Feature Article Globalization Market and Business Outlook ... · PDF filethe costs and...

Citi OpenInvestor | Issue 2 | 2013

15Market and Business Outlook2013 Investment Themes: The Search Goes On

Quick Poll: Technology Vital to Addressing Wealth Managers’ Concerns

23Regulatory SpotlightRegulatory & Legislative Update: 4th Quarter 2012

01Feature ArticleOutsourcing Collateral Management in the Evolving OTC Derivatives Landscape

07GlobalizationNew Institutional Thinking Is Key to Japanese Fund Flows

Local Insights: Brazil

Insights for institutional, alternative and wealth managers

Citi OpenInvestor SM

Feature ArticleOutsourcing Collateral Management in the Evolving OTC Derivatives Landscape

01

07 GlobalizationNew Institutional Thinking Is Key to Japanese Fund Flows

11 Local Insights: Brazil

Contents

17 Quick Poll: Technology Vital to Addressing Wealth Managers’ Concerns

27 Survey

15 Market and Business Outlook2013 Investment Themes: The Search Goes On

23 RegulatoryRegulatory & Legislative Update: 4th Quarter 2012

GlobalizationNew Institutional Thinking Is Key to Japanese Fund Flows

Local Insights: Brazil

Outsourcing Collateral Management in the Evolving OTC Derivatives LandscapeInsights | Financial Institution Clients

By Sam Ahmed — Sales Head, Collateral Services, Asia Pacific Securities and Fund Services

Citi OpenInvestor | Issue 2 | 2013 2

The BackgroundThe concept of outsourcing was originally born out of a need to seek services provided outside one’s organization with the objective of lowering costs. In fact, the official definition of outsourcing found in Investopedia is consistent with this explanation: “A practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.”1

Over the past five years, however, if one were to narrow the concept of outsourcing, particularly in the securities and fund services sector of the banking industry, it is evident that both the nature of outsourcing as well as the drivers behind it have changed significantly. Key drivers such as effective risk management, regulatory requirements, a need for better transparency and sophisticated reporting have all been significant factors for firms seeking outsourcing opportunities from third-party providers.

The subprime crisis of 2008 both influenced and played an instrumental role in the growth of outsourcing of banking services. As the crisis gained momentum, spilling into global markets in the third quarter of 2008, the defaults of banking giants such as Bear Sterns and Lehman Brothers sent shock waves through every segment of the market. Regulators, risk officers and senior management at banks and buy-side firms shifted their attention from traditional market risk management toward gaining a better understanding of the nature of credit risk.

As markets globally began to absorb the magnitude of the crisis, regulators were the first to react, putting in place a series of proposals to enforce credit risk management and transparency, especially in the over-the-counter (OTC) derivatives markets — a roughly USD700 trillion market where much of the activity is bilateral in nature and therefore opaque to the public. Among the new regulatory measures proposed by both Dodd-Frank Act in the U.S. and the European Market Infrastructures Regulation (EMIR) in Europe, the more prominent ones that took effect immediately were mandatory trade reconciliation, trade netting and trade affirmation. Although not a direct regulatory ruling, the various initiatives taken up by market participants to enhance controls around its credit

risk exposures also included the implementation credit support annex (CSA) or collateralization of bilateral trading relationships.

As these measures were introduced, both buy- and sell-side market participants soon woke up to the challenges of implementing them on a practical level. The move to mitigate credit risk through new regulatory measures actually led to an increase in operational risk, as market participants struggled with two main issues — how to deal with the increasing costs associated with upgrading systems and processes and also where to find the technical know-how of implementing and integrating the new regulations into their internal infrastructure and processes. In short, a need for expertise, new technology and finding the optimal investment strategy were key elements that defined the new OTC landscape post the financial crises of 2008–09.

The remedy came in the immediate years following the financial crisis, as the market saw a gradual introduction of securities and fund services focused on risk mitigation products and operational services offered by a few large global banks and custodians.

Among such services, collateral management is arguably one of the fastest growing. Today, outsourcing of collateral management is a global trend, which recently has made an entry into the Asia Pacific Rim region, with significant interest over the past two years from all client segments active in the OTC markets.

Collateral Management: Overview and ChallengesAccording to the International Swaps and Derivatives Association (ISDA), the number of CSAs executed has risen from 28,000 in 2002 to 150,000 in 2011.2 In light of this growth, some firms have dedicated project teams to assess the costs and challenges of building their own in-house collateral solution. Others, especially among the investor segment community, have taken the route of outsourcing this service.

The sudden rise in demand for collateral services can be attributed to the complexity and nature of its functions. In order to determine how institutions trading OTC derivatives in the region are dealing with their collateral needs, Citi’s OpenCollateral team met approximately 100

Approximately 60% of the clients met in 2011 in the region were currently managing their margin requirements using Excel or other rudimentary means. This segment was mainly composed of smaller regional or local banks, some asset managers and nearly all of the corporate players in the Asia Pacific Rim OTC market.

1Source: Investopedia2Source: ISDA Margin Survey

Citi Transaction Services3

clients in 2011, all of whom were engaged in some form of OTC derivatives trading in the Asia Pacific region. From the discussions that ensued, it was evident that the main challenges faced by these clients in implementing CSAs were:

• Performing daily valuation for the underlying OTC derivatives trades

• Managing dispute resolutions with their counterparties particularly for cross-border transactions

• Dealing with non-cash collateral

• Tracking Rehypothecation

• Collateral Optimization

• Integrating a collateral management platform into the firm’s existing infrastructure

It was interesting to observe that whereas client responses were varied in the strategy adopted toward collateral management, the responses nonetheless were very much consistent based on the client segment to which they belonged. Among the more sophisticated segment in the market, i.e., the international banks and broker-dealers, there seems to be a larger appetite for investing in an in-house collateral management solution by building a specialized team of dedicated collateral operations officers supported by a well-established vendor system.

On the other hand, many of the insurance companies in the region (where the bulk of collateral needs arise mainly from its various funds that engage in OTC trading for hedging purposes) have been the most receptive to outsourcing their collateral requirements rather than building an in-house solution.

An alternative approach to building an in-house solution or outsourcing is to manage CSAs manually using existing Microsoft Windows applications or other manual processes. Approximately 60% of the clients met in 2011 in the region were currently managing their margin requirements using Excel or other rudimentary means. This segment was mainly composed of smaller regional or local banks, some asset managers and nearly all of the corporate players in the Asia Pacific Rim OTC market.

Analyzing the breakdown of clients further by country, the results seem quite scattered around the region. In terms of OTC trading volumes, the largest market in the region is Japan, followed by Singapore, Hong Kong and Australia. Based on the above meetings and various other client engagements in Asia Pacific for Citi’s OpenCollateral team in 2011–12, the need for collateral services appeared consistently higher in the above jurisdictions over the rest of the region. While in Singapore, the interest was mainly driven from the investor segment. It was interesting to note that in Hong Kong, the main drivers for this service were among the local intermediaries.

Recently, a rising awareness for collateral services is also being noted in the Australian buy-side sector. On the intermediary side, though, top banks in Australia seem to prefer the route of managing collateral in-house and have all invested in vendor-based collateral management systems supported by their own in-house collateral specialists. Finally, Japan, with the highest volume for OTC derivatives traded in Asia, has demonstrated varying degrees of interest in both the investor and intermediary segments. One of the primary drivers for using collateral agents in Japan is centered on finding effective solutions for negotiating disputes with offshore counterparties.

The rest of the Asia Pacific region is still in the early stages of implementing CSAs. Some of the countries, notably Taiwan and Malaysia, have requirements that call for a regulatory sign-off on certain services outsourced to an offshore party. Other jurisdictions such as Korea have an internal infrastructure connecting local market participants, which is designed to auto-settle domestic collateral.

Regulations and Collateral ManagementWhile there is tremendous interest in collateral management around the APAC region, the actual number of outsourced to third-party providers is yet to reach a critical level.

Although no exact figures are currently available globally, a November 2011 Finadium survey entitled “Strategies for Successful Collateral Management in the Age of CCPs”

While there is tremendous interest in collateral management around the APAC region, the actual number of outsourced to third-party providers is yet to reach a critical level.


notes that only 15% of end users sampled in its study have outsourced collateral services to banks to manage. The same study shows that approximately 50% of the respondents who happen to be broker-dealers have invested in a comprehensive in-house solution. This is mainly in the broker dealer/banking segment, which still leaves approximately 35% of the market that continues to manage its collateral using manual processes. One factor that could explain why there is still hesitancy to outsource collateral services (as noted by the Finadium survey) can be found by taking a closer look at the regulatory environment.

There have been a series of measures passed in the OTC market — mainly from regulatory bodies such as Dodd-Frank, Basel and European Market Infrastructure Regulation (EMIR) — on OTC derivatives trading, primarily with the objective of increasing transparency and tightening counterparty risk. Key initiatives such as Title IV of the Dodd-Frank Act, which proposes the shifting of bilateral OTC trading to central counterparty clearing houses (CCPs) as well as the requirement to post initial margin for non-cleared bilateral trades, will invariably increase the amount of collateral required to support current levels of OTC trading, to around an additional USD2.2 trillion.3

However, strictly with respect to collateral, while Basel III has guidelines on treatment of collateral or how the usage of collateral can provide regulatory capital relief, there seems to be no specific legislation on setting global best practices guidelines on collateral management and associated penalties for not following them.

The absence of punitive measures in promoting strict guidelines for collateral management could explain why some of the smaller market participants in the region are still managing their collateral using manual processes and adapting a “wait and see approach” until proposed global regulations in the OTC market are adopted firmly by local regulators.

The Case for OutsourcingAs stated earlier, the key drivers for outsourcing have shifted from being a purely “cost” play to the consideration of other factors such as

risk management, sophisticated reporting and meeting regulatory requirements. Nonetheless, the cost component is still an integral part of the equation, especially when institutions decide on outsourcing versus an in-house solution.

The main costs incurred in insourcing a collateral management solution are threefold:

• The cost of buying a vendor platform

• The cost of implementing the platform and integrating it with the rest of the firm’s infrastructure

• The cost of hiring technical expertise in the field of collateral management

There are around six collateral vendors in Asia, which regularly compete against each other, with a wide base of intermediary and investor-based clients. Initial costs for the platform range from USD1.5 million to USD2.7 million. From an implementation perspective, costs range from USD1.5 million to USD3.5 million for a one-time implementation that could typically take around six to 12 months. The platform as well as implementation and integration combined can cost up to USD6 million.

With respect to building a team of collateral specialists, it was observed from discussions with clients that one full-time employee could support around seven to ten CSAs on a daily margining basis. A typical local bank in the region has around 20–30 CSAs and approximately four staff members, with one team lead who is usually a manager or Vice President. In contrast, larger international banks could potentially have approximately 200–500 CSAs with a staff of ten to 15, with senior team leads being expatriates (VPs or Directors) with experience working across global centers outside Asia.

Notably, while labor costs are higher in Tokyo, Sydney, Hong Kong and Singapore in comparison to Manila, Taipei, Kuala Lumpur and Seoul, it is evident that the scope for finding technical expertise in the field of collateral management is also fairly limited in those lower-cost countries. The argument that outsourcing applies to instances where countries with higher labor costs outsource functions to those with lower labor

3Source: 2010 Tabb Group report


costs is not applicable to collateral management services. Outsourcing collateral management services therefore is more a function of mitigating operational risk and paying for sophisticated services that are in line with market best practices rather than finding a lower labor cost jurisdiction to perform the service.

In summary, the decision to invest in an in-house solution will have to factor in the significant upfront costs that arise from vendor platforms and implementation along with accounting for time taken to integrate platforms as well as hire expertise in building a team.

The nature of outsourcing-related costs is such that they tend to be more evenly distributed through the lifetime of the outsourcing contract. Typically, a collateral outsourcing contract is charged by the number of CSAs and is incurred on a monthly basis without any upfront costs. The advantage of having this form of arrangement is that the client may adjust costs according to the number of counterparties faced and therefore the level of OTC activity, thus reducing the need to maintain a fully equipped team during periods of low volumes. Conversely, a spike in volumes or any scalability requirements could be immediately supported by the service provider without any dependency on increasing headcount or any issues factoring in for time constraints.

Outsourcing to a service provider also assumes that the collateral service provider would be responsible for following market best practices and regulatory changes and therefore constantly upgrade and fine-tune its offering to keep track of external changes occurring in the markets.

In today’s financial environment with various regulatory uncertainties such as limited capital for investments, strict hiring approval criteria and an uncertain market outlook, the decision to invest a large amount of capital in building in-house solutions may well be a risky one.

In conclusion, there seems to be a cautious shift in APAC both within the investor and intermediary client segments toward outsourcing complex and risky functions, such as that of collateral management to service providers who are in a position to implement quickly and smoothly in the face of a fast-paced changing landscape.

The Way ForwardThe collateral service provider’s core functionalities of supporting collateral and derivatives valuation, margin call calculation, CSA management, safekeeping, margin call issuances, rehypothecation and reporting are still largely in demand in the Asia Pacific Rim region, especially among the investor segment as well as some of the local and regional banks.

However, increasingly the focus in client meetings seems to have shifted to understanding how a collateral agent can assist in meeting the client’s collateral needs, at a time when most participants feel a liquidity squeeze could arise as a result of additional collateral requirements, stemming from the regulatory measures discussed above. Some clients in Singapore, Hong Kong and Australia have inquired on how a collateral agent can assist in offering funding in various currencies to meet non-USD margin calls from CCPs globally. Investor-based clients such as asset managers that have large pools of inventory such as corporate bonds have also inquired whether a collateral agent can, in fact, play a role in aiding the transformation of their assets into eligible collateral such as U.S. Treasuries or cash for a premium.

Market participants today are aware of the regulatory changes in the OTC landscape and, consequently, the increased need for collateral and in narrow eligibility terms. Concerns around liquidity management of collateral seem to be the dominant theme lately alongside the traditional risk and operational management of the collateral. It is this precise need that is driving market participants to approach collateral service providers for more sophisticated services involving collateral funding and transformation. As some collateral service providers evolve from specializing in the outsourcing of risk, administrative and reporting functionalities to engaging in funding and other risky balance-sheet-intensive financing, this may well revolutionize the role and nature of collateral agents. The key question, however, rests with the market participants: Would participants feel at ease outsourcing the custody and management of their collateral, a key risk area within their firms, to a collateral service provider that, in turn, engages in risky balance sheet and financing activities? Let the markets decide. ■


Market participants today are aware of the regulatory changes in the OTC landscape and, consequently, the increased need for collateral and in narrow eligibility terms.


Globalization

New Institutional Thinking Is Key to Japanese Fund FlowsChanges in taxation, market infrastructure and investor attitudes will all play a part in shaping investment flows in and out of Japan over the coming year. But the biggest change — and one with major implications for international fund managers — is a new determination among Japanese pension fund managers to lift returns through more aggressive investment strategies.


Demand for JGBs Boosting Inward FlowsIn the past couple of years, international investors have been consistent buyers of Japan’s big government bond market. Investment flows have been dominated by funk money fleeing the euro crisis. “The percentage of the Japanese Government Bond (JGB) market held by foreign investors used to be pretty steady at between 6.5% and 7.0%,” says Yasuhiro Yanakawa, Japan Head of Securities Services, Citi Transaction Services. “But over the last 18 months to two years, demand has accelerated. Foreign investors now hold around 8.7% of the market.”

That contrasts with the situation in equities, where foreign investor holdings have been stuck at around 22% of the market for some years. The largely export-orientated industrial base has deterred new inflows at a time when the U.S. economy has been struggling and Chinese growth slowing. “But with the U.S. economy showing signs of picking up in recent weeks and the yen depreciating against the dollar, we may see some change here,” says Mr. Yanakawa.

One looming problem is a scheduled rise in withholding tax. From January 2013, a new 2.1% reconstruction tax designed to help pay for the rebuilding program following last year’s earthquake and tsunami will lift the rate of withholding tax from 7.000% to 7.147%. That in itself may not bother too many investors — and will in any event only affect non-tax-exempt investors.

However, the current withholding tax rate is only temporary and is due to return to 15% in January 2014. With the new reconstruction tax on top, that rate will now rise to 15.315%. “The reconstruction tax may put off some foreign investors but, as the tax itself will reduce government debt, it may be seen as a positive for the market,” says Mr. Yanakawa.

Investors are also confronted by a host of structural changes to the Japanese markets this year and next — all of them positives in one form or another. First, the settlement cycle in JGBs was shortened in April this year from T+3 to T+2. Second, in July, Japan became the first

“Issuance of ‘double-decker’ funds has fallen of late in response to concerns expressed by the regulator, but demand remains strong.”


Asian country to introduce central counterparty clearing for OTC derivatives — credit default swaps among the first to be cleared centrally with interest rate swaps following in October.

One big benefit will come with the merger of the Tokyo and Osaka stock exchanges, slated for January next year. The move will herald a reorganization of the clearing functions of the JSCC and JDCC to allow cross-margining for listed cash equities and derivatives.

Steady Outflows Offer Scope for International Fund Managers Japan’s retail investors have long appeared a tempting target for international fund managers. More than half of all Japanese household financial assets are still held in bank deposits and cash. According to Cerulli Associates, mutual fund penetration has consistently remained at less than 4% since the Lehman debacle. Changing that number in favor of mutual funds is a big challenge, but it is also a big opportunity.

The Japanese have consistently invested overseas, and official figures show net outward portfolio investment going back many years with a wide spread of destinations. In a recent survey by the Internet broker Rakuten Securities, Japanese investors say they were most interested in putting money into Southeast Asia, the U.S., India and Brazil. There is indeed evidence that the BRIC theme is gathering momentum, offering new openings to cross-border fund managers.

For all that, retail investors remain risk-averse, says Paul Hodes, Citi Asia Consumer Wealth Management Head. “The focus is on income and yield, with a preference for monthly dividend products. But they also continue to look for yield opportunities internationally, including in frontier markets.” One area of concern, he says, is a tendency for some income funds to pay dividend out of capital, a move that has been discouraged by the regulator.

The winning product of the past couple of years has been the “double-decker” fund, which invests in a high-yielding foreign currency (such as the Australian dollar or Brazilian real) hedged against the yen. “Nomura introduced the first currency overlay fund in 2009,” says Sergei Diakov, Client Manager, Citi Global Markets, Japan. “Most of these funds are from Japanese managers.”

Issuance has fallen of late in response to concerns expressed by the regulator, but demand remains strong, says Mr. Hodes.

Penetrating a marketplace dominated by domestic players remains a challenge for all but a handful of foreign firms. In 2011, a simplified process for registering funds was introduced, which makes it easier for new entrants to market cross-border funds. But, as ever, the key to success lies in finding a domestic partner with distribution clout. While some of the big international names — BlackRock, Fidelity, Man Investments, AllianceBernstein — have succeeded with cross-border offerings, others have gone the onshore route. Cross-border funds accounted for just under 12% of Japanese retail fund assets at the end of 2011, roughly the same level as five years earlier, according to Cerulli.

Next year will bring new challenges. The Financial Services Agency (FSA) is proposing to tighten the rules relating to monthly distribution funds and the use of derivatives in double-decker funds. At the end of 2013, the tax rate on capital gains and dividends on equities and equity-invested funds is due to return to 20%, from the current 10%. That is surely a negative factor for fund sales.

Pension Funds Present OpportunitiesJapan has the second-largest pool of retirement assets in the world. Towers Watson puts the figures at USD3.36 trillion. Encouragingly for international fund managers, there are mounting signs that those who control these assets are starting to look at new ways of securing a worthwhile return.

The pressures on pension funds to engage in a radical rethink are mounting. Like a number of western countries, Japan faces a demographic crunch in the next two or three decades. Figures from Cerulli suggest the proportion of the population over 65 years of age is set to rise to 29% by 2020 and to 40% by 2040. Already, some pension funds are experiencing withdrawals as the number of retirees rises. With bond yields close to zero and precious little sign of a sustained recovery in the Nikkei, many pension funds are looking either at emerging markets or alternatives, opening up new opportunities for foreign fund managers.

Fund managers targeting the pension fund sector can expect tough questioning from prospective clients.


The Government Pension Fund has said it is looking to make allocations to emerging markets equities shortly. This could influence other public pension funds, says Cerulli. Moves to ease the licensing requirements for alternative fund managers also look timely. “Japanese pension funds are actively looking at the alternative investment space,” says Mr. Diakov. “That includes unusual strategies with an international flavor such as distressed debt or global macro where foreign managers have stepped in.”

Fund managers targeting the pension fund sector can expect tough questioning from prospective clients. Following the AIJ Investment Advisors fraud, uncovered in February this year, there is a renewed focus on due diligence and transparency among Japanese pension plan managers. AIJ, which for many years was a top-ranked fund in Japan, is being investigated for allegedly falsifying returns. It managed USD2.6 billion for 123 clients but much of the money has disappeared.

The FSA has since run its rule over some 260 other small fund managers and reportedly widened its investigation of AIJ to include three other firms. In September, the FSA announced a set of proposals aimed at preventing a recurrence of the AIJ affair. They include tightening trust bank oversight of NAVs and better and more regular reporting by managers to their clients.

Encouragingly, the AIJ affair does not appear to have dampened enthusiasm for alternative investments among Japan’s larger pension funds. In September, the USD8 billion Japan Teachers Mutual Aid Co-operative Society said it was, for the first time, making major allocations to local and global real estate investment trusts and hedge funds as part of a wider rebalancing of its portfolio designed to achieve returns of 3% to 5% annually. This was a mold-breaking move for a fund that had more than half of its assets in JGBs and corporate bonds at the last count. International fund managers will be hoping other funds are bringing some of the same thinking to bear on their own asset management strategies.

Citi Is a Pioneer in Japan and in Asian Fund Distribution SupportThe only foreign bank with a branch network in Japan, Citi has played an important role in the development of the market. It was the first provider of third-party clearing services for both cash and derivative products and is the only bank participating in all three CCPs for customer clearing. Similarly, it is the only foreign bank that participates in the Joint Working Group formed by the TSE and others — giving it a say in the evolution of Japan’s market infrastructure. At end of June, Citi Japan had USD161 billion in assets under custody.

For fund managers looking to enter the Japanese market, Citi helps advise on distribution strategy, and is able to provide introductions to both third-party distributors and the key gatekeepers in Citi’s own consumer and private banking operations.

With service desks in Hong Kong and Singapore, Citi can deliver every operational function to support the sales process — often meeting special servicing and timing needs. Its CIS distribution platform provides all the tools distributors need to sell mutual funds and many other products. CIS provides automated order-routing, settlement and asset servicing in more than 100,000 funds. ■

“Japanese pension funds are actively looking at the alternative investment space.”


Globalization

Local Insights: BrazilInvestors looking for growth today are increasingly drawn to the BRICs (Brazil, Russia, India and China), a collection of countries with rising consumption and productivity fueled by favorable demographics. While much of the buzz has focused on China and India given their expected future growth, in terms of asset management, Brazil is already quite large today.

With this in mind, asset managers looking to increase their global distribution should consider the Brazilian market. And though the outlook for the general economy remains strong, the current Brazilian fund marketplace can boast twice as much AUM as the remaining BRICs combined.1

Distribution in Brazil is not as easy as a penalty kick. Fund sales are largely dominated by a few large banks, many of which promote their own products. Up until recently, investors have favored

money markets or fixed income products, as the historically high local interest rates offered better risk-adjusted returns than most other asset classes — a scenario not expected to generate much interest in foreign equities. And foreign brands don’t resonate locally. Nevertheless, the environment for the Brazilian funds industry is changing dramatically: Armed with the right insights, asset managers can choose from a number of emerging opportunities.

1Cerulli Associates Quantitative Update: Global Markets, 2012


Growth of Asset ManagementHaving topped over US$1 trillion last year, the Brazilian fund marketplace is on par with the UK and one of the largest in the world. While many emerging markets offer the promise of long-term growth in the future, Brazil’s fund market is already there.

To this point, the majority of the growth in the Brazilian fund industry has been fueled by “local-to-local” flows — that is, local investors allocating domestically. The unwillingness of local investors to look to international equities is in part driven by their indifference to equities in general. “Ninety-nine percent of fund assets are invested locally,” notes Marcio Veronese, Citi Securities Country Manager in Brazil. According to Cerulli Associates, just 11% of fund assets are allocated to equities as of year-end 2011, with a combined 55% invested in money funds and fixed income.

But Veronese sees this asset allocation as more of a cyclical phenomenon than a structural one. Not too long ago, short-term rates on deposits were north of 10%, but “as rates continue to decline,” Veronese asserts, “this will change.” He also notes that pension funds are just starting to reallocate, given the low rate environment, and expects that investors will gradually shift out on the risk spectrum. “The first step is probably a shift from government bonds into corporate bonds,” he notes, “Then maybe real estate as well as equities, both local and foreign.”

As large as the fund management already is, there are signs that it has room to grow further. “The question of continued growth in professionally managed AUM hinges in part on the continued evolution of the middle class,” notes Veronese. Many of these consumers, he notes, are just now getting access to credit for consumption, including the purchase of a home. “They will perhaps become ‘savers’ before they become ‘investors,’” explains Veronese, “and it may take a substantial number of years for this to change.”

In the near term, growth in professionally managed assets has been fueled by the “A”-class, the rough equivalent of millionaires in the U.S. Interestingly, growth in this segment has not only boosted professionally managed assets, but has helped reshape the distribution landscape. “Some of these individuals recently

sold business, made dozens of millions, and as a result, private banks and family offices have flourished,” Veronese elaborates.

For foreign asset managers, this is welcome news. Whereas the largest retail banks in Brazil are vertical organizations heavily reliant on their own investment products, private banks and family offices typically utilize an open-architecture model. These outlets are also more likely to embrace international mandates and to recommend the use of alternative strategies — both potentially beneficial factors for foreign managers hoping to raise assets in Brazil.

GlobalizationCompared to China, there are fewer structural barriers to the globalization of Brazil’s capital markets. Until now, lack of appetite, rather than capital controls, has kept a lid on investment flows in and out of Brazil.

Just as retail investors have flocked to high yielding short-term instruments, so too have foreign investors looked to fixed income securities in Brazil. For long-term foreign investors, access is not a problem, but active management is challenging. “The liquidity of corporate and even some government bonds is still an issue,” explains Veronese, “as most investors’ allocation is held to maturity,” meaning there is no secondary market for trading these securities. Foreign investors also may have to pay taxes on gains from local bonds.

Of course, foreign investors are interested in local equities, and Veronese expects this to continue. Describing a virtuous cycle, he notes that countries with larger GDP tend to attract more investment. He further notes that from 2005 to 2011, the percentage weighting to Latin American equities in the major global benchmarks doubled. Such weightings in turn will influence how large institutions choose to invest.

Anecdotal evidence suggests that this line of thinking is not just theoretical. In July of this year, Japan’s Government Pension Investment Fund (GPIF) awarded emerging market equities mandates to six outside managers.2 While the exact size of the mandates was not disclosed, the $1.38 trillion fund did divulge that these allocations would be benchmarked to the

2“Invesco, Lazard among Japan’s GPIF mandate winners,” Ignites Asia, July 5, 2012.

Compared to China, there are fewer structural barriers to the globalization of Brazil’s capital markets.


MSCI Emerging Markets index, composed of 21 countries, including Brazil.3 In addition, based on recent conversations Veronese has had, the talk among European pension funds is that many are going to steer their asset allocation toward emerging markets. “I think we are living in a new world,” Veronese observes, “where investors have to follow the changing political and economic balance of power.”

Yet for all the foreign interest, interest in investing offshore on the part of local Brazilian investors remains a work in progress. As discussed above, sophisticated retail investors are more likely to take advantage of high interest rates or to consider local multimarket absolute return strategies. And while Brazil is clearly the fund powerhouse in Latin America, its pension marketplace, albeit larger, is not as advanced as that of neighboring Chile. Whereas Chilean pensions embrace offshore investing, even utilizing UCITS fund structures, Brazilian pension funds tend to be focused on the domestic fixed income market. And given the buy-and-hold

approach to fixed income investing discussed earlier, there’s little push for externally managed mandates. However, this too is expected to change over time as pension funds seek higher returns to meet their increasing liabilities, and turn to niche managers, particularly for diversified local or overseas mandates. Furthermore, it’s worth recalling that even in the U.S., few pension funds made significant overseas investments before the 1990s.

Next Steps for the MarketSetting aside home-country bias, the Brazilian market demonstrates a significant level of market maturity beyond its sheer size. The local derivatives market, for example, is extremely well developed. Roughly 80% of trades occur via the exchange, with only 20% trading over-the-counter (OTC) — almost the exact opposite of the U.S. market. Even bilateral trades require registration in a central depository and clearing system. Investor protections are also quite sophisticated, placing certain responsibilities on asset managers, while stopping short of being too restrictive.

Having said that, there are some potential next steps in the evolution of the Brazilian market. Beyond the expected diversification in pension fund portfolios, the development of local credit markets is an area for further development. As global investors rethink the notion of the “risk-free rate,” they are increasingly noticing that higher yield in emerging markets is often accompanied by stronger sovereign balance sheets than in developed markets. While some barriers to foreign access to debt have been removed in recent years, more needs to be done if global investors are to act on this thesis.

Market Entry: Don’t Go It AloneThe sheer size of the Brazilian marketplace makes it hard for asset managers to ignore, particularly for those managers in developed markets struggling to raise assets with their local investors. On the other hand, a few global managers with compelling brands have failed to make inroads into the local market.

3Ibid.


Any foreign manager seriously considering expansion into the Brazilian market would be wise to enlist the help of a trusted advisor. While in many respects more open than a market like China, a local partner can provide key insights to distinguish between what is simply permitted, and what strategies are likely to succeed.

With a demanding and increasingly global clientele, private banks and family offices are expected to drive the development of objective advice, not to mention the shift in the approach of institutional investors toward the same direction. That being said, Veronese estimates that these channels account for maybe 18% of professionally managed AUM, and managers need to approach them thoughtfully. “Our strength,” Veronese explains,” lies in our understanding of the local market and the insights we can share with our clients.” Such a knowledge base can be particularly helpful as asset managers set up their local footprint.

Finally, while expansion driven by “remote control” may work well in emerging market hubs such as Hong Kong or Singapore, that approach proves challenging in Brazil. While sale of UCITS funds is theoretically possible, they don’t travel well, triggering local taxes. “A local presence is not necessary for retail managers that have relationships with local partners, who could put together master feeder vehicles to invest in offshore products,” says Veronese. On the other hand, pension mandates will be off limits for foreign managers without a local presence. Even in the retail space, getting on the ground is essential to understanding the nuances of the market and showing a commitment to Brazil for the long term. Given Brazil’s reputation for working hard and playing hard, maybe being local isn’t a bad place to be. ■

Any foreign manager seriously considering expansion into the Brazilian market would be wise to enlist the help of a trusted advisor.


Despite many of the macro and political themes which dominated financial markets in 2012 not achieving clear resolution, the returns from a number of major asset classes exceeded historical averages last year. This was particularly the case in developed market equities and broadly across credit markets with the additional stimulant of much lower volatility. Moreover, despite the consensus bearishness on Europe at the start the year, European equities and EMU government bonds outperformed in 2012 while the slowdown in China, which made less headline news at the start of last year, precipitated a weak commodities market and poorer performance in commodity-linked emerging markets equities.

Our base case for global GDP growth in 2013, outlined in the first section of this report, is below consensus forecasts and little changed over 2012, with an expectation of continued recession in 2013 and 2014 in the euro area. With several important European elections taking place in 2013, the political dimension to policy-making — as seen so clearly in the U.S. with the year-end scramble to the edge of the fiscal cliff — should remain a major factor inhibiting the clear resolution of a number of structural issues. High private sector debts and high fiscal deficits mean that Europe in particular will most likely require a series of sovereign restructurings that will occur over a protracted number of years, thereby prolonging investor concerns.

In contrast to the concerns on Europe, our base case assumes that the U.S. will manage a “Goldilocks” policy transition with lower energy and transportation costs supporting a growing industrial recovery. China managed an orderly leadership change in late 2012, and its economy is now transitioning to a slower growth path of about 7% per annum, with a marked pickup in consumer spending. Despite slower growth, China can be expected to remain a global powerhouse, with real GDP doubling every ten years or so and

Market and Business Outlook

2013 Investment ThemesThe Search Goes OnAndrew Pitt — Global Head of Citi Research

directly accounting for about a third of estimated global growth in 2013–17, on our forecasts.

Our selection of investment themes for 2013 is influenced by our base case economic scenario and by our asset allocation framework and methodology. Over the course of 2013 as a whole, our asset allocation framework, outlined in the second section of this report, suggests a positive view on equities, a neutral view on credit and an underweight view on government bonds and commodities. Around these views, we discuss some shorter-term nuances and amplify some particular themes in other sections of the report.

In equities in particular, we believe that investors need to understand the serious implications on corporate behavior of a global equity market increasingly dominated by income-seeking investors where share buybacks and higher dividends are being rewarded and increases in capex penalized by shareholders. We also see an increase in M&A and spinoffs as a significant theme in the corporate sector in 2013 aimed at unlocking shareholder value. In Commodities, we discuss the consequences for investors in the year ahead of the commodity super-cycle being over as well as the implications of radically changing conditions in the oil market.

We have selected several investment themes for 2013 that come from our global analysis across industry segments and which we believe have the prospect of strong investor interest. These themes are urbanization in China, how to play the revolution in Gas within the global energy sector, the explosion of smartphone devices, and U.S. real estate. ■

For the full report please click here or visit the online version of our newsletter on our Thought Leadership page at openinvestor.transactionservices.citi.com

http://www.citibank.com/transactionservices/home/securities_svcs/investors/newsletter/101530/2013_it.pdf

openinvestor.transactionservices.citi.com


Market and Business Outlook

Quick Poll: Technology Vital to Addressing Wealth Managers’ Concerns Benjamin Poor Manager of Market Intelligence

“Quick Poll: Technology Vital to Addressing Wealth Managers’ Concern” is the latest thought leadership from Citi Securities & Fund Services. This white paper addresses the current concerns facing our wealth manager clients. Conducted in the third and fourth quarters of 2012. The poll surveyed approximately 20 wealth managers in the U.S.

Executive SummaryMarket volatility, shaken client confidence and the current state of the regulatory landscape are all creating headwinds for wealth managers. While these are seemingly disparate challenges, technology can play a key role in helping to overcome these challenges by improving efficiency, increasing transparency and facilitating the use of alternatives.

Growth Is Job #1Before digging deep into reporting technology and vendor satisfaction, we broke the ice by posing a big-picture question to wealth managers. When asked to identify their current greatest concern from a list of choices, 58% of wealth managers cited growth in revenue and assets under advisement. The state of the regulatory environment came in second with 21% of those

surveyed highlighting this as their greatest concern. This figure may reflect the fact that most wealth managers have already taken steps to improve their compliance and risk management processes. Another 16% cited process automation and scalability as a key area of focus.

The large focus on growth shouldn’t come as a total surprise. For several years, wealth managers have struggled with market headwinds: Gone is the near-surety of the equity performance enjoyed during the 1990s and mid-2000s, when annual double-digit equity returns were the norm. True, the S&P has rallied some 111% since the March 2009 lows,1 but this rebound may be fleeting and likely to be reversed over time, given concerns over the currency crisis in Greece or continued concerns regarding fiscal policy in the U.S.

1“S&P Rallies Most in One Year as Lawmakers Pass Budget,” Bloomberg, January 2, 2013.


meeting their goals. The high response rate for this factor in particular should be expected, since a similar number (58%) of respondents identified revenue growth as a major objective.

Cross-referencing responses to the first two questions yields some interesting insights. The interest in using technology is widespread, and not just confined to those wealth managers who highlighted growth as their key concern. Half of the firms citing the importance of new technology are leveraging such tools to address process efficiency through automation, or to help adhere to regulations.

Some other conclusions can be drawn from the responses. First, wealth managers will become reliant on service providers to achieve their goals: Adjusting for multiple responses, 68% of wealth managers have plans to deploy either new technology, market research or other service providers. Almost one third (32%) will use two or more such providers.

Wealth Platform Pain-PointsWealth managers paint a mixed picture in regard to the functionality of their current platforms. Specifically, 71% rate their investor reporting as “effective”, with just 12% rating it “ineffective.” Investor web access and navigation is also highly rated, with 59% of wealth managers calling it “effective”; in contrast, the advisor-facing front-end’s usability and functionality was dubbed “effective” by a slightly lower figure (47%), with 24% rating it “ineffective.”

Equally important, while the equity markets have rallied, not all advisors and their clients have participated. Many clients were scarred by the financial crisis, and, whether client-directed or advisor-directed, have been slow to get off the sidelines. Some, fearing another collapse of a major bank or broker-dealer, moved a large portion of their funds into FDIC-insured bank accounts.

For wealth managers, the important takeaway is that the bottom line has been impacted, making growth a key priority.

Technology Has Multiple ApplicationsTo address the key priority shown in the previous exhibit, 56% of wealth managers cite “new enhanced technology” as the critical tool to meet their objectives. Another 50% (multiple responses were allowed) highlighted the expansion of investment advisory sales and services as vital to

Which of the following best describes your greatest current Wealth Management concern?

Revenue and AUM growth

58%

State of the regulatory

environment 21%

Process automation

and scalability

16%

Client retention 5%


Stated satisfaction with householding solutions belies conflicting views on how those services are defined. For example, while 53% of wealth managers rate their current platform “effective” for household management and reporting, only 29% assign the same rating to their platform’s ability to aggregate data across multiple providers. Furthermore, just 27% rate their platform “effective” in terms of automated portfolio rebalancing. If householding is loosely defined as the ability to report in aggregate on all of an investor’s in-house accounts, then many

wealth managers are happy. If, on the other hand, householding is defined as the ability to not only report on, but also trade in all accounts, including those held away, then few wealth managers are highly satisfied.

Taken together, low satisfaction rates with the front-end and true householding capabilities further supports the high proportion of wealth managers viewing new technology as vital to reaching their goals.

The interest in using technology is widespread, and not just confined to those wealth managers who highlighted growth as their key concern.

How would you rate the functionality of your wealth management platform?

Effective Neutral Ineffective

Investor reporting 71% 18% 12%

Investor web access and navigation 59% 29% 12%

Household management and reporting 53% 35% 12%

Trust Accounting 50% 44% 6%

Modern front-end usability and functionality 47% 29% 24%

Ability to aggregate data across multiple providers 29% 41% 29%

Automated portfolio rebalancing 27% 67% 7%

Access to international ordinaries 17% 50% 42%

Which tools and/or services are critical in addressing your key concern?

56% 50%

22% 22% 17%

0%

10%

20%

30%

40%

50%

60%

New enhanced technology Expansion of investment advisory sales and services

Expanded use of market research, marketing or

social media

Greater use of third-party middle- and back-office

service providers

Greater use of clearing, brokerage, trust and

custody services

Which tools and/or services are critical in addressing your key concern?


Planned Changes to Asset AllocationData in the table below reveals that wealth managers are planning changes to their clients’ asset allocations in the next 12 months, particularly with respect to alternative strategies and vehicles. For instance, 38% plan to increase their allocation to commodities, which have the potential to hedge inflation risk, or to perform well should emerging markets lead the global recovery. One third of wealth managers plan to increase their use of hedge funds, and 30% plan to increase their allocation to private equity. So while much has been written about concerns over disclosure and fees in the alternative space, wealth managers seem to have either wrestled concessions from managers, or have embraced tools and technology to increase portfolio transparency.

Just under one-third (31%) of wealth managers have plans to increase their use of exchange-traded funds (ETFs). This comes at an interesting time for the industry: On the one hand, price wars and product closures suggest consolidation for the industry. On the other hand, according to Strategic Insight, ETFs have garnered $44.8 billion in net flows YTD October 2012, while active U.S. equity and hybrid funds bled $85.1 billion.2 Advisors continue to view ETFs as an effective tool to actualize a short-term investment theme, identify long-term beta or equitize cash while transitioning managers.

2Strategic Insight Monthly Industry Review, October 2012.

One third of wealth managers plan to increase their use of hedge funds, and 30% plan to increase their allocation to private equity.

Please state the expected change to your clients’ allocations over the next 12 months

Increase Stay the same Decrease

Commodities 38% 54% 8%

Equities 35% 41% 24%

Hedge Funds 33% 56% 11%

ETFs 31% 63% 6%

Private Equity 30% 70% 0%

Fixed Income Securities 27% 40% 33%

Mutual Funds 25% 56% 19%

Real Estate 8% 75% 17%


Data suggests that many advisors are awaiting some clarity with regard to the fiscal cliff and the sustainability of the economic recovery before repositioning their clients’ portfolios.

For all these planned changes to their asset allocation, a fair number of wealth managers seem to be standing pat. For six out of eight strategies listed in the table above, at least 54% of wealth managers report no planned changes in their allocation. In the other two instances — fixed income and equities — 40% and 41% of wealth managers expect to keep the same asset allocation. This data suggests that many advisors are awaiting some clarity with regard to the fiscal cliff and the sustainability of the economic recovery before repositioning their clients’ portfolios.

A Link Between Growth and Alternatives?Cross-tabulating this asset allocation data against the other survey responses reveals some intriguing findings. For example, focusing on the firms who are planning on increasing their exposure to alternatives (commodities, hedge funds, private equity or real estate), 89% of these firms also identified “revenue and AUM growth” as their greatest wealth management concern. Conversely, among the firms who did not identify revenue and AUM growth as their greatest concern, 88% aren’t currently using alternatives at all.

What can we glean from these figures? We caution that the data in the two instances could be correlated, rather than causal; nevertheless, it seems to suggest that there is a link between the increased use of alternatives and a focus on growing the business. At a minimum, the data

shows that those not currently using alternatives have identified the current state of the regulatory landscape, process automation and scalability, and client retention as key concerns.

Final ThoughtsA key takeaway from Citi’s autumn 2012 quick poll is that technology, be it deployed in-house or via a service provider, is vital to helping wealth managers increase revenue, reduce costs and increase efficiency. Returning to the use of alternatives, it could be the case that those wealth managers not using alternatives today might change that stance over time, if given the right tools to address their concerns over regulations and process automation. ■


Regulatory

Regulatory & Legislative Update4th Quarter 2012The most notable event during the fourth quarter was the passage of the American Taxpayer Relief Act of 2012 (the “Taxpayer Relief Act”). Although technically passed by Congress in 2013, it had the effect of passing by December 31 in order to avoid the spending cuts and across-the-board tax increases that would have resulted if a budget deal had not been reached. With respect to mutual funds, the Taxpayer Relief Act allowed tax withholding rates to remain at 28%, instead of rising to 31% on January 1. The Taxpayer Relief Act also raised the maximum income tax rate to 39.6% on incomes over $400,000 for individuals and $450,000 for couples.

By: Bruce Treff Managing Director of

Citi Fund Services

and

Chuck Booth Director of Regulatory

Administration and Compliance

Support Services


The tax increase, coupled with the new 3.8% Unearned Income Medical Contribution Tax, means that after-tax performance calculations must now use a 43.4% maximum tax rate for distributions and redemptions after January 1, 2013, rather than the 36% rate used for distributions and redemptions prior to January 1.

There were also several other regulatory items from the fourth quarter that are worth mentioning. Chief among these, derivatives rulemaking by the Commodity Futures Trading Commission (the “CFTC”) and the Securities and Exchange Commission (the “SEC”) continued to make important strides toward increased regulation of the swap and security-based swap markets. In particular, the swap and security-based swap guidance issued last July paved the way for numerous compliance dates in the fourth quarter of 2012, as well as in the first and second quarters of 2013. Many of the compliance dates dealt with the required registration and reporting requirements for swap dealers and major swap participants, as well as the requirement for them to adopt risk management procedures and appoint a chief compliance officer.

More important for investment advisers and mutual funds, CFTC amendments to Rule 4.5 under the Commodity Exchange Act (the “CEA”) went into effect with a compliance date of December 31, 2012. The amendments conditioned an investment adviser’s ability to rely on the rule’s exemption from registration on certain trading and marketing restrictions applicable to a fund’s positions in futures, options on futures and commodities swaps. Funds must apply the trading restrictions tests every time a new derivatives position is entered into in order to determine whether they remain eligible to claim the Rule 4.5 exemption. Also, investment advisers wishing to rely upon the exemption must proactively file an annual Notice of Eligibility with the National Futures Association (the “NFA”) to claim it, with the first one due on March 1, 2013.

If the trading restrictions are not met by the fund and it is deemed to be a commodity pool, the investment adviser must register with the CFTC as a commodity pool operator (“CPO”) and the principals and certain employees of the adviser must register with the NFA. Furthermore, because the definition of a swap was expanded


The CFTC also issued several no-action letters during the period that provided relief for certain fund operators that might otherwise need to register as CPOs. Chief among these was CFTC no-action letter 12-38 issued on November 29, 2012. The letter indicated that the CFTC Division of Swap Dealer and Intermediary Oversight would not take enforcement action against investment advisers for failure to register as a CPO based upon the fund of funds they manage until the later of June 30, 2013 or six months from the date that the CFTC issues revised guidance regarding how advisers are to determine if the fund of funds they manage (whether registered or private funds) qualify as commodity pools. In order to qualify, the manager must: (i) manage one or more fund of funds; (ii) not exceed the de minimis thresholds for requiring CPO registration with respect to the fund’s direct holdings in derivative positions; (iii) not know, or could not reasonably have known, that the fund’s indirect exposure to derivatives exceeded the de minimis registration thresholds; and (iv) the commodity pool for which the adviser is seeking relief is either a registered mutual fund or compliant with CFTC Regulations 4.13(a)(3)(i), (iii) and (iv).

In other news, on November 13, 2012, the Financial Stability Oversight Committee (the “FSOC”) proposed recommendations for money market fund reform. The FSOC issued the proposed recommendations on November 14, 2012 for a 60-day public comment period that they later extended until February 15, 2013. The proposal, while not offering any new solutions, continues to reiterate the administration’s focus on reform, which was also recently echoed as a priority by Mary Jo White, President Obama’s choice for new chairman of the SEC. The three FSOC proposed recommendations would require money market funds to have: (i) a floating net asset value (“NAV”); (ii) a stable NAV with a capital buffer of up to 1% plus a “minimum balance at risk,” which would require a portion of the shareholder’s investment be made available for redemption on a delayed basis and subject to loss if a fund’s losses exceeded its capital buffer; and/or (iii) a stable NAV with a 3% capital buffer,

to include certain foreign exchange swaps and forwards, many funds and advisers previously not caught under the definition of a commodity pool or a CPO, respectively, are now to be treated as such. Advisers registered as CPOs are subject to extensive ongoing disclosure, record-keeping and reporting requirements under the CEA.

One set of key regulations, CFTC Regulation 4.27 and NFA Rule 2-46, requires CPOs to periodically file Form CPO-PQR and/or NFA Form PQR, based upon their level of commodity pool assets under management. For the time being, however, mutual funds are exempt from these filing requirements due to the CFTC’s position that the rule’s application to registered funds is tied to CFTC’s harmonization rule proposal. This proposal is intended to clarify the compliance requirements for firms that find themselves having to live under a dual reporting regime due to registration requirements with both the SEC and the CFTC. Regardless of the registered fund exclusion, though, unregistered funds and their advisers could be required to file Form CPO-PQR as early as March 1, based upon the December 2012 measurement period.

These considerations are more important now that the U.S. District Court for the District of Columbia, on December 12, 2012, dismissed the lawsuit that the U.S. Chamber of Commerce (the “Chamber”) and the Investment Company Institute (the “ICI”) had filed against the CFTC. The lawsuit attempted to rescind the amendments to CFTC Rule 4.5 and, thus, would have restored the blanket exclusion available to investment advisers of registered mutual funds. The court ruled that the CFTC acted within its rulemaking authority in adopting the rule’s amendments. While the Chamber and the ICI have appealed the decision, funds and their investment advisers need to consider the registration and reporting obligations that could apply to their operations. However, until the proposed harmonization rule is finalized, the full impact of the new rules on disclosure and reporting requirements for registered investment companies remains unclear.


plus other measures to enhance the effectiveness of the buffer and potentially increase the resiliency of money market funds. The FSOC noted that none of its recommendations were mutually exclusive and may work in combination to some degree.

Since the proposed recommendations have been issued, Northern Trust has filed a registration statement to launch a floating NAV money market fund, and numerous other mutual funds, including SSgA, Fidelity, Goldman Sachs, JP Morgan, Federated, BlackRock, Charles Schwab and BNY Mellon, have indicated that they would begin disclosing their money market fund’s daily market value NAVs (“mark-to-market”) on their public websites. Thus, 2013 appears to be another year primed for potential money market fund reform. Given the current status of comments and proposals, as well as the SEC’s statements, it would probably be no earlier than fall 2013 before anything definitive (e.g., final rulemaking) could be expected.

If the trading restrictions are not met by the fund and it is deemed to be a commodity pool, the investment adviser must register with the CFTC as a commodity pool operator (“CPO”) and the principals and certain employees of the adviser must register with the NFA.

In conclusion, the fourth quarter represented further movement toward the resolution of post-financial crisis regulation. In that regard, clarity toward this new bifurcated regulatory structure has been slow in developing and will probably not be resolved for several years. Finalization of the harmonization proposal and other regulations will help define the compliance requirements for investment firms and their financial products, but we expect it will take some time living under the new regime before the dust finally settles. ■


SurveyPlease share your thoughts by completing a short survey. Your input is appreciated.

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Citi OpenInvestorSM is the investment services solution for today’s diversified investor, combining specialized expertise, comprehensive capabilities and the power of Citi’s global network to help clients meet performance objectives across asset classes, strategies, and geographies. With a network that spans more than 95 countries and over $13 trillion in assets under custody, Citi offers award-winning service and unmatched scale. Citi provides complete investment services for institutional, alternative, and wealth managers delivering middle-office, fund services, custody, investing and financing solutions focused on clients’ specific challenges, customized to their individual needs. For additional information, please visit openinvestor.transactionservices.citi.com

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