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Marina Lewin, managing director, alternative investment services for<br />
The Bank of New York Mellon.“It is true that there has been real<br />
retrenchment within the fund business, and yet from our point of<br />
view, the industry will still move forward, particularly as toxic debt is<br />
absorbed,” she says. Lewin sees hedge funds continuing to operate with<br />
a lean infrastructure, affording considerable back- and middle-office<br />
outsourcing opportunities for administrators.“More and more, these<br />
funds are asking their service providers to get involved in performance<br />
calculation, trade processing and trade flow, liquidity and so forth.<br />
That’s where we’ve seen the greatest emphasis,” she adds. Photograph<br />
kindly supplied by The Bank of New York Mellon, December 2008.<br />
Mellon. “It is true that there has been real retrenchment<br />
within the fund business, and yet from our point of view,<br />
the industry will still move forward, particularly as toxic<br />
debt is absorbed.” Lewin sees hedge funds continuing to<br />
operate with a lean infrastructure, affording considerable<br />
back- and middle-office outsourcing opportunities for<br />
administrators. “More and more, these funds are asking<br />
their service providers to get involved in performance<br />
calculation, trade processing and trade flow, liquidity and<br />
so forth. That’s where we’ve seen the greatest emphasis.”<br />
While putting added pressure on fees, the market<br />
contraction has at the same time hastened the flight to<br />
quality, says Lewin. Diversified administrators who can<br />
also provide custodial support are much better suited to<br />
weathering seismic shifts within the market.“Many of our<br />
current customers have legitimate concerns about<br />
counterparty risk, and are looking for a safe haven. As a<br />
financial institution that can offer custodial, short-term<br />
money management as well as corporate-trust services, in<br />
addition to administration services, we feel we are in a very<br />
good position, particularly as the industry finishes its<br />
retrenchment and begins to gradually recover.”<br />
Peter Cherecwich, head of global product and strategy for<br />
Northern Trust’s asset servicing business, agrees that<br />
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<br />
administrators with custodial ties have a competitive advantage<br />
in this type of environment.“Custodians have the flexibility to<br />
shift clients in and out of strategies with much greater ease, he<br />
says,adding:“If your entire infrastructure is only geared towards<br />
alternative classes, you may not be able to adapt as quickly.”<br />
Though the momentum has slowed for the time being,<br />
Cherecwich believes that alternative classes will not be<br />
down for long.“We’ve seen anywhere from 30% to 50%<br />
growth in the derivatives market over the past few years,<br />
and that has obviously flattened out. In the meantime,<br />
there has been this great push towards risk management<br />
and, along with that, better administrative tools to help<br />
measure that risk. Which, in turn, compels us to go to<br />
provide our clients with the kind of tools and information<br />
that can help them better understand what they’re<br />
getting into.”<br />
The overriding factor, says Lewin, is the constant need<br />
for reporting independence, and those who haven’t yet<br />
outsourced will likely get on board over the near term.“In<br />
order to keep their institutional investors satisfied,<br />
managers are looking to go to the highest-quality type of<br />
financial institution for their administrative needs—<br />
whether it is an accounting division looking for<br />
independent price verification, or providing institutional<br />
investors the security of knowing that their portfolio is<br />
being carefully monitored. All of these things will work as<br />
a benefit to the stronger administrators.”<br />
Tech Still Tops<br />
A report issued by Celent calls for a decrease in technology<br />
spending among investment managers throughout 2009.<br />
As a result, managers will likely continue to outsource IT in<br />
an effort to keep pace while lowering costs, says Alan<br />
Greene, executive vice president and head of US<br />
Investment Servicing for State Street Corporation. “The<br />
weakening economy will lead managers to trim this<br />
portion of their budgets at a time when implementing new<br />
functions could be more necessary than ever. This<br />
highlights the benefit in shifting the expense obligation<br />
and responsibility for technological enhancements to a<br />
third-party provider.”<br />
It is difficult to envisage any administrator maintaining a<br />
competitive offering in the fund services industry without<br />
investing in the kind of software that can meet the increased<br />
demand for transparency, argues Richard Harland, business<br />
development manager for Mourant International Finance<br />
Administration. “Mourant continues to invest in market<br />
leading software solutions across our global office network<br />
and our systems enable bespoke solutions to client needs<br />
and serve as powerful reporting tools,”he says.<br />
Servicing alternative fund structures, the impetus<br />
behind last year’s acquisition of Bisys, remains a core<br />
competency for Citi, says Andrew Smith, head of the<br />
bank’s North America funds and securities services.<br />
Robust investments in technology that allow alternative<br />
managers to access data in real-time and meet clients’<br />
need for transparency and performance evaluation<br />
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