Bisys, remains a core
competency for Citi, says Andrew Smith, head of the
bank’s North America funds and securities services.
Robust investments in technology that allow alternative
managers to access data in real-time and meet clients’
need for transparency and performance evaluation
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FUND ADMINISTRATION: GOING WITH THE FLOW
54
Richard Harland, business development manager for Mourant
International Finance Administration.“Mourant continues to invest in
market leading software solutions across our global office network and
our systems enable bespoke solutions to client needs and serve as
powerful reporting tools,” he says. Photograph kindly supplied by
Mourant International Finance, December 2008.
reporting is key to this effort. “To the extent that the
systems, products and processes can be leveraged across
all of our business lines, we certainly welcome these
synergies where they make sense,”he adds.
Nor does Smith rule out the opportunity to make
strategic acquisitions where applicable. “The ability to
innovate and stay ahead of the next wave of alternative
investment managers drives the desire to acquire another
service provider. If you have time and money to reinvest in
these businesses you will win your fair share of mandates.
If you lack technology or expertise and you want to be a
leading servicer of alternative funds, it becomes a necessity
to buy functionality and technology.”
A hallmark of any bona fide administrator is the ability to
adapt to radically changing market conditions, and having
the proper tools on board makes the job that much easier,
thinks Lewin.“Our approach has been to build out native
technology systems that can allow us to work through the
many kinds of investment structures, from fund-of-funds
to private equity to hedge funds, with all the various
hybrids in between,”she says. Commitments to technology
are more vital now than ever before, concurs Seán Páircéir,
managing director, Brown Brothers Harriman (BBH), in
Dublin. “BBH will continue to invest to support the
sophisticated business needs of our clients as part of our
core strategy. We are committed to enhancing our
competencies with innovative technology solutions like
virtual pooling which meet and anticipate our clients’
development,”says Páircéir.
Rather than actively seeking bolt-on providers, however,
BBH, in keeping with its established business model,
prefers a more organic approach technological growth.“We
can tailor our ability to service sophisticated asset
managers by bringing ever more specialised pricing
Andrew Smith, head of North America funds and securities services.
Robust investments in technology that allow alternative managers to
access data in real-time and meet clients’ need for transparency and
performance evaluation reporting is key to this effort.“To the extent that
the systems, products and processes can be leveraged across all of our
business lines, we certainly welcome these synergies where they make
sense,” he says. Photograph kindly supplied by Citi, December 2008.
capabilities from the market,”says Páircéir,“participating in
automation initiatives in the OTC marketplace, and
attracting product expertise in specialist areas like real
estate fund servicing.”
Pension pinching
Poor returns and bad press have put a dent in the once
impenetrable veneer of the hedge-fund industry since the
crisis began. While some continue to forecast tough times for
alternative strategies as mainstream investors rush to the
sidelines, observers like Lewin remain optimistic.“We firmly
believe that absolute and alternative strategies will continue to
be an integral part of the investment portfolio in the long run.”
One group that is likely to stay put are large public
pension funds, which have come to depend on the extra
octane provided by alternative classes in order to help cover
potential liability gaps.“Pension plans [such as] MassPRIM
or CalPERS are looking at liabilities that run 40 years out in
actuaries, if not longer,”says Smith.“Clearly, finding alpha is
their main objective.” Which in turn points to more asset
classes, more complexity, and more customised reporting.
“While the traditional asset manager might be focused on a
‘back-to-basics’strategy, the alternative manager, by nature,
is driven to find value even in the worst of markets.”
Accordingly, Smith says that Citi has not made any changes
to its core strategy based on current market conditions.“We
continue to reinvest in these businesses and develop new
products and services, and we are working with a wide
variety of independent pricing sources to help with security
valuations, particularly as hedge funds seek returns from
esoteric asset classes and securities.”
Despite the current and seemingly perpetual havoc on Wall
Street, Richard Harland, business development manager for
Mourant International Finance Administration, says that
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

individual investors have not been completely deterred. On
the contrary, many may well be considering a shift in their
own investment allocation into alternatives. “Equities are
phenomenally volatile and a large number of investors are
seeking a longer term yield, including the kind of returns
which are offered through alternative investments such as a
closed-ended structure, as well as investments in private
equity or real estate,” says Harland. “We are seeing a great
deal of activity and there is a feeling that investing in the
current climate could prove the next few years to be vintage.”
Turning up the heat
In the United States, a new administration and a more
powerful Democratic congressional majority point to an
even greater emphasis on transparency and regulatory
oversight. Meanwhile, the universal crackdown on short
selling is evidence that governments everywhere are just as
willing to tighten the screws. “In September alone there
were at least 15 regulatory changes dictated from the
Securities and Exchange Commission (SEC), the Federal
Reserve Board (FRB), the Commodity Futures Trading
Commission (CFTC) and from the Financial Accounting
Standards Board (FASB),”notes State Street’s Greene. Many
of these changes require adaptation and implementation
within weeks of their announcement, he adds. “Changes in
regulation will drive up the cost of compliance, requiring
continued investment in order to keep pace.” This once
again points to the value of outsourcing in order to achieve
the goal of lowering costs while implementing new
standards, says Greene.
Mourant’s Harland agrees that the recent economic
turbulence has led to increased pressure for the regulation
of certain financial markets. “A key requirement of the
administrator is to maintain granular data of the fund or
funds which it administers, which is managed by informed
client-relationship teams with a broad knowledge of
financial reporting standards as well as regulatory and
investor requirements. We believe this enables us to
respond to the changing reporting requirements of
investors, clients and regulators.”
For instance, in the United Kingdom the guidelines for
transparency outlined in last year’s Walker Report serve as
an example of how the reporting environment is changing.
“We have seen a number of clients, from start-ups to blue
chip firms, acknowledging and taking steps towards
adopting the Walker guidelines,”says Harland.“Our teams
are well placed to provide clients with guidance on how to
implement the various aspects of the report.”
Given the current regulatory environment, BBH’s Páircéir
is hopeful that forthcoming policy procedures are moderate
and can be easily leveraged. “Daily NAV production and
underlying delivery of portfolio information to investors,
transparency of information to stakeholders in investment
vehicles, and directors’ oversight and responsibility all lead
to an already significant volume of reporting. We support
the current level of necessary oversight measures, but see
no real need for an increase in this burden.”
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
Peter Cherecwich, head of global product and strategy for Northern
Trust’s asset servicing business, thinks that administrators with custodial
ties have a competitive advantage in this type of environment.
“Custodians have the flexibility to shift clients in and out of strategies
with much greater ease, he says, adding:“If your entire infrastructure is
only geared towards alternative classes, you may not be able to adapt as
quickly.” Photograph kindly supplied by Northern Trust, December 2008.
Seán Páircéir, managing director, Brown Brothers Harriman (BBH), in
Dublin.“BBH will continue to invest to support the sophisticated
business needs of our clients as part of our core strategy. We are
committed to enhancing our competencies with innovative technology
solutions like virtual pooling which meet and anticipate our clients’
development.” Photograph kindly supplied by Brown Brothers
Harriman, December 2008.
55

ASIAN INVESTOR SERVICES: CUSTODY SOLDIERS ON
56
ASIAN
CUSTODY:
HELPING
CLIENTS
ADJUST
For now, all the major global custodians such as HSBC,
Standard Chartered, BNY Mellon, BNP Paribas, Société
Générale Securities Services and Northern Trust, are
staying the course.The short-term forecasts may be
gloomy but they are all banking on the bigger picture
which places the Asia Pacific region as one of the longterm
drivers of worldwide growth. One reason is that
economists expect that emerging markets in the Asian
region will be more resilient than their Western
counterparts and will recover much faster.This is
because the de-leveraging purge will not be as great in
general in emerging markets. Photograph © Dawn
Hudson/Dreamstime.com, supplied December 2008.
The financial crisis has provided a challenging
time for Asian asset service providers. Institutional
investors are more concerned now about
counterparty risk and certain asset classes as well
as the fund managers they are using. As a result,
there has not been that much new business and
providers are helping clients adjust to market
conditions. Lynn Strongin Dodds reports.
UNTIL RECENTLY, THERE was a view that Asia
would remain on the periphery of the financial
crisis rocking Western economies. As time went on,
those expectations proved unfounded. Global custodians,
though, have not lost heart and are prepared to wait it out
based on the region’s long-term growth prospects. The
larger, better capitalised firms are also hoping to be the
beneficiaries of a flight to quality to providers who have
strong balance sheets and high investment grade ratings.
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

Over the past couple of years, global custodians have
either bolstered their existing operations or forged a new
path in the Asia Pacific region in order to capitalise on the
business opportunities. Growth has been fuelled by the
creation of new sovereign wealth funds, a burgeoning local
investment community as well as the outsourcing of global
equity and fixed income mandates to foreign asset
managers by large public pension schemes in countries
such as Taiwan and Korea.
In addition, asset securities service firms intend to cater to
the growing Asian cross-border fund market taking shape
under the Undertakings for Collective Investment in
Transferable Securities (UCITS) banner. Different
regulations and tax structures, not to mention the absence
of a regional body such as the European Union, had made
it difficult to create a common framework for funds across
the multiple Asian
jurisdictions. However,
fund centres in Dublin and
Luxembourg have been
busy developing UCITS
products for both
European as well as Asian
investors.
When the sub prime
crisis began in the summer
2007, many market
participants predicted that
the region would be
somewhat insulated due
to its strong liquidity
position, its relatively
well protected banking
industry and distance from
the US epicentre. However, the bankruptcy of Lehman
followed by the near death experiences of some of the
world’s most venerable institutions—the most recent being
the $300bn US government bailout of Citigroup—shook all
global investors to the core.
Lawrence Au, Hong Kong based senior vice president
and the North Asia business executive and head of asset
servicing for Northern Trust, says: “Obviously everything
changed since September after Lehman went into
bankruptcy. Prior to then, the Asia Pacific region was not
that much impacted and custodians and fund
administrators were adding new resources and people.
However, when the problems began, there was a realisation
that markets were a lot more intertwined and had not
decoupled as people had thought. Since then, it has been a
challenging time for asset service providers. Institutional
investors are more concerned now about counterparty risk,
certain asset classes as well as the fund managers they are
using. As a result, there has not been that much new
business although we are still busy helping clients adjust to
current market conditions.”
Alastair Pow, Singapore based global head of fund
services for Standard Chartered’s securities services
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
Alastair Pow, Singapore based global
head of fund services for Standard
Chartered’s securities services business,
adds: “While proving resilient at first, the
trends now seen within the Asia funds
management industry mirror those that
have been apparent in the US and
Europe. Investors have substantially
reduced their appetite for leveraged and
complex investment products.”
business, adds: “While proving resilient at first, the trends
now seen within the Asia funds management industry
mirror those that have been apparent in the US and Europe.
Investors have substantially reduced their appetite for
leveraged and complex investment products.”
Chong Jin Leow, head of Asia, BNY Mellon Asset
Servicing, also points out: “There has definitely been a
slowdown in fund launches. The larger organisations
whether it be sovereign wealth funds, pension funds or
insurance companies are also increasing their focus on
performance and risk reporting as well as investment
guidelines reporting. In the past, fund managers would
have provided such services but now they are asking
independent providers to do it.”
Institutional investors are also seeking refuge in plain
vanilla, risk adverse assets. Pow notes:“Fund managers will
take a hard look at their
business models in light of
these market events and
will start assessing what
sort of product mix to focus
on in the future. We have
seen a flight to low fee fund
classes such as cash or
ETFs (exchange traded
funds) and an outflow of
what are regarded to be
riskier, higher fee fund
classes such as hedge
funds. This does not mean
an end to alternative
strategies. Far from it. For
example, I think old-school
private equity funds
managing distressed assets will do well in this type of
environment.”
Fund management groups are also looking at safe havens
in terms of where to outsource their custody, fund
accounting and back office functions. Marcel Weicker, head
of location, Singapore for BNP Paribas Securities, says:
“There is no doubt that everything seems to be on standby
and new business had dried up. Investors are staying away
from anything with the slightest hint of risk. They are also
looking to do business with highly rated companies. Our
double A rating is a major asset and goes a long way in
retaining and attracting business.”
Tony Lewis, head of global custody for HSBC Securities
Services in Hong Kong, adds: “We are seeing a move to
providers who can demonstrate strong risk management
and control environments as well as strong balance sheets.
Clients want to ensure that the providers they are doing
business with will continue to deliver and invest in these
products and services. They are also looking for a one-stopshop
where clients can get access to a range of securities
and capital markets products from a single provider. We
have this advantage as clients are able to leverage our
universal banking capabilities.”
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ASIAN INVESTOR SERVICES: CUSTODY SOLDIERS ON
58
Lawrence Au, Hong Kong based senior vice president and the North
Asia business executive and head of asset servicing for Northern Trust,
says: “Obviously everything changed since September after Lehman
went into bankruptcy. Prior to then, the Asia Pacific region was not
that much impacted and custodians and fund administrators were
adding new resources and people. However, when the problems began,
there was a realisation that markets were a lot more intertwined and
had not decoupled as people had thought.” Photograph kindly supplied
by Northern Trust, December 2008.
For now, all the major global custodians such as HSBC,
Standard Chartered, BNY Mellon, BNP Paribas, Société
Générale Securities Services and Northern Trust, are staying
the course. The short-term forecasts may be gloomy but
they are all banking on the bigger picture which places the
Asia Pacific region as one of the long-term drivers of
worldwide growth. One reason is that economists expect
that emerging markets in the Asian region will be more
resilient than their Western counterparts and will recover
much faster. This is because the de-leveraging purge will
not be as great in general in emerging markets.
This is particularly true in Asia, which had experienced its
own banking crisis in 1998. They had learnt the lessons of
the past and had adopted much more conservative and
rigorous policies towards lending. As a result, with the
exception of South Korea, eastern Asia’s central banks have
substantial foreign currency reserves, limited leverage and
low indebtedness.
The Asia Pacific region is also expected to register
economic growth. Gross domestic product growth will be
Chong Jin Leow, head of Asia, BNY Mellon Asset Servicing, also
points out: “There has definitely been a slowdown in fund launches.
The larger organisations whether it be sovereign wealth funds, pension
funds or insurance companies are also increasing their focus on
performance and risk reporting as well as investment guidelines
reporting. In the past, fund managers would have provided such
services but now they are asking independent providers to do it.”
Photograph kindly supplied by BNY Mellon Asset Servicing,
December 2008.
slower but still relatively robust compared to the recessionary
figures being churned out by the US, UK and Europe. For
example, according to the latest crop of regional figures from
the International Monetary Fund (IMF), China’s growth will
slip to 9.7% for 2008 and 8.5% in 2009 from 11.9% in 2007
while India will churn out 7.8% and 6.3% respectively, down
from 9.3%. Overall, the IMF forecasts 8.3% and 7.1%
respective growth rates for developing Asia as a whole.
As for the funds industry, assets under management
(AUM) will slip in 2008, but then should resume their
upward curve. Data from financial research firm Cerulli
reveals that mutual fund AUM in Asia excluding Japan
could drop by nearly a fifth this year, but reach 2007’s record
levels of $1.13trn by 2010 and $1.583trn by 2012. As for
institutional funds, industry reports that Asian sovereign
wealth funds manage around $1trn, or 29% of the assets
held by global funds.
Chong Jin Leow of BNY Mellon says: “We are hopeful
that things will start to pick up next year. I think we will see
the insurance sector continue to develop, pension funds in
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

general looking to invest overseas, and more interest in
offshore funds in the Caymans, Dublin and Luxembourg.
We have strengthened our infrastructure in custody and put
more people on the ground in Taipei, Shanghai and Seoul.
We will also be looking at putting more staff in Beijing once
we get our branch licence. While products and services are
important, relationships are key in Asia. Clients want people
who speak their local language and are available to deal
with their day to day issues.”
Weicker of BNP Paribas Securities agrees, adding: “It is
crucial to establish a presence in Asia and develop personal
relationships. It is not sufficient to meet someone once or
twice but you need to spend time building trust. It is more
about taking a medium to long term approach in order to
win a client.”The French based bank is on course to roll out
its global custody and clearing offering in the first quarter of
2009, targeting Singapore, Hong Kong, Taiwan and Japan.
“It is a question of following the sun in terms of
providing our global clients including sovereign wealth
funds, large corporations and financial institutions such as
insurance companies with global custody and local
clearing,”Weicker adds.
Its French rival Société Générale Securities Services is
also hoping to extend its footprint through its recently
approved joint venture with Mumbai-based State Bank of
India (SBI). SBI will have a 65% stake in the company while
SGSS will have 35%. The new custodial group, which is
expected to be up and running by the first quarter of 2009,
intends to offer a range of services, including safe-keeping
and settlement, reporting, corporate actions, dividends
collection and distribution, proxy voting, tax reclaim
services, fund administration and securities lending.
Ramy Bourgi, head of emerging markets development for
SGSS, notes, “The service will be geared towards
institutions who want to invest in India as well as local
institutions who are looking to invest locally and overseas.
The advantages of the joint venture are that it combines
SBI’s domestic expertise with our global capabilities which
together will enable us to provide a world class service.”
Northern Trust is also moving forward with its plans to
roll out its global fund service platform across the region in
2009, according to Au.“In the past 18 months we have been
actively building infrastructure and adding legal, audit,
compliance, risk management and client facing resources
across the Asia Pacific. Despite market conditions, we are
continuing with plans to build our back office processing
centre in Bangalore. This will help strengthen our global
business continuity capabilities and it allows us to offer our
clients in the Asia Pacific time zone a more timely service.”
In the meantime, Standard Chartered, which is one of the
region’s three dominant providers of sub-custody and
clearing, made a foray into the securities services arena
about three years ago.The bank recently broadened its fund
services coverage to 10 full-service centre locations
throughout the region including Hong Kong, Singapore,
Thailand, Indonesia, China, Philippines, India, Taiwan,
Malaysia and Korea and has now also introduced an
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
Tony Lewis, head of global custody for HSBC Securities Services in
Hong Kong: “We have been through an intense period where, for
example, trading volumes have increased or decreased dramatically on
a daily basis. This has reinforced the need to have real time, accurate
information and a scalable platform. It is also of huge importance both
for our business, and for our clients, to have information at our
fingertips to enable fast and appropriate decision making and
management of operational and credit risks, for instance.” Photograph
kindly supplied by HSBC Securities Services, December 2008.
enhanced alternative fund administration service.
Pow says:“Despite the market downturn and decline in
asset values, the long-term prognosis for the fund
management industry is good. At Standard Chartered, we
are expanding our fund administration services to meet
this expectation. Our focus continues to be to support and
service fund flows for asset managers, insurance
companies, sovereign wealth funds and pension funds
operating in our key markets, principally Asia.” Looking
ahead, not surprisingly, the biggest challenges are tied to
the unpredictability of the financial markets. Lewis of
HSBC, says: “We have been through an intense period
where, for example, trading volumes have increased or
decreased dramatically on a daily basis.This has reinforced
the need to have real time, accurate information and a
scalable platform. It is also of huge importance both for
our business, and for our clients, to have information at
our fingertips to enable fast and appropriate decision
making and management of operational and credit risks,
for instance.”
59

CORPORATE PROFILE: MANPOWER BUILDS ON WORK
60
Photograph © Alexei Kashin/Dreamstime.com,
supplied December 2008.
Solving Tomorrow’s
Problems Today
From its unlikely base in Milwaukee, Wisconsin,
Manpower Inc has become a worldwide
powerhouse in employment services, with offices
in 80 countries and territories and revenues
approaching $22bn. After years of strong and
profitable growth, the company is facing the
most threatening economic environment in its
history. However, by controlling costs and
focusing its resources on growth markets,
Manpower expects to emerge from this recession
stronger than ever. Art Detman, himself a
Milwaukee native, explains why.
CLOSING BELL CEREMONIES at the New York
Stock Exchange (NYSE) are often fraught with
symbolism, none more so than on 14th November,
when the 60th anniversary of the founding of Manpower
was celebrated. Participating in the bell-ringing were not
only Jeffrey A Joerres, the company’s current chief executive
officer (CEO), but also his only two predecessors: 96-yearold
Elmer Winter, who co-founded the company and
served as CEO from 1948 to 1976, and Mitchell Fromstein,
CEO from 1976 until 1999, when Joerres took over. During
the trio’s tenure, Manpower grew into one of America’s
most respected companies, a truly global enterprise that
derives 90% of its revenues from outside the United States,
operates 4,500 offices, and employs 33,000 people.
Although its core business remains providing clerical and
light industrial workers on a temporary basis, the company
is steadily diversifying into more profitable services.
For 2007, as the last economic up-cycle crested, Manpower
reported record sales and earnings. Revenues grew to
$20.5bn, an increase of 9% in constant currency (an oftenheard
term in a company with operations in more than 65
countries plus entities such as Hong Kong, Taiwan and the
Virgin Islands). Net earnings from continuing operations
surged 59% to $485m, and diluted earnings per share from
continuing operations jumped 65% to $5.73 ($4.68 before a
windfall caused by a retroactive change in French payroll tax
rules). In addition, three key metrics continued to improve.
The operating profit margin grew by 30 basis points to 3.3%;
Manpower’s return on invested capital was 14.9%, up for at
least the fourth year running; and free cash flow improved to
$341m, a 22% gain. The 3.3% and 14/9% are excluding the
windfall caused by a retroactive change in the French payroll
tax (however, the $341m excludes this impact).
Alas, when results for 2008 are tabulated the figures will
not look nearly as good, and it is almost certain that they will
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

worsen still further in 2009 as America’s recession, triggered
by the meltdown in sub prime mortgages, deepens and
spreads worldwide. “We are a cyclical company,” Joerres
readily admits. “We understand that. During any economic
downturn, we will see our revenues decrease.” Although
revenues for 2008 are expected to rise by 6.3% to $21.8bn,
earnings will be down sharply. For example, analyst Andrew
Steinerman of JPMorgan, who had once expected 2008
earnings per share (EPS) of $5.10, cut his estimate to $4.88,
down 14.8% from 2007’s results.
Even more pain will come in 2009. “We are seeing a global
weakening,”acknowledges analyst Kevin McVeigh of Credit
Suisse.“This has impacted our estimates, which we have cut
dramatically in both earnings and revenues for 2009 on a
magnitude that is even greater than what we saw in the last
economic cycle.” McVeigh looks for 2009 revenues of
$18.7bn, down 14%, and EPS of just $2.50, down 48% from
2008’s results and down 56% from 2007’s record.
This grim outlook comes as no surprise to Joerres and his
management team. Since 1962 the company has conducted
quarterly surveys among large companies regarding hiring
plans for the following three months. The survey for the
quarter ended 31st December found that the net
employment outlook (the difference between those
companies that expect to increase hiring and those that
expect to lay off employees) had fallen to just nine percentage
points, down sharply from the 20-point spread during most
of the 2004 to 2006 period. Similar downturns were found in
key foreign economies, including those of the United
Kingdom, Japan, Singapore, Hong Kong, Australia, New
Zealand, Ireland, Norway, Spain and Mexico. For all that,
many analysts who follow Manpower believe that the
company will emerge from the current recession in a stronger
relative position due to its geographical diversification, range
of services, solid balance sheet, and (perhaps most important)
strong management team. JPMorgan’s Steinerman sums it
up this way: “Manpower’s discipline now will provide for a
more profitable recovery later.”
Weathering recessions
Manpower has weathered ten recessions since its founding
in 1948 by Winter and Aaron Scheinfeld. The two attorneys
were facing a tight deadline to complete a legal brief and
discovered there were no companies that furnished
temporary clerical help. After they met their deadline, they
founded Manpower and promptly ran into America’s first
postwar recession, which lasted nearly a year. Their
business survived and soon had branch offices throughout
the Northeast. After successfully establishing offices in
Montreal and Toronto, Manpower moved overseas to open
offices in the UK and France. Today, the company’s foreign
operations are conducted through more than 330
subsidiaries, such as Intellectual Capital of Australia, Right
Grow Talent Services of India, Elderly House of Israel,
JobSearchpower of Japan, Girlpower of the UK, and
Manpower Business Services France. Virtually all foreign
offices are managed and staffed by locals.
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
The 1957 move into France has been especially
rewarding. In a country where preserving jobs is more
important than creating them, employers began to rely on
temporary staffing to fill positions at the margin.
Manpower’s French unit now serves not only France but
Guadeloupe, Luxembourg, Martinique, Monaco, Morocco,
New Caledonia, Reunion and Tunisia. Today it is
Manpower’s single largest national market, accounting for a
third of company revenues. The French connection also
illustrates Manpower’s willingness to take reasonable risks
for the sake of long-term growth. Fifty years ago few
companies of Manpower’s size were willing to go overseas.
However, Manpower’s progressive thinking built it into the
world’s third-largest temp firm, behind Swiss-based Adecco
and Randstad Holding, a Dutch company that leapfrogged
past Manpower when it acquired Vedior last year.
“Manpower from its earliest days was fairly agnostic in
regards to where it would invest in terms of new offices,”says
analyst Mark Marcon of Robert W Baird & Co.“The French
were one of the earlier adopters of temporary staffing, and
Manpower was early to the party and established a good
position there.”Marcon (who works from Baird’s Milwaukee
office, not far from Manpower’s headquarters) ticks off other
examples of the company’s well-timed moves. It opened
permanent placement offices in Italy years before temporary
staffing was made legal there, and when it was - in 1998 -
Manpower had a head start. Today, Italy accounts for 7% of
Manpower’s revenues but 13% of its operating earnings.
Marcon believes this will grow steadily as temps become
more accepted by Italian business.
Similarly, Manpower was among the first temp firms in
India and China, has just received a business licence to
operate in Vietnam, and expects to open offices in Egypt
soon. Recession or not, the company intends to continue
expanding abroad. “We work really hard,” says Joerres, “at
balancing between good expense management and
investing in the future so we can accelerate on the other
side of any downturn. When we see a sharp downturn, we
do all the things that you would expect a company to do,
but we will not starve high-growth markets.” Indeed,
despite the accelerating downturn in late 2008, Manpower’s
headcount remained virtually unchanged from a year
earlier.“They have been extremely progressive and flexible,”
Marcon says. “Manpower’s management team is almost
universally highly admired. They are extremely hardworking
and diligent and have been very progressive in
terms of making investments in growth markets.” As a
result, notes Marcon, Manpower has become a worldwide
company with the ability to shift its assets across the globe
much more easily than the vast majority of companies.
McVeigh of Credit Suisse is among those who agree:“We
hold CEO Jeff Joerres and CFO Mike Van Handel in very
high regard for their business acumen, integrity and
transparency. Under the leadership of Joerres, Manpower
has increased its margins, returns and growth rate by
pushing more aggressively into non-US markets, having
more price discipline, and adding more specialised staffing.”
61

CORPORATE PROFILE: MANPOWER BUILDS ON WORK
62
The company regularly shows
up on “best of” lists. In 2008,
Barbara Beck — president of
Manpower’s unit responsible for
much of Europe and all of the
Middle East and Africa — was
named in Pink Magazine’s list of
the Top 15 Women in Business.
Other awards have included from
Institutional Investor (Most
Shareholder-Friendly Company
in the Capital Goods Industry)
and Fortune (Most Admired
Company in the staffing
industry). Clearly, Steinerman,
Marcon and McVeigh are not the
only admirers of Manpower.
Even so, not everything has
worked to plan. For example,
Jefferson Wells was launched in
2001 but has yet to make a profit.
The concept seemed inspired:
Jefferson Wells is staffed by a
small cadre of full-time
professional accountants and
consultants who are augmented
as needed by similarly qualified
temps from Manpower
Professional. The resulting task
forces help client companies with
a range of complex issues, such as
taxes and finance, at less cost than
comparable services from the Big
Four accounting firms. Manpower
Professional is another laggard.
Although profitable, it still
accounts for perhaps no more
than 10% of Manpower’s entire
permanent and temporary
placement business (light
industrial is around 50% and
clerical around 40%). But Joerres
is optimistic and continues to
invest in the business.“There are long-term growth trends in
higher level skills, such as engineering and finance, that are
working to our advantage.”
Joerres’s desire to lessen Manpower’s dependence on the
low-margin business of placing light industrial and clerical
temps led the company to acquire Right Management, whose
outplacement services are counter cyclical to the staffing
business. The acquisition — a share deal valued at $630.6m
— was made in early 2004, when Right’s stock was riding
high. Other suitors also wanted the company, but Manpower
won the ensuing bidding war. Since then, the company’s
market value has declined and last year Manpower took a
non-cash charge of $163m, a 26% haircut on its investment.
Baird’s Marcon is undisturbed at the write-off. “Even
Jeffrey A Joerres, Manpower Inc’s chief executive officer
(CEO). We work really hard,” says Joerres,“at balancing
between good expense management and investing in the
future so we can accelerate on the other side of any
downturn. When we see a sharp downturn, we do all the
things that you would expect a company to do, but we will
not starve high-growth markets,” says Joerres. Photograph
kindly supplied by Manpower Inc, December 2008.
Many analysts who follow
Manpower believe that the
company will emerge from the
current recession in a stronger
relative position due to its
geographical diversification,
range of services, solid balance
sheet, and (perhaps most
important) strong management
team. JPMorgan’s Steinerman
sums it up this way:
“Manpower’s discipline now will
provide for a more profitable
recovery later.”
though Manpower management
knew that it was not the optimal
time to acquire a counter-cyclical
business, their hand was forced,”
he says.“If they did not act then,
they would have never gotten a
big platform in this business.
Manpower also had an HR
consulting practice and so it was
able to merge the two to create
an even bigger practice that
would have a greater impact on
their clients.” Although Joerres
believes that other prospective
takeover targets (companies that
operate at the high end of the
business and generate gross
profit margins of 40% or so
instead of the 18% that
companies like Manpower and
Kelly Services earn) are
undervalued right now, he
doesn’t seem eager to pursue
any. “It would have to be very
compelling and extremely
accretive to earnings for us to do
it,”he says.“Otherwise, we prefer
to wait and see what is
happening in the economy.”
Then, too, it is not likely that
Joerres or Van Handel would
want to soon use stock again to
buy another company. From a
high above $97 in 2007,
Manpower plunged to below
$28 in late 2008. Andrew Fones,
a UBS analyst, believes that if
the economic downturn
becomes severe, the stock could
go to $15. This is hardly a
cheerful prospect for
shareholders, but it would be
good for the company’s
ambitious share buyback programme. Long term,
Manpower’s fans are almost certainly right. Even with most
of its business still at the low-margin end of the spectrum,
Manpower has grown and prospered. Its reputation is
sterling, it is expanding in value-added services, and the
secular trends are favourable.“The goal of companies is to
get away from fixed costs, toward more flexible
employment, which suits the temp industry,”says Professor
Peter Cappelli, director of the Center for Human Resources
at the University of Pennsylvania’s Wharton School.
That is the future. In the here and now however, the
markets are unforgiving and without sentiment. On the
day that Jeff Joerres and his predecessors rang the Big
Board’s closing bell, Manpower was down 5%.
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

MANPOWER: A
WORLD OF SERVICES
From a company offering just one
service (office temps) and
operating in just two cities
(Milwaukee and Chicago),
Manpower has evolved into a
global leader in employment
services, including:
• Permanent, temporary and
contract employment, which
accounts for perhaps 95% of
revenues. The overwhelming
majority of these placements —
nearly 5m a year — are light
industrial and clerical workers, who
are placed through the Manpower
brand. A growing number are
professionals such as engineers,
accountants and sales executives,
who are placed through Manpower
Professional. Manpower does
almost no placement of part-time
workers, and long ago stopped
placing day labourers.
• Employee training, including
Manpower’s online Global
Learning Center, which offers
3,600 courses in several
languages. At any time, about
200,000 trainees are
participating.
• Outsourcing of the recruiting
function. Through its Manpower
Business Solutions operation,
Manpower acts as an
organisation’s recruiting office,
responsible for candidate
sourcing, screening, hiring and
orientation. Among its clients
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
are Visteon, a US tier-one auto
parts company, and the
Australian Defence Force.
• Human resource consulting,
which is conducted largely
through Right Management, a
2004 acquisition. In essence,
Right — as this operation is
known within Manpower —
trains HR executives to perform
their jobs more effectively.
• Outplacement services for laid
off employees. Right is the
world’s largest provider of these
services, and recently
restructured its offerings and
placed them under the new
Right Choice brand (a name
that, to those using its services,
might seem bittersweet).
• Professional services in areas
such as internal controls, tax
planning, technology risk
management, finance and
accounting. These are offered
through Jefferson Wells, which
has a core group of full-time
professionals who are
augmented on a project basis by
temps from Manpower
Professional. In Europe,
Manpower’s Elan operation
provides informational
technology professionals.
Right Management and Jefferson
Wells are operated on a global
basis. In contrast, permanent and
temporary placement is managed
on a geographic basis.
Operationally, the entire company
is divided into seven operating
units: France is by far Manpower’s
biggest national market, generating
$7bn in revenues (34% of the
total for 2007) and $390m in
operating earnings. Revenues are
likely to be boosted in the next
year or two now that the French
government is allowed to use
temporary workers. Gaining on
France is Other Europe, Middle
East and Africa (Other-EMEA). As
CEO Joerres notes, this is a
descriptive but inelegant name for
an operating unit, especially one
that is growing smartly. Revenues
were $6.75bn and operating
earnings were $257m. Other
Operations is a catchall category
for countries not under any other
umbrella, mainly those in Latin
America (notably Mexico and
Argentina) and Asia (including
Japan, Singapore, India and China).
Revenues amounted to $2.6bn but
operating earnings were only
$73.5m, reflecting the relative
newness of many of these markets.
The US, Manpower’s original
market, now generates less than
10% of corporate revenues and
operating earnings, just under
$2bn and $80m respectively. In
the meantime, Italy’s 2007
revenues were $1.4bn, 7% of the
total, but operating earnings were
$104m, a princely 13% of the
total and greater than US
earnings. Manpower’s Right
Management subsidiary is a human
resources consulting firm that also
is a leader in outplacement
counselling. Revenues were
$410m (2%) and operating
earnings were $34.6m (4%) in
2007, reflecting the higher valueadded
nature of the business.
Jefferson Wells is Manpower’s
consulting arm, formed in 2001 and
as yet unprofitable. On revenues of
$332m, Jefferson Wells incurred a
loss of $5m in 2007.
63

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AIG’S BLANK
CHEQUE
What price saving a company from collapse? Like
other insurers, insurance giant American
International Group (AIG) has been thumped by
the severe downturn in the credit markets as fears
that the gamut of complex, structured
investments it insures will default. A 24 month
$85bn line of credit proved insufficient, an
additional $40bn did not help much, either.
However, with its latest relief package—more
flexible terms, more payoff time, and, yes, even
more money—the government believes it has
finally found the formula that will allow AIG the
most realistic chance of recovering from its
ruinous credit-related investment activities. Third
time lucky? David Simons reports from Boston.
THEY KNEW THE risks, watched as losses piled up,
but told auditors almost nothing. In an era of
increasingly tough oversight standards, they
routinely avoided regulatory independence and put the
kibosh on finger-pointing insiders. When the house of
cards finally fell last September, AIG—at one time the
single largest insurance entity in the world with
facilities in more than 130 countries—found itself
at the doorstep of the federal government, hat in
hand. The powers that be sized up the
situation, pronounced AIG “too big to fail,”
and proffered a generous credit line of
$85bn, but it was not enough.
By November 2008 the largest bailout
of a non-banking firm in the history of
the United States had swelled to over
$150bn, and included more favourable
terms than the initial package offered.
Not even that chunk of change could
guarantee a surefire recovery as long as
the company continued to go into the
hole in order to cover its toxic portfolio
of complex credit investments. These
included the super-senior tranches of
collateralised debt obligations (CDOs)
accumulated by AIG’s Financial
Products Corp subsidiary.
Photograph © Robert Mizerek/Dreamstime.com, supplied December 2008.
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
By the end of November the company finally issued some
good news: some $53.5bn in mortgage debt obligations
would be cleared from AIG’s books, part of an agreement
with the federal government to purchase upwards $70bn
worth of toxic credit-based assets. AIG would continue to
be liable for assets not yet obtained, however.
The government contends that its course of action has
more to do with preventing the carnage from spreading
throughout the entire global financial community, rather
than sparing AIG itself. Even so, it is a tremendous gamble,
one with potentially enormous consequences. Should AIG
recover and its stock price rally, the government would turn
CORPORATE PROFILE: AIG
65

CORPORATE PROFILE: AIG
66
a handsome profit from its now 80% equity stake in the
company. If the insurer collapses, however, taxpayers
would be left holding the bag, and, even worse, the
systemic aftershocks affecting innumerable companies
with business links to AIG would be dire, to say the least.
Funding or floundering
Until recently, government efforts to address the
haemorrhaging at financially beleaguered firms such as
AIG have proven largely ineffective; at least measured by
the recent numbers posted by AIG, Fannie Mae and
Freddie Mac and, most recently, banking giant Citigroup. In
November, Fannie Mae reported a third quarter 2008 net
loss of $29bn, two months after the Federal Housing
Finance Agency (FHFA) placed Fannie and Freddie under
its control. In a thinly veiled critique of the Federal
Reserve’s intervention tactics, Fannie noted that efforts to
help stabilise the ailing mortgage market were being
hindered by its“limited ability to issue debt securities with
maturities greater than one year”and has requested that its
original agreement with the Federal government be revised
to include more favourable terms. Under the current
arrangement, the agency said it might not be able to
“continue to fulfill our mission of providing liquidity to the
mortgage market at appropriate levels.”
Speaking on behalf of AIG, current chief executive
officer (CEO) Edward Liddy offered a similar
assessment.“It was obvious to me from the start that the
terms of that arrangement were really quite punitive in
terms of the interest rate and the commitment fee and
the shortness of it,’’ said Liddy, the former head of
Allstate Corp. who succeeded outgoing AIG CEO Robert
Willumstad last September.
The government’s realisation that its initial action had had
little impact on AIG’s financial standing became obvious
during the third quarter, when AIG lost $9.24bn, or $3.42 per
share, more than four times the consensus estimate loss of
80 cents (US insurers as a whole posted a total of $100bn in
write downs and losses through the period). The damage
was due in large part to a pre-tax charge of more than $7bn
for a net unrealised market valuation loss related to the
super senior CDS portfolio held by AIG’s Financial Products
Corporation. Earlier hopes that AIG could raise enough cash
to begin to sustain itself through the sale of once valuable
subsidiaries were dashed once the markets began to tumble
(by late October shares of AIG had fallen from a post-bailout
high of $5 to an all-time low of $1.35). As the credit markets
continued to deteriorate, AIG found itself struggling to
maintain payments on its structured-credit obligations,
tightening the noose even further.“Confidence in the sector
has come under considerable pressure,’’ affirmed Nigel
Dally, a Morgan Stanley analyst.
In reality, the government lacked the weaponry needed
to properly contain the damage prior to the passage of
Congress’ bailout package in early October. However, the
enactment of more sweeping measures such as the
Troubled Asset Relief Program (TARP) has allowed
regulators to approach the problems at AIG and elsewhere
with greater clarity. The latest version of the AIG bailout
offers the NewYork-based insurer the most realistic chance
of wriggling out of the hole it dug for itself as a result of its
credit-related investment activities, say observers.
Key to the new deal is a lower lending rate as well as
three additional years for AIG to pay off its debts, with the
goal of buying the company enough time to unload its
marketable assets to willing buyers. For AIG’s CDO
holders—which include global banks like Merrill Lynch,
Goldman Sachs and Deutsche Bank—the arrangement
provides for a generous settlement at or near par, notes
Thomas Walsh, a Barclays Capital Research analyst, who
called the deal“a significant positive for CDO holders that
were previously facing an impaired counterparty.”
Bankruptcy instead of bailout?
Reports of lavish junkets and posh severance packages
have done little to further AIG’s cause in the months since
the handouts began, nor have comments made by
company executives openly critical of government policy.
Though he apparently ignored the warnings of an internal
auditor who had questioned the accuracy of the company’s
credit default swap (CDS) valuation, deposed CEO Martin
Sullivan, who resigned last June, nevertheless assumed a
defensive posture during a recent Congressional hearing.
“When the credit markets seized up, like many other
financial institutions, we were forced to mark our swap
positions at fire-sale prices as if we owned the underlying
bonds, even though we believed that our swap positions
had value if held to maturity,”said Sullivan.
At the same time, Maurice Greenberg, former company
chairman and CEO and a major AIG shareholder, complained
in a Wall Street Journal opinion piece that high interest
payments to the government could force the company“into
effective liquidation” which, in turn, would ultimately “wipe
out the savings of retirees and millions of other ordinary
Americans.” However, Felix Salmon, commentator for the
Market Movers blog, bristled at the suggestion that AIG’s
federal benefactors were not doing enough. Greenberg was
instrumental in setting up the renegade AIG Financial
Products division, said Salmon, therefore, “he, as much as
anybody, is to blame for AIG’s enormous losses. And he
certainly does not deserve a personal bailout, which seems to
be what he is asking for here.”
For that matter, many believe the financial world
probably would not have crumbled had the insurer been
left for dead. “‘Remember Lehman’ now seems to be the
rallying cry to justify any and all financial bailouts,” says
Peter Schiff, president & chief global strategist for Darien,
Conn.-based Euro Pacific Capital.“But Lehman’s demise is
in no way responsible for our current problems, and the
decision to let them fail is the only bright spot in otherwise
consistent record of policy mistakes. We bailed out Bear
Stearns and AIG, and what did that get us?”
However, Robert Bruner, dean of the Darden Graduate
School of Business Administration at the University of
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

Edward Liddy, chairman and chief executive officer of American International Group Inc., (AIG), speaks after a luncheon speech in Hong
Kong Thursday, December 11th 2008. AIG noted a day earlier that it is working on resolving nearly $10bn in soured investments, without
asking taxpayers for more money. Photograph by Kin Cheung, supplied by AP Photo/PA Photos, supplied December 2008.
Virginia and author of The Panic of 1907: Lessons Learned
from the Market’s Perfect Storm, suggests that the chaos
erupting from an AIG failure would have been inestimable,
therefore making government intervention mandatory.
“There is no doubt that AIG met the‘too big to fail’criteria,
being the dominant counter-party in the credit default swap
market,” says Bruner. The step-wise progression has the
appearance of an ad-hoc treatment of the crisis, and yet it is
in no small part a reflection of the steady revelation of the
deepening exposure of the financial system to the
destructive quality of the sub-prime loans. I doubt that it
would have been possible for the government to have
jumped in with a massive, one-shot, solves-everything type
of solution last September, at the time of the initial action.
That said, this intervention on behalf of one company, both
in size and intrusiveness, is unprecedented; but then again,
so is the grave exposure of the financial system to the
potential failure of this one firm.”
While the bailout of a non-banking entity may be
precedent setting—one that has certainly helped frame the
debate over the current auto-industry rescue proposal—as
Bruner notes, the financial markets are largely agnostic
about the classification of the institution. “Whether it’s a
bank or non-bank, in the illuminated part of the financial
system or operating in the shadows, counter-parties
recognise that all money is green, and that what truly
matters is the credit-worthiness of the counterparty, its
transparency and the capital standing behind the trades.”
CDOs have got to go
At a recent presentation to the New York Chapter of the
Risk Management Association, Chris Whalen, senior vice
president and managing director of Torrance, Californiabased
Institutional Risk Analytics, a provider of risk
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
management solutions, stated that the only clear way
around the AIG problem(and others like it) is to cleanse the
system of all CDS products once and for all. Referring to
AIG’s “CDS sinkhole,”Whalen argued that even the most
concentrated efforts to boost liquidity have been
marginalised by the $50trn in outstanding CDS contracts.
“The threat from CDS is not from a default-type event as
many fear…but rather in the normal operation of this
market”as with AIG, says Whalen.
Whalen goes so far as to propose putting AIG into
bankruptcy while requiring CDS holders “to accept a
negotiated ‘tear up’ of extant contracts under authority of
the bankruptcy court,” as opposed to “muddling along”
buying back CDOs using borrowed taxpayer money which,
he argues, would lead to“a death by a thousand cuts.”The
situation is so dire, says Whalen, that Congress should be
called upon to enact legislation that makes mandatory by
exchange the removal of all outstanding CDS and other
complex products from the entire global marketplace.“So
serious and enduring are the negative effects of OTC
financial instruments such as CDS, CDOs and other
complex structured assets, that the only way to save the
patient and restore function to global economy and
financial system is mandatory surgery: cut the cancer out.”
Though the government appears to have finally found its
theme—corralling those toxic credit instruments that are
sucking the life out of companies like AIG—the ongoing
crisis has taught us that we still don’t know the full extent of
the exposure, or, ultimately, the silver-bullet remedy. Says
Bruner hopefully,“It does seem likely that the combination
of capital infusions to relevant institutions, plus the
sequestration of toxic assets, will restore confidence in the
credit-worthiness of those key institutions.”Only time will
tell if that assessment is correct.
67

GOLD: SET FOR A REBOUND?
68
GOLD GETS
ANOTHER CHANCE
Some analysts were surprised that the gold price
failed to benefit at the height of the credit crisis.
That may have been because gold holders short
of other ways of raising cash quickly sold out.
Now the industry is pinning its hopes for a
rebound on supply constraints and a flow of
money looking for a home. Vanya
Dragomanovich reports.
IT DOES NOT compute. The price of gold fell in the
autumn even while the US federal government had the
printing presses churning out greenbacks and the
country’s financial system teetered on the brink. Moreover,
counter-intuitively, the dollar rose. The world is already
thoroughly hung-over from a strongly held economic
theology, so any calls for a return to the gold standard are
unlikely to be well received. However, most observers
expected the precious metal to have more allure as the safe
haven of first resort, as indeed it did when Bear Sterns
failed and it shot up to $1,032 an ounce.
Gold’s very success as a store of value may be responsible
for its blip. Elaine Ellingham, until recently mining principal
for the Toronto Stock Exchange, admits that the “gold
community”was equally puzzled at first, until they realised.
“People always say gold is something you buy for a rainy
day; and this it, the rainy day,” she said. Many funds had
‘investment gold’ in their fund portfolios, and faced with
redemptions and margin calls they have been selling off
their gold holdings, in part because it was a chunk of their
portfolios that had kept more of its value than bonds and
stocks and in part because it was liquid. Indeed, as auction
rate securities and other previously liquid assets froze, some
gold holders had no option but to cash out.
Ellingham notes however that, “People who have held
gold through [this period] have certainly done a lot better
than people who bought indices. It has proven to be a better
store of value than the equity markets in general.” Even
allowing for the recent fall off in price, the value of gold has
risen over 200% since 2001. Now senior vice president for
Iamgold Corporation, a major producer, Ellingham says
right now gold is“the logical place for people to go.”
While people anxiously wonder when peak oil will
arrive, peak gold arrived long ago, back in 2001 to
be exact, and production has flattened out since
then even as gold prices continued to rise, making
new mines increasingly viable. However, gold in all
its forms is an unusual commodity. The World Gold
Council estimates that 158,000 tonnes of it have
been refined since records began. Of this amount,
65% has been mined since 1950, and all but 10,000
tonnes has been mined since the California gold
rush of 1848. Unlike oil though, no one burns gold.
It sits in gold ingots, or is stored as jewellery and
coins, and whenever possible, it is recycled.
Photograph © Dmitry Sunagatov/Dreamstime.com,
supplied December 2008.
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

Colin Sutherland, a self-confessed“gold bug”and chief
executive officer (CEO) of Nayarit Gold, a Canadian
junior gold miner with a prospective mine in the Sierra
Madre in Mexico, notes that while investment gold has
dropped as funds take their profits, physical gold is at a
premium. “Demand for physical gold is still high. If you
were to try to buy a gold coin you would have to pay a
higher price, since on the physical side of things, a lot of
the mints just do not have the supply,” he says. Many
small investors buy gold coins such as the South African
Rand, the American Eagle or the Canadian Maple Leaf as
the equivalent of managed fund gold holdings, and jitters
about the dollar and indeed the whole financial system,
have whetted their appetite, hence the shortage.
Moreover, gold for jewellery is overwhelmingly sold to the
Middle East and South Asia.“The Indian buying season,
for example, starts in October ready for the wedding
season, and the word is that fearful about where the
commodity price is going, they have been a little reluctant
to engage in buying [sic]. If there is a weakness in the
price I expect them to come in buying aggressively.”
If you think these issues are tangential, consider that in
South Asia male chauvinism traditionally has a lock on
land inheritance, therefore gold jewellery is regarded as a
form of advance alimony and a widow’s pension for Indian
brides. These days, of course, its socio-economic rationale
is also subsumed in ostentatious consumption fuelled by
rising living standards. So while the central banks around
the world sit on 30,000 tonnes of gold, wedding buying and
Diwali in India, the Lunar New Year in China and similar
festivities are enough to cause an annual surge in price
each winter and to consume up to 60% of the new gold
that is mined and refined each year.
While people anxiously wonder when peak oil will
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
The financial climate has led to credit
constraints for the junior companies
that have traditionally undertaken
prospecting and resource
identification. Colin Sutherland
notes: “In the last few years the
number of one million ounce deposits
that has been found has declined
considerably. If you cannot raise
money then you cannot advance your
project. The supply side is going to be
impaired if the credit markets do not
open up enough. The result is a
supply constraint [and] increasing
difficulty in finding major deposits. If
the money does not start flowing for
new projects senior producers are
going to be out there with no pipeline
of projects and with reserves starting
to drop.” Photograph © Mirek
Hejnicki/Dreamstime.com, supplied
December 2008.
arrive, peak gold arrived long ago, back in 2001 to be exact,
and production has flattened out since then even as gold
prices continued to rise, making new mines increasingly
viable. However, gold in all its forms is an unusual
commodity.The World Gold Council estimates that 158,000
tonnes of it have been refined since records began. Of this
amount, 65% has been mined since 1950, and all but
10,000 tonnes has been mined since the California gold
rush of 1848. Unlike oil though, no one burns gold. It sits
in gold ingots, or is stored as jewellery and coins, and
whenever possible, it is recycled. The World Gold Council
estimates that 95% of all gold ever mined is still in use in
one form or another. However, with an expanding world
population and economy, and the esoteric demands on it
as a store of value, its future value seems assured by a
growing shortage.
In addition, the financial climate has led to credit
constraints for the junior companies that have traditionally
undertaken prospecting and resource identification. As
Sutherland notes:“In the last few years the number of one
million ounce deposits that has been found has declined
considerably. If you cannot raise money then you cannot
advance your project.The supply side is going to be impaired
if the credit markets do not open up enough. The result is a
supply constraint [and] increasing difficulty in finding major
deposits. If the money does not start flowing for new
projects, senior producers are going to be out there with no
pipeline of projects and with reserves starting to drop.”With
his own project’s funding secured, he sees opportunity in
others’ distress.“I’m a true fundamentalist. If you have gold
increasing on the demand side and the supply side going
down, it will play to our advantage,” says Sutherland,
estimating the bottleneck to begin showing possibly in as
little as two years.
69

GOLD: SET FOR A REBOUND?
70
One possible brake on such optimism is that the world’s
central banks could dump their reserves on the markets.
However, any concerted action in this direction would
actually start to devalue central bank reserves. Currently
central banks sell less than 400 tonnes a year, although their
five-year agreement allows them to sell up to 500 tonnes.
Indeed, if ever the Asian central banks decided to put even
just one or two per cent of the reserves they currently hold
in rapidly inflating dollars, and turn those into gold, Natalie
Dempster of the World Gold Council points out“it would
have a huge impact”. China for example, with its huge
currency reserves, has only 600 tonnes of gold in its
vaults, compared with the
over 8,000 tonnes the US
keeps. China has hinted at
diversifying away from its
US dollar reserves,
leading to great
expectations from the
world’s gold community.
Dempster says gold is a
significant export for many
emerging countries with
important revenues for
South Africa, China, Russia,
Peru, Mexico and others.
However, their physical
reserves are already being
mined, and newer reserves
tend to be smaller, more
expensive to work and thus
more vulnerable to price
volatility. They are also in
remote areas where miners
have to build infrastructure
to get the ore out, and
spend on infrastructure to
buy acceptance from local,
often poor, communities.
Nayarit Gold’s experience in Mexico is typical. The company
invests not only in physical infrastructure but also in social
infrastructure, schools, churches and other facilities as a cost
of doing business. Such cost margins make new mining
investment heavily reactive to the vagaries of the market
price.“Globally, any project that has costs in excess of $500
to $600 an ounce is likely to have some challenges over the
short term. Worldwide, the average production cost is
somewhere between $420 and $450 per ounce. With gold
approaching $800 there is still some margin but fluctuations,
with a $50/60 swing in any given week, pose an additional
challenge for expenditure planning,”notes Sutherland.“If it
were to swing back to $600/$650 you would see a massive
correction with gold producers trying to reduce costs and
move out some of the inflation in the system,”he adds.
While gold bullion reserves are concentrated in the
industrialised world, and many of the physical reserves are
in the developing world, the lodestone for gold mining
“Globally, any project that has costs
in excess of $500 to $600 an ounce is
likely to have some challenges over the
short term. Worldwide, the average
production cost is somewhere between
$420 and $450 per ounce. With gold
approaching $800 there is still some
margin but fluctuations, with a $50/60
swing in any given week, pose an
additional challenge for expenditure
planning,” notes Sutherland. “If it were
to swing back to $600/$650 you would
see a massive correction with gold
producers trying to reduce costs and
move out some of the inflation in the
system,” he adds.
finance and the listing of gold mining companies is
Toronto. Canada itself is a major gold producer, but Toronto
is the home of major international gold miners such as
Goldcorp, Barrick, Newmont and Iamgold. The Toronto
Stock Exchange (TSX) claims 57% of the world’s mining
listings, involving 1,200 companies, spread between the
main board and its new venture arm, the TSXV. Junior
miners are the explorers and developers, and if they hit a
motherlode, they grow up to be seniors and graduate from
the TSXV to TSX.
“In Canada there is a commodity driven community in
the local banks that knows what you are talking about, and
on the exchanges, the
regulators understand the
industry,”says Sutherland.
The country also has a
high proportion of active
individual investors who
are attuned to gold and
mining, while its
proximity to the US also
means that it attracts
many investors from the
US. Surprisingly though,
there are few investors
from the Middle East and
Asia where most of the
miners’ product is
consumed. One would
have thought that both
institutions and sovereign
wealth funds would be
interested in investing
back up the value chain,
but Ellingham has seen
no sign of it so far.
Gold has often been
lumped in with other
mineral commodities for
investment purposes, but the rueful expressions of those who
went long on iron, oil and the like show that it is a separate
case. Overall, the yellow metal becomes brighter when the
economic skies are dark, and they have rarely been as dark as
now. Like many other prospectors, Sutherland is betting his
future Mexican mine on anticipated demand by China’s
central bank and a slew of Indian weddings. He also looks to
the US government as a driver for pushing up gold prices.“In
this environment, the strengthening of the dollar is
temporary, and as the Federal Reserve continues to finance
bailouts, the excess of dollars will lead to inflation, which is a
prime indicator for gold to take off. In addition, there is a lot
of money being redeemed and there are people sitting on
cash which they want to keep safe. With that economic
environment, I’ve not heard anyone in the industry say that
gold isn’t going back up to $1,000.”
Of course they would say that, but the flood of dollars
from the Fed is indeed highly convincing.
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

OLD WINE IN NEW
WORLD GLASSES
In the United States, covered bonds were a long
time coming. The crème de la crème of private
sector bank credit in Old Europe since the days
of Frederick the Great did not reach the New
World until September 2006, when Washington
Mutual (WaMu) launched the first covered
bond programme for a US issuer. In the wake of
the credit crisis, however, American regulators
are pushing hard to develop a domestic market
for an instrument that has long provided an
inexpensive funding source for large banks in
Europe. Neil O’Hara reports on the outlook for
an old asset class in the New World.
INVESTORS ACCEPT A yield lower than for
conventional unsecured bonds because covered bonds
represent both a senior obligation of a major financial
institution and a priority claim against a segregated pool of
high quality assets if the issuer fails. Nevertheless, issuers
and underwriters face a challenge in educating US
investors who, although familiar with traditional bonds
and securitised debt, have no experience of a hybrid that
combines features of both.
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
Although US regulators began to press for a local market
in covered bonds only after the credit crisis took hold, they
have made rapid progress, according to Florian Hillenbrand,
a vice president and senior analyst at Unicredito in Munich.
“The first time I heard US guys speak about covered bonds
as something that might be of interest for domestic banks
was in January,”he says,“Six months later they were saying
on balance sheet funding is good for asset quality and you
had co-ordinated statements from supervisory bodies. That
is impressive.” In July, the Federal Deposit Insurance
Corporation (FDIC) put out a Final Covered Bond Policy
Statement and two weeks later the Treasury followed up
with its Best Practices for Residential Covered Bonds.
Even so, it will take more than regulatory support to develop
a covered bond market in the US. Although Bank of America,
Citi, JPMorgan Chase and Wells Fargo have all expressed
interest in issuing covered bonds, investors are unlikely to
want to jump on the bandwagon until they see good two-way
flow. Dan Markaity, head of global public credit at Merrill
Lynch in New York outlines some of the requirements. He
thinks that covered bond issues need to be large—preferably
$2bn or more, so that dealers will not be afraid to sell them
short; a prerequisite for liquid secondary markets. Moreover,
Markaity believes covered bonds should be available to small
Photograph © Lazarx/Dreamstime.com,
supplied
November 2008.
COVERED BONDS: THE US OUTLOOK
71

COVERED BONDS: THE US OUTLOOK
72
Ben Colice, head of covered bond origination in the Americas asset
securitisation group at Barclays Capital in New York. Photograph
kindly supplied by Barclays Capital, December 2008
investors as well as institutions, given a 20% risk weighting for
regulatory capital purposes and accepted at the Federal
Reserve discount window.
The goal is to have investors treat covered bonds pari passu
in credit quality and liquidity with US government agency
bonds. An orderly market will require cooperation among
issuers to regulate supply, too.“If five issuers each float $2bn
bonds in a single week, secondary market prices will tank and
buyers will go on strike,” Markaity says, “We need a traffic
cop.”Merrill Lynch has urged the Treasury to set up a covered
bond council in the US made up of issuers, investors and
dealers to fulfill that role and resolve competing interests that
might otherwise undermine the fledgling market.
At first blush, covered bonds backed by residential mortgage
loans—the most common form of collateral—look a bit like
mortgage backed securities (MBS). However, the resemblance
is superficial. Covered bond investors rely primarily on the
issuer’s cash flow for interest and principal payments and only
turn to the collateral pool in the event of issuer default.The pool
is over-collateralised and dynamic, too. Issuers have to ensure
pool assets meet rigorous credit quality standards. Any loans
that fall below the threshold must be replaced with others that
do qualify. This mechanism, policed by an independent cover
pool monitor, ensures that the assets upon which investors
depend for future payments if the issuer goes bust will be top
quality performing loans right up to the date of failure.
“Covered bonds have nothing in common with a pool of
static assets that have been hived off and from whose cash
flows investors are expected to live or die,” explains
Timothy Skeet, head of covered bonds at Merrill Lunch in
London,“They have prime underlying assets and are issued
by prime financial institutions that have regulatory and
government support.”
From the issuer’s perspective, MBS represent the outright
sale of assets for cash. Securitisation facilitates the“originate
and distribute”model that allows banks to make or buy more
loans without tying up regulatory capital. The bank has only
a short term funding requirement, too; mortgage loans pile
up on the balance sheet only until they can be repackaged
Heiko Langer, senior covered bond analyst at BNP Paribas in London.
Photograph kindly supplied by BNP Paribas, December 2008
into MBS and sold. In a covered bond program, however, the
mortgages stay on the bank’s books, as does the debt; it is a
long term funding tool rather than a way to shed assets.
US covered bonds endured a baptism of fire when
Washington Mutual hit the skids last summer. Spreads over
benchmark 6-month Euribor interest rates blew out to more
than 600 basis points (bps) as the rating agencies issued a
series of downgrades. However, both ratings and spreads
snapped back after JPMorgan Chase agreed to assume the
liability—and the cover pool assets—in its FDIC orchestrated
acquisition of WaMu.“The senior unsecured debt was left out
in the cold,”says Skeet,“That is a key signal that the FDIC and
Treasury want to ensure that covered bonds are treated
differently and seen as robust credits.”
In contrast, MBS investors receive interest and principal
payments from a static pool of mortgages sold to a special
purpose vehicle (SPV) that has no recourse to cash flow from
either the loan originator or the entity that sponsored the
SPV. The structure may incorporate over-collateralisation,
but once any credit support is exhausted, investors have no
further protection against deteriorating credit quality,
delinquency or default. Investors assume prepayment risk,
too; if a borrower chooses to repay a mortgage early (either
through refinancing, sale of the house or otherwise)
investors receive their share of the principal at that time and
must reinvest at whatever interest rates then prevail.
“A mortgage backed securities investor is looking to the
performance of specific assets for cash flows and therefore
has to worry about duration uncertainty,”notes Ben Colice,
who heads covered bond origination in the Americas asset
securitisation group at Barclays Capital in NewYork,“That is
not the case for covered bonds.” Covered bondholders do
not receive accelerated repayment if the issuer defaults; in
most jurisdictions, the covered pool monitor uses cash flow
from the dedicated assets to make interest and principal
payments as they fall due.
In a twist that distinguishes the two US covered bond
programs launched so far—for WaMu and Bank of
America—the cover pool monitor does not retain the pool
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

assets upon default. Instead, it sells the assets and reinvests
the cash proceeds in guaranteed income contracts to fund
future interest payments and the repayment of principal. To
Heiko Langer, senior covered bond analyst at BNP Paribas
in London, the liquidation procedure poses an additional
risk for U.S. covered bondholders. “It is always easier to
liquidate part of the portfolio whenever a payment becomes
due,” he says, “It is more difficult to find a buyer for the
whole portfolio and will probably result in lower prices.”
In practice, the risk is low, however. Regulators in
Europe who want to preserve the brand image of
covered bonds prefer to arrange rescue bids for failed
banks rather than risk higher funding
costs for healthy institutions that might
result if the bonds went into default.
US regulators demonstrated the same
concern when WaMu failed. JPMorgan’s
assumption of the covered bond liability
underscored the superior credit quality of
covered bonds over senior unsecured
debt. The precedent should encourage
US investors to bestow upon covered
bonds the same pristine reputation they
have long enjoyed in Europe. Although
issuing banks have failed in Europe from
time to time—including German banks,
whose Pfandbriefe, the local version of
covered bonds, are considered the gold
standard—Merrill Lynch’s Skeet says
nobody has ever lost money on covered
bonds through default.
Most European countries have enacted
covered bond laws that prescribe
minimum credit quality standards and
establish government-approved
oversight to ensure that issuers adhere to
local requirements, which differ from one
jurisdiction to the next. While countries
in which common law prevails (such as
the United Kingdom and US) can
achieve the same result by contract,
many investors value the additional
reassurance a statutory regime provides.
The UK, another recent convert to the
merits of covered bonds, passed a law in
2008 to fall in line with European
practice, but in the US neither federal nor
state governments have yet followed suit.
The government sponsored housing
finance entities (GSEs) will play a
critical role in how the US covered bond
market develops. The Treasury
guidelines for covered bond collateral
overlap in many respects with what
Fannie Mae and Freddie Mac require for
conforming mortgages. As long as the
GSEs are free to expand their balance
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
sheets, the existing highly liquid agency MBS market will
compete for available collateral. Issuers could still use
covered bonds to refinance jumbo loans and other high
quality non-conforming mortgages, of course, but the
larger opportunity will arise if Congress curbs the GSEs’
future growth. Says Barclays Capital’s Colice, “If the
agencies go away or their role is less significant in
mortgage finance, the US Treasury is likely to promote the
covered bond market to provide banks a viable way to
finance mortgages.” An innovation from Europe may
finally take root in the New World—almost two hundred
and forty years after covered bonds were first issued.
For more information on our services please
contact: Fearghal Woods (Dublin) at
+353 1 670 0300 or visit www.boiss.ie
Bank of Ireland Securities Services Limited is
authorised by the Financial Regulator under
the Investment Intermediaries Act 1995
Guess who’s the largest
3rd party administrator
of Exchange Traded
Funds in Europe?
73

74
Talking Point
THE OUTLOOK
FOR EUROPEAN
COVERED BONDS:
MARKET COMMENTATORS:
Dr. Louis Hagen, executive director, Association of German Pfandbrief Banks
Nicholas Lindstrom, financial institutions group, Moody’s Investor Services
Ted Lord, managing director and head of covered bonds, Barclays Capital
Carlos Stilianopoulos, executive managing director and head of capital markets, Caja Madrid
Tim Skeet, managing director, head of covered bonds, Merrill Lynch
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

Covered bonds have underlined their importance and stabilising role in mortgage financing in
Europe to such an extent that the authorities in the United States are seeking to introduce a set of
guidelines designed to replicate the high quality of this quintessentially European instrument. In
part because of the safe-haven reputation of covered bonds it appeared for most of 2007 and early
2008 to have successfully withstood the credit crisis. However, partly because the availability of
executable prices for bonds on screens highlighted their vulnerability, and partly because the fixed
bid/ask spreads in covered bonds started to become far smaller than the bid/ask spreads in any
comparable markets (most significantly perhaps in the swaps and agency markets) the contagion
that affected other credit markets began to impinge on Europe’s covered bonds. Questions are still
extant as to the true nature of covered bonds: either as a ratings or a credit product. Whatever the
ultimate outcome of that debate, we asked some of the leading market makers in the covered
bond market to give us their views on the sustainability and future of this deep and diversified
market through 2009 and beyond.
After what looked to be a protracted period of
stability, the European covered bond market hit a high
wall in the late summer/early autumn, as it began to
feel the impact of the contagion that has created
extreme volatility in the global capital markets. What
do you think were the main reasons for the relative
lateness of this dip and the intensity of the dip when
it did arrive?
DR. LOUIS HAGEN, ASSOCIATION OF GERMAN
PFANDBRIEF BANKS: Until mid-September at least the
Pfandbrief market proved exceptionally resilient to
dislocations in the capital markets in general and their
impact on the covered bond market in particular. This is
due to the solid legal foundations provided by the
Pfandbrief Act and the flawless track record of the
Pfandbrief market and its committed domestic investor
base. The different formats of Pfandbrief, i.e. bearer
instruments in traditional or Jumbo size and registered
Pfandbrief offer a wide spectrum to investors. Especially
tailor made issues and private placements were sought for
and the German investor community proved to be solid as
a rock. The suddenness of the disruption in demand clearly
had some irrational motives when Pfandbrief was taken
hostage by negative headlines that originated in the US
and in Ireland. Pfandbrief markets were shocked by two
events. First the Lehman insolvency and subsequently the
Hypo Real Estate rescue action. The bail-out of
HypoRealEstate closed the market where you may have
expected it to underpin the commitment of the entire
German financial community to protect the Pfandbrief
from harm. In the aftermath of the European rescue
packages and the creation of a new asset class – state
guaranteed senior unsecured bank bonds – the market
now is going through a period of re-pricing in order to find
levels commensurate with the new credit environment and
new competitors. But I would like to make clear that
Pfandbrief issuance is still working. Issuance levels,
however, have halved during the last two months.
TED LORD, BARCLAYS CAPITAL: Throughout the credit
crisis and liquidity problems facing many sectors of the
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
capital markets, investors have maintained their faith in the
covered bond asset class. Investors still purchase covered
bonds in private placement format and in the secondary
market. Due to the liquidity problems in the secondary
market, however, some investors are seeing covered bonds
more as a credit product and not as much as a
rates/government bond surrogate product.”
CARLOS STILIANOPOULOS, CAJA MADRID: Since the
beginning of the crisis back in August 2007 investors´
appetite has been draining away gradually from the
different products in accordance with their risk perception
on the products. This is probably why investors have been
buying Covered Bonds all the way up to summer 2008,
whilst at the same time they had stopped buying other
products which they considered riskier, starting on
securitized transactions, tier II and tier I deals, and finally
senior unsecured. However, further turmoil in the markets
during the months of September and October has even
affected safer products such as Covered Bonds.
Do you think there were infrastructural weaknesses
or vulnerabilities in the make up of the trading
market, which were exacerbated by the global crisis,
such as: the availability of continuous executable
prices on bond screens?/ or the extreme narrowing of
bid/ask covered bond spreads?
TIM SKEET, MERRILL LYNCH: The recent re-pricing of the
SSA curve, though itself not helpful in the overall picture of
the capital markets evolution has at least served to bring a
measure of consistency to the performance of all the asset
classes. Covered bonds have suffered but without
exception so has every part of the market
Despite the current turmoil, there is a belief that
the European covered bond model is far superior to
that in the United States. Is this wishful thinking,
or is there real substance behind the claim.
Moreover, if it is true, in a post crisis market is it
feasible for Europeans to export their expertise to
the US and Asia?
75

COVERED BONDS – VIRTUAL ROUNDTABLE
76
DR. LOUIS HAGEN: The covered bond model in general
certainly misses the shortcomings of securitization
especially the consequences of the off-balance sheet
concept that was at the root of irresponsible lending.
However, the European Covered Bond market is a very
diverse animal. Though we have seen some convergence
with a view to establishment of dedicated legal frameworks
for covered bond programmes in Europe, the specifications
and standards still do vary substantially. Covered bonds are
essentially a European affair even though we have seen a
couple of structured issues in the US. Recent remarks made
by officials from US Treasury or the Fed are evidence that
there is an increased awareness of the covered bond
concept’s appeal. I do believe that covered bonds still have
to come a long way down to Main Street, though.
European expertise is provided, e.g. expert opinions from
investment banks and rating agencies. However, I suggest
the US administration ask issuers and investors, too, what
a US covered bond should look like given that rating
agencies and investment banks played a prominent role in
the advent of the current crisis.
TIM SKEET: The US covered bond initiative has been
pushed back in time. The flurry of excitement last July was
welcome, but that moment has passed and other matters
preoccupy the government. Moreover, we will have to wait
for the new administration to form before we are able to
get a clearer view of the degree of future governmental
enthusiasm for the asset class. Nevertheless, the covered
bond offers exciting opportunities to finance prime
mortgage portfolios. The asset class offers private sector
money, new investors and longer maturities, and in
addition encourages banks to retain mortgage risk thereby
tightening underwriting criteria. The question still remains
as to what structures will be adopted. Certainly they will
have evolved from the early Washington Mutual and Bank
of America offerings. Watch this space.
TED LORD: The European covered bond model has been
copied in North America and is in the process of being
applied in the Asia Pacific region. Investors seek greater
transparency from the banks in general and favor covered
bonds with their cover pool disclosure and the fact that
they remain on the balance sheet of the lender.
All things being equal, do you think that the current
crisis has highlighted the obvious strengths of the
covered bond market: namely, the underlying
protection against risk which is built into the product;
clear asset eligibility criteria?
TIM SKEET: One of the features of the market is the village
nature of its market. It has its own press, personalities and
products. It attracts a lot more comment than other asset
classes that cannot be so readily identified and pigeonholed.
Now the village people have woken up with an
unexpected hangover after years of easy partying.Given
Tim Skeet, managing director, head of covered bonds, Merrill Lynch.
According to Skeet, the recent re-pricing of the SSA curve, though
itself not helpful in the overall picture of the capital markets
evolution, has at least served to bring a measure of consistency to
the performance of all the asset classes. Covered bonds have
suffered but without exception so has every part of the market.
Photograph kindly supplied by Merrill Lynch, December 2008.
the dynamics of the market and how it might evolve in
future, the village people nature of the sector will
fundamentally endure, although questions will be asked
as to which syndicate teams and trading groups will
handle covered bonds in future. Those questions can
only be answered once markets reopen and a clearer
view is formed of how investors will re-calibrate their
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

thoughts and expectations of relative value. Expect a
debate in due course.
DR. LOUIS HAGEN: The current crisis has clearly
demonstrated that covered bonds have been able to
withstand the earth quake when other funding markets
especially structured products had already been destroyed.
Within the covered bond family again we saw a substantial
spread differentiation with some products showing more
resilience than others. Since September we are in a
situation in which it seems that almost only government
products or government guaranteed products are able to
attract a wider audience. But even within the government
sector there is a wide range of differentiation.
CARLOS STILIANOPOULOS: The strengths of the
Covered Bond product has been highlighted by current
market conditions. Even though spreads have widened
substantially, demand has remained relatively strong
during this period. There have been many private
placements done in the Covered Bond market lately, and
this shows there is still investor appetite for the product
which cannot be said for other asset classes. The reason
for this? Probably because of the strength of the product
in itself.
Given the depth of the current crisis, how might it
impact on the covered bond market in the
immediate term?
TIM SKEET: The once homogeneous asset class has
definitively splintered by geography, structure and issuer
into a hitherto unanticipated pattern. Each jurisdiction
makes claims about the robust nature of its domestic
bonds, although investors do not always appear to be
swayed by the arguments. Divergent nominal trading levels
in the secondary markets illustrate this. Gone probably
forever is the notion that this is a unified asset class. This
realisation represents furthermore a challenge which will
require more work on the part of investors. Let us hope
that the market, with its cadre of analysts supported in
future by credit and macroeconomic specialists, will rise to
this. Better communication, greater transparency and
attention to the mechanics of transactions will be required.
The way that this will impact spreads and where the asset
class trades relative to senior unsecured or agency debt is
not clear. Nevertheless, the degree of government support,
specific laws in many cases, and security on the back of
prime bank credits should combine to preserve the
premium quality status of most of the asset class. Market
practitioners can still dream on.
What does the issuance calendar look like for the rest
of this year and for the first half of 2009?
DR. LOUIS HAGEN: We do expect issuance to gain
momentum in 2009 especially in maturities beyond the 3-
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
year tenor, although very gradually given the increased
competition from agencies and guaranteed bank bonds.
TED LORD: Many covered bond issuers are looking for the
opportunity to come to the market should conditions
improve. The stronger names with solid business models
should lead the way in the tough markets for 2009.
Investors want to purchase names that can keep doing a
profitable business in the current climate and those firms
that are not too highly leveraged.
Why did registered covered bonds become more
popular over the summer of 2008? Was it to avoid any
mark to market adjustments? Or is that too simplistic
and where other issues in play?
DR. LOUIS HAGEN: Registered bonds are an important
pillar of the Pfandbrief market. About one third of 840
billion Euro Pfandbrief outstanding comes in registered
format. Registered Pfandbrief offer more flexibility to many
institutional investors like insurance companies and other
banks given they do not have to mark them to market. In
times of severe dislocations like today institutional
investors resort to registered bonds given the lack of any
indication of fair values. In addition most registered
Pfandbrief are tailor made at the request of the investor.
Was the jumbo covered bond market more or less
impacted by the crisis than other covered bonds?
TIM SKEET: Trading had been one of the market’s key
attractions. Jumbos offered a real sense of liquidity relative
to other asset classes. The jumbo market-making
conventions in force proved excellent for fair weather
trading, but exacerbated the spiral when the winds turned.
Now the market is wrecked, how best should the traders
set about moving forward? Optimists point to the fact that
members of the trading community are taking the initiative
and moving towards more open and modern trading
standards that suit variable market conditions better. It is
likely that although Jumbo trading and that sector of the
market will revive in due course, more flexible issue sizes
may emerge into the mainstream, offering issuers greater
control over maturities, and investors more choice on
spread and other parameters. Rating agencies may
encourage this in order to alleviate refinancing risks. It is
therefore possible that issues of say €500m will be more
frequently seen in future and more flexible taps (as seen
recently in the Pfandbrief sector).
DR. LOUIS HAGEN: One cannot compare the Jumbo
market with the traditional market. The Jumbo model aims
at providing liquidity to the investor whereas traditional
Pfandbrief does not. The liquidity of the Jumbo Pfandbrief
was impacted first having proven its resilience quite a long
time after the crisis loomed in summer 2007 when spreads
had remained almost unaffected as had volumes.
77

COVERED BONDS – VIRTUAL ROUNDTABLE
78
Ted Lord, managing director and head of covered bonds, Barclays
Capital. According to Lord, throughout the credit crisis and
liquidity problems facing many sectors of the capital markets,
investors have maintained their faith in the covered bond asset
class. Investors still purchase covered bonds in private placement
format and in the secondary market. Du to the liquidity problems
in the secondary market however, some investors are seeing covered
bonds more as a credit product and not as much as a
rates/government bond surrogate product. Photograph kindly
supplied by Barclays Capital, December 2008.
In 2008 we saw legislation passed which created
legal frameworks for the issuance of covered bonds in
the United Kingdom and the Netherlands. Current
market conditions aside, what is the view of the
possibilities offered by these markets?
TED LORD: There is trend among many covered bond
issuers to prefer those covered bonds covered by a legal
versus solely on a contractual relationship. In this respect,
the moves to have a legal framework for covered bonds in
the United Kingdom and the Netherlands is a positive step.
We see continued investor demand for UK and Dutch
covered bonds, but for mainly the stronger names.
How much was the European covered bond market
impacted by the mark to market write-downs that
impaired other structured products? How much was
the mark down of asset backed securities elsewhere
affecting new issue premiums and/or trigger price
adjustments of new covered bonds?
TED LORD: The mark-to-market principle has had an
effect on the covered bond market - especially those
covered bond markets where the spread widening has
been the most significant. Firstly, the general spread
widening has led to performance problems against certain
indexes resulting in investor redemptions at the major fund
managers. Since many of the securitised markets shut, the
investors needed to sell what they could and sold the
covered bonds.
Typically, covered bonds have enjoyed the highest
ratings. In the aftermath of this current credit crisis,
what challenges will ratings agencies face in providing
ratings for new covered bond issues? Are ratings
consistent, for example, across different agencies in
the covered bond segment? Should they be?
TIM SKEET: We should not underestimate the impact of
evolving rating agency attitudes. With stress in the cover
pools, stress at the level of the parent banks and significant
stress in refinancing capacity and liquidity, the AAA status
of some parts of the market can no longer be taken for
granted. This is something that will need to be addressed
by the industry and investor expectations will need to be
managed accordingly.Governments have consistently
supported and sponsored the product, not just in
Germany but elsewhere. Investors should take note.
Nevertheless, with the ratings pressure and investor
jitters, governments need to remain vigilant that the
product will continue to benefit from their support. There
are good political reasons for this in view of the role this
product plays in housing finance in Europe.
NICHOLAS LINDSTROM, MOODY’S INVESTOR
SERVICES: The key challenge in the current market is in
the approach to rating risks. Where ratings between the
rating agencies differ, typically Moody’s has the lower
covered bond ratings. We believe the primary reason for
this may be that we are more focussed on refinancing risk
than the other agencies. As already seen during the credit
crunch, refinancing risk can be a very volatile risk, and this
risk is arguably one of the cornerstones of the credit
crunch. The vast majority of covered bonds are “bullet
bonds” (i.e. exposed to refinancing risk). Refinancing risk
arises following the default of the bank supporting a
covered bond. When this happens, the covered bond must
be repaid from the assets backing the covered bond. For
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

“bullet bonds”, the natural amortisation of the assets
cannot be relied on to repay the bonds. This means that
funds need to be raised against the assets backing the
covered bond – possibly through the firesale of the assets.
The discount on the price achieved to complete such a
firesale of the assets, in the potentially stressed
environment following the default of the bank that
originated these assets, is referred to as refinancing risk.
Because of the uncertainty surrounding this “refinancing
risk”, Moody’s does not believe that there is a very high
certainty that a“bullet”covered bond would receive full and
timely payment following the default of the bank supporting
the covered bond. This is the primary reason that if the
supporting bank falls below a certain rating level, then a
Moody’s covered bonds rating will usually start migrating.
Moody’s has published the rating levels of the supporting
banks which are expected to constrain the rating level of the
covered bonds.
Some markets do not suffer such material refinancing
risks. For example, in Denmark, the majority of covered
bonds are pass-through bonds, which means that following
the default of a bank supporting a covered bond, the covered
bonds should be able to rely on the natural amortisation of
the assets to pay them back – i.e. the requirement for a
firesale of assets into an illiquid market is much more remote.
Will these challenges be the same across all types of
covered bonds? Or are Jumbo bonds, or bonds with
cross-border pooled assets, for example, different?
NICHOLAS LINDSTROM: Refinancing risks vary deal by
deal and jurisdiction by jurisdiction. The extent to which
refinancing risk is dealt with tends to be different under
different covered bond laws. Further, refinancing risk varies
deal to deal, for example based on the average life of the
assets, and the type and quality of assets included in a cover
pool. Some markets do not suffer such material refinancing
risks. For example, in Denmark, the majority of covered
bonds are pass-through bonds, which means that following
the default of a bank supporting a covered bond, the
covered bonds should be able to rely on the natural
amortisation of the assets to pay them back
If you enjoyed this article, or any other in this
edition of FTSE Global Markets and would like
reprints, please contact
Paul Spendiff,
Director,
Berlinguer Ltd
Telephone: 00 44 207 680 5153
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F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
Are there instances of covered bond ratings delinking
from the issuer and other categories of its
debt exposure? Is this feasible going forward?
NICHOLAS LINDSTROM: Currently Moody’s does not
rate any covered bond as delinked. However, if a covered
bond structure was sufficiently sound, a delinked rating
could be assigned. It is easier to envisage a structure
without refinancing risk achieving a“delinked”rating than
a structure that suffers from“refinancing risk”.
How might approaches to ratings change going
forward?
NICHOLAS LINDSTROM: The current extreme climate has
also highlighted the volatility associated with “refinancing
risk”, a risk that the vast majority of covered bonds are
exposed to. In response to this risk Moody’s has updated
some of the refinancing stresses it applies to covered bond
programmes.
Looking forward, given the nature of the product, do
we anticipate an early revival?
TIM SKEET: The key question remains as to when the
covered bond market will revive. A general expectation is
that it will be amongst the first of the asset classes to revive,
although precise timing will depend heavily on the passage
of the government guaranteed bonds and success of the
financial bail outs.The second quarter of 2009 appears to be
the current hope. Investors will also be seeking assurances
on the supply situation as the risk of substantial supply in to
a shrinking investor base was at least one factor that
penalised some parts of the sector previously. Supply will
need to be carefully handled, and market participants will
have to be attentive to the conflicts of interest that will arise
between competing issuers. Contracting bank balance
sheets, de-leveraging and economic slowdown present
macro-economic constraints on supply, but investors will
need to understand how these influences translate into
numbers. Still, regulatory pressure on banks to raise and
maintain liquidity and push out maturities, combined
favourable treatment of the covered bond as an asset for
those additional liquidity reserves, bringing more of this
group of product buyers back to the game, should provide a
solid basis for the return of the asset class.
CARLOS STILIANOPOULOS: We have to go a step at a
time. Currently the appetite is for Government Guaranteed
Bonds, and I am afraid this will last for at least the first six
months of 2009. Probably the next asset class to come back
to the market, in a substantial enough size, will be the
Covered Bond market. However, the question is in what
form will it come back? Will it be mainly in jumbo deals or
small targetted placements? What will hapen with the
market making commitments? There will be too many
questions and it is still too soon to know the answers.
79

THE EXPANDING WORLD OF ETFS
80
The world of exchange traded funds (ETFs) is still
an open book. As investment trends diversify
and change in the post credit crunch world, the
increasing focus on transparency, cost efficiency
and risk mitigation has created ideal conditions
for a resurgence in index based investible
products, not least ETFs which are flexible
enough to accommodate varied asset classes.
Imogen Dillon Hatcher, managing director,
Europe, FTSE Group, outlines the key trends.
INDICES:
THE ETF DRIVER
OVER THE LAST few years exchange traded funds
(ETFs) have evolved to become an institutional
investment tool of choice across the globe.
Nowadays they are regarded as a straightforward, low cost
and flexible way to access the potential rewards of the
market. When looking at transparency in particular, which
is becoming key in the current market, it is believed ETFs
are a preferred choice over many other financial products
according to Deborah Fuhr’s ETF and ETP Industry
Highlights Q3 2008 (produced by Barclays Global Investors)
and ETF assets under management (AUM) is expected to
exceed $1trn in 2009, rising to $2trn by 2012.
With such a rapid pace of growth and a magnitude of
funding, ETFs are now available for almost every niche and
market, allowing investors to explore new and inventive
areas of investment. Index providers are also a vital part of
the ETF story, and many index providers including FTSE
Group have had great success in the creation of indices to
support these products. As ETFs are designed to sit on or
track an underlying index, in order for their performance to
mirror a broader stock universe, they are often based on an
accepted benchmark, with the index contributing to the
market acceptance and understanding of the investment
opportunity. FTSE Group believes that an independent
rules-based index design provides the market with the
highest level of transparency and confidence needed, while
index liquidity rules ensure a more than acceptable level of
ETF liquidity.
Investors looking to diversify their portfolios should be
aware, as competition among providers ripens, the number
of ETFs based on indices in innovative areas such as
emerging markets, real estate and investment strategies is
growing considerably. With such a variety of product on
offer, choosing the right product can be confusing. Even so,
Investors looking to diversify their portfolios
should be aware, as competition among
providers ripens, that the number of ETFs
based on indices in innovative areas such as
emerging markets, real estate and
investment strategies is growing
considerably. With such a variety of product
on offer, choosing the right product can be
confusing. Photograph © Thea
Walstra/Dreamstime.com, supplied
December 2008.
the due diligence or work involved in making the right
choice for a particular portfolio should not outweigh the
benefits that can be derived from innovation that is based
upon a recognised index. In addition, with increasing
competition among ETF providers, investors must ensure
they remain informed about the technical workings of
ETFs.This is becoming ever more important in a time when
volatility is high and where there is a noticeable movement
away from active to passive asset management (particularly
as factors such as rising fees and transparency become
additional considerations). In the current dynamic climate
ETFs are not only seen as attractive but also as a vital
component of an effective risk managed strategy.
ETF providers have committed generous marketing
budgets on promoting their ETFs, with names such as BGI
iShares, Lyxor and DB x-trackers dominating the market.
However, while having confidence in the ETF provider is
critical for investors, the choice of the underlying
benchmark is also important. Investors need to pay
increasing attention to the accuracy and methodology of
those indices which are used as the basis for ETFs. In times
of market uncertainty, in particular, those ETFs tracking
effective benchmarks from reputable index providers will
continue to offer investors a low cost and transparent way
to gain exposure to different markets.
Innovation: A new game plan
The current environment creates a real opportunity for ETFs
growth and at FTSE Group there is a strong feeling of
resurgence for index tracked investments from asset owners.
This, teamed together with a rise in innovation in order to
best deal with current market trends has created a marked
interest in the concept of wrapping investment strategies
within indices. One such approach is the use of shorting
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

strategies and FTSE Group has expanded its range of short
and leveraged indices; FTSE’s 100 Short Index serves as the
basis for DB x-trackers FTSE 100 Short ETF, as part of its
short ETFs range.The new indices allow money managers to
exploit volatility in the UK market by allowing investors to
go short the market or gear up. The indices will serve as the
basis for ETFs, benchmarks and other index-linked financial
products and are an extension of FTSE Group’s range of
investment strategy indices that are designed to provide
asset managers with strategic investment tools.
Another area where indices are making headway is in the
emerging and frontier markets such as Africa and the Middle
East. Emerging and frontier markets are areas in which many
index providers have a growing presence. This divergence
from the developed world towards the new geographies
reflects the eagerness of investors to ensure they can achieve
a well diversified portfolio while, at the same time, having the
confidence of being able to rely on a transparent
methodology they can track. ETF providers are no strangers
to this fact.As a result, there has been an explosion of country
based ETFs from the BRIC countries down to the Sub
Saharan region of Africa and across the Middle East, such as
the Lyxor ETF based on the FTSE Coast Kuwait 40 Index.
This move also ties in well with the increase in the
number of stock exchanges around the world that are
bidding to create new regional and partner indices in order
to gain market exposure to an international investment
community and which provide the underlying
infrastructure for such ETFs. As a global index provider,
FTSE Group works with over 18 stock exchanges across the
world to provide indices created to enhance growing
economies, such as that achieved with the JSE (South
Africa) and ATHEX (Greece). Such partnerships are a
perfect example of the potential successes from combining
domestic know-how with international distribution to
bring innovative product to market.
Simultaneously amid the tumultuous conditions the
industry is faced with, index providers are now more than
ever a much needed auxiliary to banks’ in-house quant
teams who choose not to solely manage and calculate
proprietary indices. Increased collaboration between these
two parties can prove mutually beneficial, with banks
profiting from credible products based on objective third
party run indices and the index provider gaining new
business opportunities. These trends have largely been
driven by the growing requirement among investment firms
for transparency, risk management and cost efficiency.
Moreover, it is also increasingly important these days within
the industry to harness real and focused expertise.
Equally, the world of indexing has moved on
considerably and over the past few years at FTSE Group,
there has been a wave of index innovation from the
introduction of the much lauded Sharia compliant indices
and infrastructure indices to the creation of indices that
cover issues such as responsible investment. Most recently
there has been significant development undertaken on
environmental technology indices. In combination, all of
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
Imogen Dillon Hatcher, executive director, FTSE Group. Photograph
kindly supplied by FTSE Group, December 2008.
these are ripe for and have formed the basis of structured
products such as ETFs.
The creation of new ways to benchmark has not stopped
at existing asset classes either. Alternative asset classes
such as real estate investment trusts (REITs) and hedge
fund of funds (HFoF) have also taken off and these have
gone some way to provide investors with greater choice
over and above the traditional equity class.
Indices, ETFs and the future
With transparency being the buzzword of the moment, it is
clear that both index and ETF providers must work
together to ensure investors are not only served but also
kept informed and educated. The use of open and
transparent rules driven methodology in addition to
independent index committees (made up of market
practitioners) is vital for a healthy and most importantly
tradable index, a philosophy which FTSE Group applies
across its 120,000 indices. With a migration towards passive
management and a resurgence of portfolio rebalancing, it is
evident that indexing is a first choice for investors looking
for that long term investment in a transparent, risk
managed and cost effective way.
The ETF market, in common with all areas of the
financial arena, becomes ever more competitive and in our
view is nowhere near saturation. ETF players are ensuring
healthy competition through increasing innovation,
creating original products driven by investor demand.
They will continue to add credibility to this investment
segment and emphasise the benefits of a ready-made
diversification of index tracking with the ease and
flexibility of trading shares.
81

ETCs GAIN AS COMMODITIES REMAIN POPULAR
82
ETCs gain as commodities
remain popular
In an inaugural regular commentary on the rise of
the exchange traded fund (ETF) industry, we look
at the key trends in exchange traded
commodities (ETCs) as well as ETFs through the
recent holiday period. Not surprisingly, given the
continued volatility in global equities in recent
months, investors continued to build positions in
ETCs, particularly in gold and oil. While
traditional equity based ETFs have been relatively
quiet, and equity based ETFs have been impacted
by some of the outflows suffered by equity based
mutual funds and hedge funds, some market
watchers think that by and large, equity ETFs
have maintained inflows, though overall assets
held in ETFs have fallen. What are likely to be the
key trends in the first half of 2009?
EXCHANGE TRADED COMMODITIES (ETCs) have
reportedly begun the New Year on a upbeat note as
investor sentiment continued to favour commodities,
cash and foreign exchange over traditional equities as 2008
drew to a close. Specialist ETC and ETF provider ETF
Securities, says it has seen continued strong inflows into
ETCs since early November last year. By mid December the
firm reported that $323m had flowed into a range of ETCs
including precious metals, energy and industrial metals,
comprising inflows of $403m into long ETCs including
Classic, Forward and Leveraged ETCs and outflows of
$80m from Short ETCs. Oil inflows continue to be strong
and continued to dominate the ETC sector. Inflows into
long oil ETCs rose by $218m in late October and early
November last year reversing the strong outflows during
August and September. Over the period, energy ETCs saw
some $225m of inflows, compared with the outflow of
some $30m from short energy ETCs, say ETF Securities
analysts, with energy ETCs contributed 53% to the total net
long position added to ETCs.
Physical metals, such as gold and platinum recorded
similar tends, while industrial metal ETCs also saw some
smaller scale inflow activity. In total, $13m of long
industrial metal ETCs were added. However the largest
trades were seen in outflows of short industrial metal
ETCs. Short industrial metal ETCs experienced outflows of
$25m. This equates to a net long position of $38m being
added to industrial metals, says the firm.
The driving factors behind commodity prices in 2008
included increasing demand, particularly from China and
other emerging nations, numerous supply related issues,
and the global financial crisis which caused a sell off in
virtually every asset class. Over the past 12 months, gold
appears to have been the standout performer with a return
of approximately 2% in US Dollars, 37% in sterling (though
that percentage will have risen as the British currency
continues to dive) and 18% in Euros. Over the longer term,
commodities have outperformed almost every other asset
class, with energy and precious metals some of the top
performers over the last five and ten years. Grains and
precious metals were also featured among the top
performers over the past three years.
According to Nik Bienkowski, chief operating officer
(COO), at ETF Securities: "Inflows into ETCs over the past
five weeks shows that many investors are still interested in
a wide range of commodities despite the recent pull back
as a result of the weakening economy. $323m of inflows
into ETCs over five weeks is a good achievement in any
market. … With oil having fallen from $147 per barrel to
around $45 per barrel, many investors now see this as a
long term buying opportunity. While demand for oil has
fallen, longer term supply issues still exist such as falling
production, falling reserves and a shortage of skilled
workers. Regardless of an investor's view, ETF Securities
offers both long and short ETCs which enable investors to
profit in a rising or falling market.”
Barclays Global Investors (BGI), citing data verified up to
the end of November 2008 noted a largely positive 11
month period, and posited an improved outlook for ETFs
through 2009. In the current market turmoil investors are
becoming even more concerned about counterparty risk,
transparency, liquidity and the use of derivatives and
structured products, notes Deborah Fuhr in a recent
release. At the end of November 2008 the ETFs industry
had 1,539 ETFs with 2,580 listings, assets of $633.83bn,
managed by 86 managers on 42 exchanges around the
world, with ETFs increasing overall by 31% with over 414
new launches through 2008. However, Fuhr notes that
assets fell by 20.4%, though she says it is less than the
43.80% fall in the MSCI World index in US dollar terms.
Moreover, the use of ETFs to implement exposure to cash,
fixed income, commodities and equity indices is becoming
more popular, she notes. Fuhr also points out that the use
of ETFs is likely to increase significantly by independent
financial advisers (IFAs) in the UK based on the regulatory
proposals outlined in late November last year in the Retail
Distribution Review (RDR) feedback statement by the UK’s
Financial Services Authority (FSA), the official regulator.
Fuhr adds that there are plans extant to launch some 570
new ETFs in train, of which the bulk are in the United
States (469) and the rest in Europe.
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

The 9th Institutional Equity
Trading & Technology Summit
2009
21st – 24th April 2009 The CNIT Centre, Paris
www.tradetechequity.eu
-48.00 +77.00 -22.00 +212.00 E 98885.00 S 2565 - 4500 +87.61 - 23.69 E 2356 S 67889 _44.00 + 55.00
-48.00 +77.00 -22.00 +212.00 E 98885.00 S 2565 - 4500 +87.61 - 23.69 E 2356 S 67889 _44.00 98885.00 S 2565 - 4500 +87.61
-48.00 +77.00 -22.00 +212.00 E 98885.00 S 2565 - 4500 +87.61 - 23.69 E 2356 S 67889 _44.00 + 55.00 22.00 +212.00 E 9 8
-48.00 +77.00 -22.00 +212.00 E 98885.00 S 2565 - 4500 +87.61 - 23.69 E 2356 S 67889 _44.00 + 55.00 98885.00 S 2565 - 450
-48.00 +77.00 -22.00 +212. 0 E 9 85.00 S 2565 - 4500 +87.61 - 23.69 E 2356
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REAL ESTATE REPORT: THE IMPACT ON LONDON
84
Arabian Knights
to the rescue?
The City of London’s real estate market has been
hit hard twice. Along with the rest of the UK real
estate market it has suffered from the
fundamental triggers of this recession: the
imbalances that have built up during the past
decade, the hyper-inflated values of housing
and commercial property and the overavailability
of credit. It is starting to look eerily
similar to the market depression of the early
1990s. The difference this time round is that the
City is wooing money from all around the world
and one of its biggest investment targets is the
cash-rich Middle East. Mark Faithfull reports.
THE CITY OF London and its neighbouring areas
were always at risk from a sharp real estate
downturn. The type of building required by occupiers
is typically on such a scale that to acquire a site, secure
planning, demolish existing buildings and then construct is
by its nature a drawn-out process. Consequently, the
decision to develop is often taken in a very different market
from the one in which the project is delivered.
Photograph © Jon Le-bon/Dreamstime.com,
supplied December 2008.
Although the development pipeline is not as super-heated
as it was in the last recession, the figures do not make for
comfortable reading. Agent Jones Lang LaSalle (JLL) warns
that 3.7m ft² of speculative office space is due for delivery in
the next 18 months. Some 5.7m ft² of office space is already
sitting empty, up 12% in the third quarter of 2008. This puts
the vacancy rate in the City at 5.5% and JLL predicts this will
more than double by 2010, with rents falling from a peak of
more than £65 a ft² last year to about £47.50. CB Richard Ellis
(CBRE) has an even gloomier prognosis, predicting a total of
6.5m ft² of new development, which will send the availability
rate rise to 13% in the City. It forecasts prime office rents will
decline for the next two years, falling by 22% to the end of
2010 and then recovering to regain their end-2007 level by
2013, although it warns there are“substantial downside risks
to this scenario”.
Cushman & Wakefield reports that a total of 16 deals
were completed totalling around £550m during the third
quarter of 2008 in the City, down 50% from the second
quarter and just 10% of 2007’s third quarter turnover.
Moreover, the City of London could lose 62,000 jobs by the
end of 2009, wiping out all the growth of the last 10 years,
the Centre for Economics and Business Research warns.
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

Employment in London's financial district will have fallen
by 28,000 in 2008, with a further 34,000 to go in 2009 as a
result of the credit crunch. The slump could take the City
back to levels last seen in 1998.
That is the bad news and there is plenty of it. However,
over-development is nowhere near as excessive as in the
1990s and lest we forget, last time round Canary Wharf and
London Docklands were coming on line, offering huge
amounts of space to rival the City’s dominance. So in 2008
take-up, while clearly down, is still expected to reach 4m
ft², compared with a five-year average of 5m ft² to 6m ft².
What the City needs is alternative financing and in an age
where it has traded on globalisation, appropriately enough
it has turned to the cash-rich emerging nations, with the
Middle East a particular target. Can and will the Gulf
respond positively? “To date, the City market has
performed differently to the West End market, in the style
of Middle Eastern money that it has attracted,” says
Andrew Hawkins, a director in JLL’s City investment team.
“The West End market has been characterised by more
active private wealth management or royal family money,
but has largely been focused on wealth preservation in the
super-prime markets of Mayfair and St James. Examples
include the Saudi Arabian royal family (Lancer Trust)
buying 50 Stratton Street for £130m on a 5% yield.
Similarly, a private Middle Eastern investor acquired 63 St
James’s Street, for £31.12m, again reflecting a yield of
5.00%,”says Hawkins.
This, he says, contrasts with the City, where Middle
Eastern investors have been seeking to move further up the
risk curve. In particular, Hawkins cites an appetite from
‘petro-dollar’investors for development opportunities.
Amid the turmoil the City has scored extraordinary
successes for landmark developments, with a strong Gulf
connection. For example, the State General Reserve Fund
of Oman is one of three investors behind Heron’s
development at Heron Tower on Bishopsgate. Likewise, a
syndicate of Middle Eastern private family houses and
institutional investors is backing Arab Investments'
proposed development at The Pinnacle, also on
Bishopsgate. Finally, the Qatari royal family is the
dominant partner behind Irvine Sellar’s development of
the Shard, on the Southbank.
Peter Damesick, head of UK research, CBRE says that
“Within Europe, the UK, and London in particular,
maintained its absolute attractiveness to Middle Eastern
money in the first half of 2008 compared to 2007. At the
same time Middle Eastern investors have increased in
importance within the property investment market which
is showing substantially lower volumes,” says Peter
Damesick, head of UK research, CBRE.
CBRE Research shows that in the first half of 2008 Middle
Eastern investors spent £1.3bn acquiring UK real estate,
which represented 73% of all Middle Eastern investment in
Europe, with London alone accounting for 60%.The UK and
London’s shares of Middle Eastern investment in Europe in
H1 2008 were double those in 2007. In the City office
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
market, Middle Eastern investors spent £530m in 2008 to the
end of the third quarter, compared to £524m in the whole of
2007. The Middle Eastern share of total investment in the
City office market by the end of November 2008 was 22%,
compared to 7% through the whole of 2007.
Headline projects
Headline projects have provided another fillip. HSH
Nordbank extended a loan used to purchase the Pinnacle
tower site in the City for another year, as developer Arab
Investments pushes ahead with its speculative
development plans. The German bank funded the £200m
purchase of the site in May last year, from German fund
manager Union Real Estate, for a consortium fronted by
Arab Investments. Arab Investments plans to develop the
Kohn Pedersen Fox-designed scheme in Bishopsgate area
and the 945 ft Pinnacle will be one of London’s tallest
towers. It will have 63 floors and around 1m ft² of office
space. At the start of 2008 privately-owned Sellar Property
Group defied the critics and the credit crunch to secure
funding for their enormous London Bridge Shard concept.
It is a project with which they have become synonymous
and began with the fractious partnership with former
development partners Simon Halabi and CLS Holdings,
which became immersed in lawsuits and an expensive and
long-drawn-out public planning inquiry.
The entire 2m ft² scheme was almost derailed when
Sellar attempted to secure funding just at the moment the
world’s credit markets plunged into crisis. But in January
Sellar clinched backing from a consortium of four Qatari
banks (Qatar National Bank, Q-Invest, Barwa International
and the Qatar Islamic Bank) to bankroll the ambitious
Renzo Piano-designed scheme.Four Qatari banks snapped
up 80% of the Shard's development rights at a very
competitive price of less than £100m. However, to secure
the deal Sellar had to reduce its holding of development
rights from one third to 20%. Government-owned
Transport for London is the key tenant in a 200,000 ft²
office pre-let on an initial £38/ft², rising to £42/ft² on
completion. It accounts for about a third of the initial office
provision. However, Sellar was unable to retain accountant
PricewaterhouseCoopers, the original tenant at Southwark
Towers, which will make way for the Shard, and had to pay
£70m to buy in the long lease.
With huge schemes still getting the green light the City’s
demise it not yet set in stone. Despite conjecture about
whether the current crisis will weaken the City, London sits in
the most opportunistic time zone to serve both the Asia Pacific
and North American markets. Moreover, London is one of the
few global cities whose population is forecast to continue to
grow and has an infrastructure which is thousands of years
old,” stresses JLL’s Hawkins. “Cities are about people and
talent.While talent can be attracted by financial rewards, there
will always be a significant element of the employment
market that is driven by a wider more nebulous concept,
namely quality of life for family, schools and culture, all of
which London has in spades.
85

EUROPEAN TRADING STATISTICS
86
THE FIDESSA FRAGMENTATION INDEX (FFI)
The Fidessa Fragmentation Index (FFI) was designed to provide the trading community with an accurate, unbiased
measurement of the state of liquidity fragmentation across the order driven markets in Europe. Liquidity is fragmenting
rapidly as new MTFs have unveiled a range of low cost alternative trading platforms. It is essential for both the buy and the
sell side to understand how different stocks are fragmenting across the new venues. To make it easy to measure and
compare fragmentation across Europe, the Fragmentation Index provides a single number to show how a stock or index is
fragmenting. It is calculated using proven mathematical principles and shows the average number of venues that should be
visited to achieve best execution when completing an order. An FFI value of 1 therefore means that the stock is still traded
at a primary exchange. An FFI value of 2 or more shows that the stock has been fragmented significantly and can no longer
be regarded as having a primary exchange. The FFI is calculated daily across all the constituents of the major European
indices; which illustrates how many stocks are fragmenting and the rate at which they are doing so.
Electronic order book trades in major stocks:
April through November 2008 (Europe only)
Apr May Jun Jul Aug Sep Oct Nov
BTE/BATS 12,912,601 1,692,679,055
CIX/Chi-X 37,304,564,510 37,670,297,814 50,543,504,106 69,784,319,667 65,485,105,599 100,401,073,369 106,153,062,152 55,474,806,309
CPH/Copenhagen 4,706,051,470 5,630,036,158 5,036,109,648 6,845,034,577 6,715,541,919 9,088,419,945 9,799,125,787 5,627,172,892
ENA/Amsterdam 54,969,452,411 44,058,608,934 53,130,208,269 58,889,709,527 40,078,363,113 62,969,948,029 58,477,575,182 29,515,979,897
ENB/Brussels 10,873,940,327 10,035,942,732 11,266,781,699 11,264,584,729 7,769,551,527 12,362,582,317 10,689,261,202 5,618,466,860
ENL/Lisbon 4,835,970,481 4,053,264,202 4,289,780,382 5,217,860,359 3,265,459,550 4,358,621,402 4,105,636,725 2,613,601,564
ENX/Paris 113,356,288,859 98,370,505,430 118,794,877,669 130,727,562,834 89,561,950,040 143,845,030,869 158,687,540,849 83,259,044,929
GER/Xetra 119,047,141,851 100,116,783,024 117,572,355,884 138,538,693,267 96,074,671,382 171,318,595,178 206,777,148,040 86,619,580,417
HEL/Helsinki 21,258,871,334 14,474,306,434 15,704,074,093 16,983,014,044 11,476,253,210 18,654,125,589 19,248,238,567 10,391,280,842
LSE/London 188,767,416,200 171,362,331,104 198,850,156,278 228,447,427,572 154,886,443,195 240,104,147,083 218,235,697,409 128,535,134,938
MAD/Madrid 72,167,290,723 59,767,720,389 73,739,528,010 76,936,873,296 44,029,717,439 79,041,830,393 86,557,745,208 47,772,645,094
MIL/Milan 88,069,977,469 115,732,058,029 76,999,997,645 68,998,216,420 47,007,014,009 103,999,753,619 69,520,744,329 40,577,825,970
NEU/Nasdaq-OMX 17,962 45,339,983 138,799,631
STO/Stockholm 41,237,977,314 31,944,689,500 28,218,322,073 28,711,580,518 22,502,159,413 35,401,145,511 34,318,445,867 20,077,565,709
TRQ/Turquoise 311,082,282 17,716,364,835 27,088,688,572 19,577,155,245
VTX/SWX 70,145,373,130 55,750,343,806 67,560,353,571 72,309,962,390 48,685,822,760 79,997,213,817 86,469,471,856 45,647,116,803
Grand Total 826,740,386,972 749,478,220,996 822,387,304,850 914,539,760,442 638,420,599,362 1,080,717,983,703 1,099,954,393,992 584,468,357,214
% Market share in electronic order book trades in major stocks:
April through November 2008 (Europe only)
Apr May Jun Jul Aug Sep Oct Nov
BTE/BATS 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.29%
CIX/Chi-X 4.51% 5.03% 6.15% 7.63% 10.26% 9.29% 9.65% 9.49%
CPH/Copenhagen 0.57% 0.75% 0.61% 0.75% 1.05% 0.84% 0.89% 0.96%
ENA/Amsterdam 6.65% 5.88% 6.46% 6.44% 6.28% 5.83% 5.32% 5.05%
ENB/Brussels 1.32% 1.34% 1.37% 1.23% 1.22% 1.14% 0.97% 0.96%
ENL/Lisbon 0.58% 0.54% 0.52% 0.57% 0.51% 0.40% 0.37% 0.45%
ENX/Paris 13.71% 13.13% 14.45% 14.29% 14.03% 13.31% 14.43% 14.25%
GER/Xetra 14.40% 13.36% 14.30% 15.15% 15.05% 15.85% 18.80% 14.82%
HEL/Helsinki 2.57% 1.93% 1.91% 1.86% 1.80% 1.73% 1.75% 1.78%
LSE/London 22.83% 22.86% 24.18% 24.98% 24.26% 22.22% 19.84% 21.99%
MAD/Madrid 8.73% 7.97% 8.97% 8.41% 6.90% 7.31% 7.87% 8.17%
MIL/Milan 10.65% 15.44% 9.36% 7.54% 7.36% 9.62% 6.32% 6.94%
NEU/Nasdaq-OMX 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.02%
STO/Stockholm 4.99% 4.26% 3.43% 3.14% 3.52% 3.28% 3.12% 3.44%
TRQ/Turquoise 0.00% 0.00% 0.00% 0.00% 0.05% 1.64% 2.46% 3.35%
VTX/SWX 8.48% 7.44% 8.22% 7.91% 7.63% 7.40% 7.86% 7.81%
Grand Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

TRADING DATA FOR MID DECEMBER 2008 (EUROPE ONLY)
Venue turnover on the
16th December 2008
Venue Trades Turnover Share
€ 000's %
London 568,413 4,251,708 20.11%
Xetra 163,028 3,273,703 15.49%
Paris 284,185 3,026,720 14.32%
Chi-X 330,286 1,929,602 9.13%
Madrid 89,375 1,798,618 8.51%
SWX 92,050 1,754,416 8.30%
Milan 117,759 1,234,710 5.84%
Turquoise 148,958 1,046,458 4.95%
Amsterdam 102,796 1,018,204 4.82%
Stockholm 56,901 742,664 3.51%
Helsinki 35,489 368,062 1.74%
Brussels 40,710 272,433 1.29%
Copenhagen 14,224 164,686 0.78%
BATS 37,436 164,267 0.78%
Lisbon 14,957 78,734 0.37%
Nasdaq OMX 2,706 12,893 0.06%
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
Index market share by venue as of 16th
December 2008
■ BATS 1,692,679,055
■ Chi-X 55,474,806,309
■ Copenhagen 5,627,172,892
■ Amsterdam 29,515,979,897
■ Brussels 5,618,466,860
■ Lisbon 2,613,601,564
■ Paris 83,259,044,929
■ Frankfurt N/A
■ Xetra 86,619,580,417
Index Market Share by Venue as of 16th December 2008
Primary Alternative Venues
■ Helsinki 10,391,280,842
■ London 128,535,134,938
■ Madrid 47,772,645,094
■ Milan 40,577,825,970
■ Nasdaq-OMX 138,799,631
■ Stockholm 20,077,565,709
■ Turquoise 19,577,155,245
■ SWX 45,647,116,803
Index Venue Share Chi-X Turquoise Nasdaq OMX BATS Copen. Amst. Paris Xetra Helsinki
AEX Amsterdam 78.56% 13.67% 6.35% 0.03% 0.74% 1 0.28%
BEL 20 Brussels 94.46% 3.99% 1.44% 0.02% 0.06% 1
CAC 40 Paris 81.24% 11.76% 5.54% 0.05% 0.84% 1 0.35%
DAX Xetra 83.35% 9.71% 4.87% 0.04% 0.64% 1 0.03%
FTSE 100 London 75.42% 14.66% 7.96% 0.14% 1.81%
FTSE 250 London 89.03% 9.89% 0.05% 0.14% 0.89%
IBEX 35 Madrid 99.84% 0.04%
MIB 30 Milan 94.25% 2.37% 2.90% 0.02% 0.19% 1 1 0.12%
NORDIC 40 Stockholm 54.55% 3.06% 2.44% 0.06% 0.01% 12.10% 1 0.68% 27.03%
PSI 20 Lisbon 99.23% 0.77%
SMI SWX 91.33% 3.57% 5.06% 0.02% 0.01%
COMMENTARY
Turquoise achieved over 10% market share in four FTSE 100 stocks by early December (Wolsey, Tesco, Drax and Kingfisher).
Interestingly, Chi-X had a good sliceof these stocks too and so it looks like the first hard evidence is emerging that some
FTSE 100 stocks will fragment substantially over multiple MTFs. Most significant was that nearly 40% of Kingfisher (FFI 2.17)
was traded away from the primary exchange on alternative MTFs. This is good news for new venues like BATS and Nasdaq
OMX as it seems to indicate that there is no defined limit yet as to how far a stock will fragment away from its primary
market. Some observers thought that the new MTFs would be crabbling over the same amount of “alternative” liquidity. In
fact, it seems that the opposite is the case and that, as more alternative venues launch, then more and more liquidity will
divert to the new venues. The bigger question, though, concerns viability. Just because an alternative venue can attract
market share in some stocks there’s no guarantee that it can actually make money. Nasdaq is extending its net zero pricing
model in “its determination to attract liquidity”. While this is to be applauded, new venues need to understand why some
stocks fragment more than others and focus on these. History shows that there are no winners in wars of attrition. In
Fidessa's view it is far better to find a niche and expand than it is to attack on all fronts.
All data © Fidessa Group plc.
All opinions and data here are entirely the responsibility of Fidessa Group plc. If you require more information on
the data provided here or about FFI, please contact: fragmentation@fidessa.com.
87

EXCHANGE TRADED FUNDS: LISTING & DISTRIBUTION AS OF END Q3 2008
Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg.
88
ETF Listings as of End November 2008
Brazil
P Listings: 1
T Listings: 1
Managers: 1
AUM: US$0.71 Bn
Slovenia
P Listings: 1
T Listings: 1
Managers: 1
AUM: US$0.01 Bn
Italy
P Listings: 15
T Listings: 255
Managers: 5
AUM: US$0.92 Bn
South Africa
P Listings: 17
T Listings: 17
Managers: 5
AUM: US$1.14 Bn
Indonesia
P Listings: 1
T Listings: 1
Managers: 1
AUM: US$0.00 Bn
Australia
P Listings: 4
T Listings: 20
Managers: 2
AUM: US$0.99 Bn
New Zealand
P Listings: 6
T Listings: 6
Managers: 2
AUM: US$0.26 Bn
Thailand
P Listings: 2
T Listings: 2
Managers: 2
AUM: US$0.06 Bn
United States
P Listings: 688
T Listings: 688
Managers: 19
AUM: US$443.83 Bn
Turkey
P Listings: 6
T Listings: 6
Managers: 2
AUM: US$0.12 Bn
India
P Listings: 11
T Listings: 11
Managers: 6
AUM: US$1.12 Bn
Taiwan
P Listings: 11
T Listings: 11
Managers: 2
AUM: US$1.29 Bn
Mexico
P Listings: 5
T Listings: 120
Managers: 2
AUM: US$4.16 Bn
Hong Kong
P Listings: 11
T Listings: 23
Managers: 5
AUM: US$12.66 Bn
Canada
P Listings: 77
T Listings: 77
Managers: 3
AUM: US$12.97 Bn
Singapore
P Listings: 5
T Listings: 22
Managers: 5
AUM: US$0.81 Bn
France
P Listings: 159
T Listings: 296
Managers: 7
AUM: US$34.68 Bn
Malaysia
P Listings: 3
T Listings: 3
Managers: 2
AUM: US$0.28 Bn
Switzerland
P Listings: 21
T Listings: 145
Managers: 5
AUM: US$9.56 Bn
China
P Listings: 5
T Listings: 5
Managers: 4
AUM: US$2.22 Bn
Iceland
P Listings: 1
T Listings: 1
Managers: 1
AUM: US$0.04 Bn
South Korea
P Listings: 36
T Listings: 36
Managers: 6
AUM: US$1.81 Bn
Spain
P Listings: 9
T Listings: 24
Managers: 2
AUM: US$1.96 Bn
Japan
P Listings: 61
T Listings: 63
Managers: 5
AUM: US$24.66 Bn
Germany
P Listings: 230
T Listings: 375
Managers: 8
AUM: US$53.04 Bn
Portugal
P Listings: 1
T Listings: 1
Managers: 1
AUM: US$0.00 Bn
Greece
P Listings: 1
T Listings: 1
Managers: 1
AUM: US$0.07Bn
Austria
P Listings: 1
T Listings: 21
Managers: 1
AUM: US$0.04 Bn
Ireland
P Listings: 1
T Listings: 1
Managers: 1
AUM: US$0.03 Bn
United Kingdom
P Listings: 118
T Listings: 260
Managers: 6
AUM: US$22.51 Bn
Belgium
P Listings: 1
T Listings: 1
Managers: 1
AUM: US$0.04 Bn
Netherlands
P Listings: 14
T Listings: 70
Managers: 3
AUM: US$0.23 Bn
Norway
P Listings: 6
T Listings: 6
Managers: 2
AUM: US$0.25 Bn
Sweden
P Listings: 7
T Listings: 7
Managers: 1
AUM: US$1.28 Bn
Finland
P Listings: 2
T Listings: 2
Managers: 2
AUM: US$0.10 Bn
Hungary
P Listings: 1
T Listings: 1
Managers: 1
AUM: US$0.01 Bn
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

ETF Assets Equity Income Commodity Assets
Total Assets Assets Assets Total # ETFs # ETPs
1993 $0.8 $2,000 $0.8 3
1994
1995
$1.1
$1,800
$2.3
$1.1
$2.3
3
4
1996
1997
$5.3 $1,600
$8.2
$5.3
$8.2
21
21
1998 $17.6 $1,400 $17.6 31
1999
2000
$39.6
$1,200
$74.3
$39.6
$74.3 $0.1
$1.98
$5.02
33
92
2
14
2001
2002
$104.8 $1,000
$141.6
$104.7
$137.5
$0.1
$4.0
$0.0
$0.1
$3.80
$4.00
202
280
17
17
2003 $212.0 $800 $205.9 $5.8 $0.3 $6.06 282 17
2004 $309.8 $286.3 $23.1 $0.5 $8.86 336 18
2005 $412.1 $600 $389.6 $21.3 $1.2 $15.6 461 23
2006
2007
$565.6
$400
$796.7
$526.5
$729.9
$35.8
$59.9
$3.4
$6.3
$28.1
$45.9
714
1171
70
134
Sep-08 $764.1 $200 $664.1 $90.8 $9.2 $58.3 1499 268
Oct-08 $643.0 $548.6 $87.0 $7.2 $46.2 1502 269
Nov-08
2009-F
$633.8 $0
$1,000
$534.9
1993 1994
$90.0
1995 1996
$8.5 $48.2
1997 1998 1999
1,539
2000 2001
274
2002 2003 2004 2005 2006 2007 Sep-08 Oct-08 Nov-08 2009-F 2011-F
2011-F ETF Assets Total $2,000 $0.8 $1.1 $2.3 $5.3 $8.2 $17.6 $39.6 $74.3 $104.8 $141.6 $212.0 $309.8 $412.1 $565.6 $796.7 $764.1 $643.0 $633.8 $1,000 $2,000
ETF Commodity Assets $0.0 $0.1 $0.3 $0.5 $1.2 $3.4 $6.3 $9.2 $7.2 $8.5
ETF Fixed Income Assets $0.1 $0.1 $4.0 $5.8 $23.1 $21.3 $35.8 $59.9 $90.8 $87.0 $90.0
ETF Equity Assets $0.8 $1.1 $2.3 $5.3 $8.2 $17.6 $39.6 $74.3 $104.7 $137.5 $205.9 $286.3 $389.6 $526.5 $729.9 $664.1 $548.6 $534.9
ETP Assets Total $1.98 $5.02 $3.80 $4.00 $6.06 $8.86 $15.6 $28.1 $45.9 $58.3 $46.2 $48.2
Assets USD Billions
$2,200 Worldwide ETF and ETP Growth
# ETPs 2 14 17 17 17 18 23 70 134 268 269 274
# ETFs 3 3 4 21 21 31 33 92 202 280 282 336 461 714 1171 1499 1502 1,539
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg.
ETF Listings by Exchange as of End November 2008
# Primary ETF # Total ETF AUM 20 Day ADV
Region Country Exchange Listings Listings (US$Bn) (US$Mn)
Asia Pacific 154 194 53.07 849.81
Australia Australian Securities Exchange 4 20 0.99 12.72
China Shanghai Stock Exchange 3 3 1.02 183.98
Shenzhen Stock Exchange 2 2 1.19 22.78
Hong Kong Hong Kong Stock Exchange 11 23 12.66 275.42
India Bombay Stock Exchange 2 2 0.38 0.00
National Stock Exchange 9 9 0.74 2.47
Indonesia Jakarta Stock Exchange 1 1 0.00 0.00
Japan Osaka Securities Exchange 6 6 8.53 122.11
Tokyo Stock Exchange 55 57 16.13 94.41
Malaysia Bursa Malaysia Securities Berhad 3 3 0.28 0.01
New Zealand New Zealand Stock Exchange 6 6 0.26 0.13
Singapore Singapore Stock Exchange 5 22 0.81 8.09
South Korea Korea Stock Exchange 36 36 1.81 61.71
Taiwan Taiwan Stock Exchange 11 11 1.29 20.77
Thailand Stock Exchange of Thailand 2 2 0.06 0.70
Americas 760 888 564.31 124,009.46
Brazil Sao Paulo 1 1 0.71 1.91
Canada Toronto Stock Exchange 77 77 12.97 683.01
Mexico Mexican Stock Exchange 5 120 4.16 163.57
US NYSE Alternext US 5 5 82.33 450.59
BATS 0 0 0.00 14,882.18
Boston 0 0 0.00 0.00
CBOE 0 0 0.00 956.48
Chicago 0 0 0.00 2,866.31
Cincinnati 0 0 0.00 638.21
ISE 0 0 0.00 486.07
FINRA ADF 0 0 0.00 19,183.41
NASDAQ 46 46 15.20 45,199.90
NYSE 0 0 0.00 0.00
NYSE Arca 637 637 346.30 29,368.02
Philadelphia 0 0 0.00 0.00
EMEA (Europe, Middle East and Africa) 585 1,412 146.69 2,404.20
Austria Wiener Borse 1 21 0.03 0.76
Belgium Euronext Brussels 1 1 0.04 0.45
Finland Helsinki Stock Exchange 2 2 0.10 2.95
France Euronext Paris 159 296 34.68 349.24
Germany Deutsche Boerse 230 375 53.04 666.48
Greece Athens Exchange 1 1 0.07 0.18
Hungary Budapest Stock Exchange 1 1 0.01 0.20
Iceland Iceland Stock Exchange 1 1 0.00 0.00
Ireland Irish Stock Exchange 1 1 0.03 0.25
Italy Borsa Italiana 15 255 0.92 216.16
Netherlands Euronext Amsterdam 14 70 0.23 28.81
Norway Oslo Stock Exchange 6 6 0.25 63.34
Portugal Euronext Lisbon 1 1 0.00 0.00
Slovenia Ljubljana Stock Exchange 1 1 0.01 0.00
South Africa Johannesburg Stock Exchange 17 17 1.14 7.08
Spain Bolsa de Madrid 9 24 1.96 13.54
Sweden Stockholm Stock Exchange 7 7 1.28 106.40
Switzerland SIX Swiss Exchange 21 126 9.56 114.19
SWX Europe 0 19 0.00 6.86
Turkey Istanbul Stock Exchange 6 6 0.12 20.84
United Kingdom London Stock Exchange 118 260 22.51 175.94
Grand Total 1,539 2,580 633.79 117,458.62
Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg.
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
89

EXCHANGE TRADED FUNDS: LISTING & DISTRIBUTION AS OF END Q3 2008
90
Global ETF Assets by Type of Exposure, as at end November 2008
Total AUM
Region of Exposure # ETFS Listings (US$bn) % TOTAL
North America - Equity 467 615 $311.58 49.2%
Fixed Income - All (ex-Cash) 149 266 $79.35 12.5%
Europe - Equity 328 669 $67.23 10.6%
Emerging Markets - Equity 220 436 $61.83 9.8%
Asia Pacific - Equity 128 204 $47.58 7.5%
Global (ex-US) - Equity 58 61 $37.01 5.8%
Fixed Income - Cash (Money Market) 14 24 $10.66 1.7%
Global - Equity 96 197 $9.71 1.5%
Commodities 48 77 $8.47 1.3%
Mixed (Equity & Fixed Income) 25 25 $0.23 0.0%
Currency 6 6 $0.17 0.0%
Total 1,539 2,580 $633.83 100.0%
Source: ETF Research & Implementation Strategy, Barclays Global Investors, Bloomberg
Fixed Income -
Cash (Money Market)
1.7%
Top 25 ETF providers around the world ranked by AUM, as of end November 2008
Nov–08 Year to Date Change
AUM %
AUM % # % Change AUM Market
Manager # ETFs (USD Bn) Total Planned # ETFs ETFs (USD Bn) % Share
iShares 356 $288.44 45.5% 13 35 10.9% -$114.17 -28.4% -5.0%
State Street Global Advisors 98 $129.18 20.4% 33 15 18.1% -$23.21 -15.2% 1.3%
Vanguard 38 $40.23 6.3% 0 1 2.7% -$1.74 -4.1% 1.1%
Lyxor Asset Management 113 $29.97 4.7% 2 26 29.9% -$2.10 -6.5% 0.7%
PowerShares 142 $21.42 3.4% 41 28 24.6% -$16.60 -43.7% -1.4%
ProShares 64 $20.89 3.3% 90 6 10.3% $11.19 115.4% 2.1%
db x-trackers 99 $20.04 3.2% 0 48 94.1% $9.22 85.2% 1.8%
Nomura Asset Management 29 $13.40 2.1% 0 22 314.3% -$4.04 -23.2% -0.1%
Bank of New York 1 $5.90 0.9% 0 0 0.0% -$4.25 -41.8% -0.3%
Nikko Asset Management 8 $5.55 0.9% 0 6 300.0% -$3.53 -38.9% -0.3%
Daiwa Asset Management 23 $5.45 0.9% 1 18 360.0% -$2.18 -28.6% -0.1%
Credit Suisse Asset Management 8 $5.31 0.8% 0 0 0.0% $0.34 6.8% 0.2%
AXA IM/BNP AM 53 $4.06 0.6% 8 23 76.7% -$2.63 -39.3% -0.2%
Van Eck Associates Corp 16 $3.76 0.6% 13 8 100.0% $0.27 7.7% 0.2%
Nacional Financiera 1 $3.38 0.5% 0 0 0.0% -$0.36 -9.7% 0.1%
Zurich Cantonal Bank 4 $2.97 0.5% 0 0 0.0% $1.93 184.5% 0.3%
WisdomTree Investments 42 $2.79 0.4% 37 3 7.7% -$1.73 -38.2% -0.1%
Hang Seng Investment Management 3 $2.69 0.4% 0 0 0.0% -$2.02 -42.9% -0.2%
ETFlab Investment 10 $2.23 0.4% 0 10 100.0% $2.23 100.0% 0.4%
BBVA Asset Management 8 $1.90 0.3% 0 1 14.3% $0.72 60.6% 0.2%
Commerzbank 28 $1.85 0.3% 0 28 100.0% $1.85 100.0% 0.3%
Rydex 31 $1.71 0.3% 82 8 34.8% -$0.94 -35.6% -0.1%
XACT Fonder 11 $1.44 0.2% 0 2 22.2% -$1.07 -42.7% -0.1%
Claymore Securities 54 $1.53 0.2% 10 4 8.0% -$0.93 -37.9% -0.1%
UBS Global Asset Management 8 $1.27 0.2% 0 -1 -11.1% -$0.88 -40.9% -0.1%
NOTES
Asia Pacific -
Equity
7.5%
Emerging Markets
- Equity
9.8%
Global (ex-US) -
Equity
5.8%
Europe - Equity
10.6%
Global - Equity
1.5% Commodities
1.3%
Fixed Income - All (ex-Cash)
12.5%
Mixed (Equity & Fixed Income)
0%
Source: ETF Research & Implementation Strategy, Barclays Global Investors, Bloomberg
At the end of November 2008 the ETFs industry had 1,539 ETFs with 2,580 listings, assets of $633.83 billion, managed by 86 managers on 42 exchanges around the
world. Assets fell by 20.4%, which is less than the 43.80% fall in the MSCI World index in USD terms. The number of ETFs has increased 31% YTD. The average daily
trading volume in US dollar has increased by 94% to US$117.5 billion YTD.
In the first ten months of 2008 we have seen investors move assets into ETFs providing exposure to fixed income and commodity indices while the assets in ETFs
tracking equity indices, especially global (ex US) and emerging market indices, have declined.
European ETF AUM has decreased by 2.8% while the MSCI Europe Index is down 50.56% YTD. In Europe net sales of mutual funds
(excluding ETFs) were minus $505.7 million while net sales of ETFs domiciled in Europe were positive $61.6 million during the first
10 months of 2008 according to Lipper Feri.
Important Information
Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, Various ETF Managers, Bloomberg. Please contact Deborah Fuhr on +44 20 7668 4276 or email
Deborah.Fuhr@barclaysglobal.com if you have any questions or comments.
This communication is being made available to persons who are investment professionals as that term is defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion Order) 2005 or
its equivalent under any other applicable law or regulation in the relevant jurisdiction. It is directed at persons who have professional experience in matters relating to investments. These materials are not
intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is contrary to local law or regulation.
Although Barclays Global Investors Limited (“BGIL”) endeavours to update and ensure the accuracy of the content of this document, BGIL does not warrant or guarantee its accuracy or correctness. Despite the
exercise of all due care, some information in this document may have changed since publication. Investors should obtain and read the ETF prospectuses from ETF managers and confirm any relevant information
with ETF managers before investing. Neither BGIL, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising
from any use of this publication or its contents.
© 2008 Barclays Global Investors. All rights reserved.
Currency
0%
North Americas -
Equity
49.2%
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

KEY PERFORMANCE EXPLORER STATISTICS as of 26th November 2008
The market reported 1,948,937securities transactions, with 188,268 securities available for lending worth €6,928bn
through November. Some 33,801 securities were out on loan worth €1,451bn.
The following tables show the scale of activity in the market:
Equities
Top 10 by Total Balance
Rank Stock description
1 Total SA
2 GDF Suez SA
3 Volkswagen AG
4 Bayer AG
5 Exxon Mobil Corp
6 Siemens AG
7 HSBC Holdings Plc
8 Telefonica SA
9 Eon AG
10 Carrefour SA
The total income generated by lending a security can be split in two; the amount generated from the fee charged, and
the amount generated by reinvesting any cash which is received back as collateral. The following tables detail the
securities generating the largest income through a combination of these two components:
Equities
Top 10 Securities by Total Return
Rank Stock description
1 Sears Holdings Corp
2 Osiris Therapeutics Inc
3 Life Partners Holdings Corp
4 Usana Health Sciences Inc
5 Greenhill & Co Inc
6 Cal-Maine Foods Inc
7 Mediobanca - Banca di Credito Finanziario Spa
8 McClatchy Co
9 Under Armour Inc
10 Nutrisystem Inc
The following tables detail the top securities by fee within two bands of total balance out on loan:
Equities by Fee
Top 10 by Balance >$10m $10m

MARKET DATA BY FTSE RESEARCH
92
Global Market Indices
5-Year Total Return Performance Graph
Index Level Rebased (28 November 2003=100)
600
500
400
300
200
100
0
Nov-03
May-04
Nov-04
May-05
Table of Total Returns
Nov-05
May-06
Nov-06
May-07
FTSE All-World Index
FTSE Emerging Index
FTSE Global Government Bond Index
FTSE EPRA/NAREIT Global Index
FTSE4Good Global Index
FTSE GWA Developed Index
FTSE RAFI Emerging Index
Index Name Currency Constituents Value 3 M (%) 6 M (%) 12 M (%) YTD (%) Actual Div
Yld (%)
FTSE All-World Indices
FTSE All-World Index USD 2,869 172.36 -34.3 -42.5 -44.5 -43.9 3.98
FTSE World Index USD 2,420 409.20 -33.8 -41.8 -43.8 -43.0 3.99
FTSE Developed Index USD 1,997 166.69 -33.0 -40.6 -43.0 -42.2 3.94
FTSE Emerging Index USD 872 323.94 -44.8 -55.8 -56.0 -56.2 4.38
FTSE Advanced Emerging Index USD 423 299.21 -45.0 -56.2 -53.9 -53.7 4.83
FTSE Secondary Emerging Index USD 449 384.26 -44.4 -55.1 -58.5 -59.3 3.72
FTSE Global Equity Indices
FTSE Global All Cap Index USD 7,768 272.63 -35.1 -43.1 -45.1 -44.5 3.91
FTSE Developed All Cap Index USD 6,005 265.59 -33.9 -41.4 -43.6 -42.8 3.86
FTSE Emerging All Cap Index USD 1,763 422.69 -45.3 -56.3 -57.1 -57.4 4.42
FTSE Advanced Emerging All Cap Index USD 919 397.30 -45.5 -56.7 -54.9 -54.5 4.86
FTSE Secondary Emerging Index USD 844 481.76 -44.9 -55.6 -59.8 -60.7 3.78
Fixed Income
FTSE Global Government Bond Index USD 713 167.78 1.8 0.4 5.4 6.0 2.75
Real Estate
FTSE EPRA/NAREIT Global Index USD 282 1591.79 -44.0 -51.3 -54.8 -52.3 7.70
FTSE EPRA/NAREIT Global REITs Index USD 185 555.00 -45.2 -50.5 -52.1 -49.7 9.32
FTSE EPRA/NAREIT Global Dividend+ Index USD 249 1107.40 -45.2 -51.0 -53.6 -51.7 8.87
FTSE EPRA/NAREIT Global Rental Index USD 230 624.42 -44.8 -50.0 -51.7 -49.2 8.79
FTSE EPRA/NAREIT Global Non-Rental Index USD 52 653.44 -41.7 -54.5 -61.6 -59.2 4.51
SRI
FTSE4Good Global Index USD 684 4488.90 -33.4 -41.1 -44.3 -43.4 4.57
FTSE4Good Global 100 Index USD 102 3970.79 -31.9 -39.1 -43.2 -42.3 4.67
Investment Strategy
FTSE GWA Developed Index USD 1,997 2418.89 -35.2 -43.2 -46.2 -45.3 4.86
FTSE RAFI Developed ex US 1000 Index USD 1,002 4076.99 -35.4 -44.8 -47.6 -46.7 5.44
FTSE RAFI Emerging Index USD 358 3516.68 -41.5 -52.4 -52.5 -52.5 5.07
Nov-07
May-08
Nov-08
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

Americas Market Indices
5-Year Total Return Performance Graph
Index Level Rebased (28 November 2003=100)
300
250
200
150
100
50
Nov-03
May-04
Table of Total Returns
Index Name Currency Constituents Value 3 M (%) 6 M (%) 12 M (%) YTD (%) Actual Div
Yld (%)
FTSE All-World Indices
FTSE Americas Index USD 846 555.35 -31.7 -37.8 -39.1 -38.8 3.11
FTSE North America Index USD 708 617.74 -30.7 -36.3 -38.3 -38.0 3.06
FTSE Latin America Index USD 138 559.44 -48.4 -59.7 -51.7 -52.3 4.09
FTSE Global Equity Indices
FTSE Americas All Cap Index USD 2,651 250.08 -32.8 -38.8 -39.7 -39.6 3.01
FTSE North America All Cap Index USD 2,448 243.69 -31.9 -37.4 -39.1 -38.8 2.97
FTSE Latin America All Cap Index USD 203 777.88 -48.7 -59.9 -52.2 -52.7 4.09
Fixed Income
FTSE Americas Government Bond Index USD 151 183.01 4.0 6.2 8.1 7.7 2.98
FTSE USA Government Bond Index USD 134 180.29 4.9 7.6 9.4 9.2 2.94
Real Estate
FTSE EPRA/NAREIT North America Index USD 116 1814.64 -48.7 -51.9 -51.2 -48.6 9.45
FTSE EPRA/NAREIT US Dividend+ Index USD 93 1002.83 -48.7 -51.9 -50.6 -47.9 9.74
FTSE EPRA/NAREIT North America Rental Index USD 113 619.77 -47.0 -49.7 -48.9 -46.1 9.13
FTSE EPRA/NAREIT North America Non-Rental Index USD 3 123.29 -87.2 -90.7 -90.5 -90.2 40.42
FTSE NAREIT Composite Index USD 129 1814.81 -45.8 -49.7 -48.8 -46.4 10.42
FTSE NAREIT Equity REITs Index USD 107 4379.55 -47.5 -50.5 -49.2 -46.5 9.39
SRI
FTSE4Good US Index USD 149 3669.69 -30.2 -34.4 -39.8 -39.1 3.40
FTSE4Good US 100 Index USD 101 3543.85 -29.9 -34.2 -39.7 -39.0 3.42
Investment Strategy
Nov-04
May-05
Nov-05
May-06
FTSE GWA US Index USD 652 2260.26 -32.1 -38.0 -41.7 -41.1 3.89
FTSE RAFI US 1000 Index USD 978 3699.30 -31.5 -37.6 -41.6 -40.9 3.84
FTSE RAFI US Mid Small 1500 Index USD 1,403 3129.12 -37.8 -40.7 -41.7 -41.5 2.65
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
Nov-06
May-07
Nov-07
May-08
Nov-08
FTSE Americas Index
FTSE Americas Government Bond Index
FTSE EPRA/NAREIT North America Index
FTSE EPRA/NAREIT US Dividend+ Index
FTSE4Good USIndex
FTSE GWA US Index
FTSE RAFI US 1000 Index
93

MARKET DATA BY FTSE RESEARCH
94
Europe, Middle East & Africa Indices
5-Year Total Return Performance Graph
Index Level Rebased (28 November 2003=100)
500
400
300
200
100
0
Now-03
May-04
Nov-04
May-05
Table of Total Returns
Nov-05
May-06
Nov-06
May-07
FTSE Europe Index
FTSE All-Share Index
FTSEurofirst 80 Index
FTSE/JSE Top 40 Index
FTSE Gilts Fixed All-Stocks Index
FTSE EPRA/NAREIT Europe Index
FTSE4Good Europe Index
FTSE GWA Developed Europe Index
FTSE RAFI Europe Index
Index Name Currency Constituents Value 3 M (%) 6 M (%) 12 M (%) YTD (%) Actual Div
Yld (%)
FTSE All-World Indices
FTSE Europe Index EUR 559 177.59 -28.5 -36.2 -42.5 -41.9 5.51
FTSE Eurobloc Index EUR 2,023 98.05 -29.9 -38.3 -44.5 -44.2 4.89
FTSE Developed Europe ex UK Index EUR 382 177.64 -28.8 -36.6 -42.5 -42.0 5.93
FTSE Developed Europe Index EUR 496 176.20 -27.7 -35.0 -41.8 -41.0 5.54
FTSE Global Equity Indices
FTSE Europe All Cap Index EUR 1,682 273.46 -29.5 -37.0 -43.3 -42.6 5.48
FTSE Eurobloc All Cap Index EUR 832 286.86 -30.6 -38.8 -44.9 -44.5 6.28
FTSE Developed Europe All Cap ex UK Index EUR 1,135 292.43 -29.8 -37.5 -43.3 -42.6 5.90
FTSE Developed Europe All Cap Index EUR 1,562 272.96 -28.7 -36.0 -42.6 -41.7 5.51
Region Specific
FTSE All-Share Index GBP 662 2661.82 -24.8 -29.3 -32.2 -32.4 4.67
FTSE 100 Index GBP 102 2596.43 -23.1 -27.6 -30.5 -30.8 4.60
FTSEurofirst 80 Index EUR 81 3766.95 -28.1 -36.0 -42.8 -42.8 6.53
FTSEurofirst 100 Index EUR 101 3445.88 -25.9 -33.1 -40.4 -39.9 5.75
FTSEurofirst 300 Index EUR 312 1168.87 -27.3 -34.5 -41.3 -40.5 5.58
FTSE/JSE Top 40 Index SAR 41 2131.86 -23.3 -34.1 -27.8 -24.0 4.30
FTSE/JSE All-Share Index SAR 164 2319.07 -22.4 -32.0 -27.7 -24.4 4.46
FTSE Russia IOB Index USD 15 473.14 -57.9 -71.8 -66.1 -67.5 4.26
Fixed Income
FTSE Eurozone Government Bond Index EUR 233 170.23 5.6 7.6 7.6 8.1 3.84
FTSE Pfandbrief Index EUR 409 189.74 3.7 5.0 5.0 5.3 4.57
FTSE Gilts Fixed All-Stocks Index GBP 32 2200.19 4.9 8.9 9.1 7.2 4.09
Real Estate
FTSE EPRA/NAREIT Europe Index EUR 92 1373.32 -37.6 -44.0 -49.9 -47.7 7.37
FTSE EPRA/NAREIT Europe REITs Index EUR 39 518.21 -33.6 -38.9 -44.0 -42.0 7.32
FTSE EPRA/NAREIT Europe ex UK Dividend+ Index EUR 48 1508.45 -33.9 -41.0 -42.3 -39.9 8.12
FTSE EPRA/NAREIT Europe Rental Index EUR 79 538.70 -37.1 -43.2 -48.6 -46.4 7.57
FTSE EPRA/NAREIT Europe Non-Rental Index EUR 13 373.28 -47.3 -58.3 -68.4 -66.5 2.73
SRI
FTSE4Good Europe Index EUR 273 3548.37 -26.6 -33.4 -40.8 -40.0 5.84
FTSE4Good Europe 50 Index EUR 52 3233.94 -24.6 -30.4 -38.7 -37.7 5.78
Investment Strategy
FTSE GWA Developed Europe Index EUR 496 2350.64 -30.4 -37.7 -45.0 -44.2 6.49
FTSE RAFI Europe Index EUR 512 3704.55 -28.3 -35.8 -43.5 -42.8 6.33
Nov-07
May-08
Nov-08
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

Asia Pacific Market Indices
5-Year Total Return Performance Graph
Index Level Rebased (28 November 2003=100)
1200
1000
800
600
400
200
0
Nov-03
May-04
Nov-04
May-05
Table of Total Returns
Nov-05
May-06
Index Name Currency Constituents Value 3 M (%) 6 M (%) 12 M (%) YTD (%) Actual Div
Yld (%)
FTSE All-World Indices
FTSE Asia Pacific Index USD 1,313 181.35 -34.1 -44.8 -48.0 -46.9 3.98
FTSE Asia Pacific ex Japan Index USD 854 293.68 -41.4 -52.0 -56.1 -55.8 5.17
FTSE Japan Index USD 459 68.42 -34.1 -41.4 -45.6 -43.6 2.80
FTSE Global Equity Indices
FTSE Asia Pacific All Cap Index USD 3,228 304.24 -34.4 -45.2 -48.7 -47.6 4.03
FTSE Asia Pacific All Cap ex Japan Index USD 1,953 356.45 -42.4 -53.2 -57.5 -57.3 5.30
FTSE Japan All Cap Index USD 1,275 216.57 -33.3 -40.6 -44.9 -42.8 2.78
Region Specific
FTSE/ASEAN Index USD 156 289.74 -40.1 -50.0 -50.8 -52.1 5.95
FTSE Bursa Malaysia 100 Index MYR 100 6034.65 -21.5 -31.6 -37.0 -39.8 5.10
TSEC Taiwan 50 Index TWD 50 4071.08 -36.4 -44.8 -45.2 -44.7 8.60
FTSE Xinhua All-Share Index CNY 958 4566.11 -22.1 -48.9 -59.5 -64.6 1.80
FTSE/Xinhua China 25 Index CNY 25 14497.17 -37.3 -47.1 -55.9 -53.4 3.73
Fixed Income
FTSE Asia Pacific Government Bond Index USD 255 130.93 14.1 13.3 21.7 22.3 1.41
Real Estate
FTSE EPRA/NAREIT Asia Index USD 74 1372.95 -37.3 -49.1 -57.2 -54.7 6.13
FTSE EPRA/NAREIT Asia 33 Index USD 36 932.10 -35.2 -46.0 -53.3 -50.2 9.97
FTSE EPRA/NAREIT Asia Dividend+ Index USD 63 1320.48 -40.0 -49.8 -58.3 -57.3 8.32
FTSE EPRA/NAREIT Asia Rental Index USD 38 697.13 -37.5 -46.8 -53.5 -51.2 9.17
FTSE EPRA/NAREIT Asia Non-Rental Index USD 36 721.27 -37.3 -50.7 -59.6 -56.9 3.95
Infrastructure
FTSE IDFC India Infrastructure Index IRP 96 529.89 -46.8 -56.4 -68.1 -70.9 1.17
FTSE IDFC India Infrastructure 30 Index IRP 30 572.48 -46.3 -55.6 -68.5 -71.0 1.21
SRI
FTSE4Good Japan Index JPY 190 3280.71 -35.8 -43.1 -46.1 -44.4 3.01
Shariah
FTSE SGX Shariah 100 Index USD 100 3715.16 -31.3 -42.2 -43.8 -42.4 3.79
FTSE Bursa Malaysia Hijrah Shariah Index MYR 30 7245.85 -19.9 -34.6 -37.8 -41.6 4.67
FTSE Shariah Japan 100 Index JPY 100 887.26 -36.3 -43.3 -47.6 -46.5 3.09
Investment Strategy
FTSE GWA Japan Index JPY 459 2267.31 -35.4 -42.4 -45.8 -44.0 2.97
FTSE GWA Australia Index AUD 108 3027.47 -24.6 -30.7 -40.9 -38.7 7.78
FTSE RAFI Australia Index AUD 55 4853.66 -20.4 -26.6 -35.6 -34.1 7.69
FTSE RAFI Singapore Index SGD 16 4783.35 -36.0 -41.3 -42.5 -42.9 6.54
FTSE RAFI Japan Index JPY 297 3294.52 -33.7 -40.2 -43.3 -41.9 2.87
FTSE RAFI Kaigai 1000 Index JPY 1,001 2921.38 -42.2 -47.7 -53.7 -53.4 4.97
FTSE RAFI China 50 Index HKD 49 4277.73 -34.4 -58.6 -51.2 -49.0 4.52
F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 0 9
Nov-06
May-07
Nov-07
May-08
Nov-08
FTSE Asia Pacific Index
FTSE/ASEAN 40 Index
FTSE/Xinhua China 25 Index
FTSE Asia Pacific Government Bond Index
FTSE EPRA/NAREIT Asia Index
FTSE IDFC India Infrastructure Index
FTSE4Good Japan Index
FTSE GWA Japan Index
FTSE RAFI Kaigai 1000 Index
95

CALENDAR
96
Index Reviews Jan – April 2009
Date Index Series Review Frequency/Type Effective Data Cut-off
(Close of business)
06-Jan FTSE/Xinhua Index Series Quarterly review 16-Jan 22-Dec
08-Jan TSEC Taiwan 50 Quarterly review 16-Jan 31-Dec
08-Jan TOPIX Monthly review - additions & free
float adjustment 29-Jan 31-Dec
Mid Jan OMX H25 Semi-annual review consitutents,
Quarterly review of number of shares 31-Jan 31-Dec
Late Jan/
Early Feb PSI 20 Annual review 02-Mar 31-Dec
Late Jan/
Early Feb BEL 20 Annual review 02-Mar 31-Dec
Late Jan/
Early Feb AEX Annual review 02-Mar 31-Dec
05-Feb TOPIX Monthly review - additions & free
float adjustment 26-Feb 30-Jan
10-Feb Hang Seng Quarterly review 02-Mar 31-Dec
13-Feb MSCI Standard Index Series Quarterly review 27-Feb 31-Jan
24-Feb FTSE All-World Annual review Asia Pacific ex Japan 20-Mar 31-Dec
Early Mar ATX Semi-annual review / number of shares 31-Mar 28-Feb
Early Mar CAC 40 Quarterly review 20-Mar 28-Feb
Early Mar S&P / TSX Quarterly review 20-Mar 27-Feb
04-Mar DAX Quarterly review 20-Mar 28-Feb
06-Mar S&P / MIB Semi-annual review 20-Mar 28-Feb
06-Mar S&P / ASX Indices Annual / Quarterly review 20-Mar 27-Feb
06-Mar TOPIX Monthly review - additions & free
float adjustment 30-Mar 27-Feb
07-Mar FTSE All-World Annual review Asia Pacific ex Japan 20-Mar 11-Feb
11-Mar FTSE Asiatop / Asian Sectors Semi-annual review 20-Mar 28-Feb
11-Mar FTSE/ASEAN 40 Index Annual review 20-Mar 28-Feb
11-Mar FTSE UK Quarterly review 20-Mar 11-Mar
11-Mar FTSEurofirst 300 Quarterly review 20-Mar 28-Feb
11-Mar FTSE techMARK 100 Quarterly review 20-Mar 28-Feb
11-Mar FTSE eTX Quarterly review 20-Mar 28-Feb
11-Mar FTSE/JSE Africa Index Series Quarterly review 20-Mar 07-Mar
11-Mar FTSE EPRA/NAREIT Global Real
Estate Index Series Quarterly review 20-Mar 07-Mar
12-Mar FTSE4Good Index Series Semi-annual review 20-Mar 28-Feb
13-Mar NASDAQ 100 Quarterly review / Shares adjustment 20-Mar 28-Feb
13-Mar S&P Asia 50 Quarterly review 20-Mar 06-Mar
13-Mar DJ STOXX Quarterly review (components) 20-Mar 24-Feb
13-Mar DJ STOXX Quarterly review (style) 20-Mar 06-Mar
13-Mar Russell US/Global Indices Quarterly review - IPO additions only 31-Mar 28-Feb
14-Mar S&P US Indices Quarterly review 20-Mar 06-Mar
14-Mar S&P Europe 350 / S&P Euro Quarterly review 20-Mar 06-Mar
14-Mar S&P Topix 150 Quarterly review 20-Mar 06-Mar
14-Mar S&P Global 1200 Quarterly review 20-Mar 06-Mar
14-Mar S&P Global 100 Quarterly review 20-Mar 06-Mar
14-Mar S&P Latin 40 Quarterly review 20-Mar 06-Mar
17-Mar S&P MIB Quarterly review - shares & IWF 20-Mar 16-Mar
24-Mar NZX 50 Quarterly review 31-Mar 28-Feb
07-Apr FTSE/Xinhua Index Series Quarterly review 17-Apr 23-Mar
09-Apr FTSE Nordic 30 Semi-annual review 17-Apr 31-Mar
09-Apr TSEC Taiwan 50 Quarterly review 17-Apr 31-Mar
07-Apr TOPIX Monthly review - additions & free
float adjustment 29-Apr 30-Apr
Mid April OMX H25 Quarterly review - shares in issue 30-Apr 31-Mar
Late April FTSE / ATHEX Semi-annual review 29-May 31-Mar
Sources: Berlinguer, FTSE, JP Morgan, Standard & Poors, STOXX
J A N U A R Y / F E B R U A R Y 2 0 0 9 • F T S E G L O B A L M A R K E T S

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