Section 2 - FTSE

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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