Journal of Applied IT & Investment Management - Vol.2,No.2

MITIGATE RISK REDUCE COST ENABLE GROWTH

#JOURNALVolume 2 · No. 2 ·August 2010of Applied IT and Investment Management

ENABLING GROWTH THROUGH BEST-PRACTICE IT

Merele A. MaySenior Vice PresidentAmerican Century Investments

RAISING THE BAR WITH ADAPTATION OF NEW MESSAGING STANDARDS

The SWIFT case for ISO 20022

THE FUND MANAGEMENT INDUSTRY AND THE FINANCIAL CRISIS

Karel LannooChief Executive OfficerCentre for European Policy Studies

CHOOSING THE OPTIMAL IT PLATFORM FOR BEST-OF-BREED ASSET SERVICING

Alex Buffet, Head of Market Data and Asset Servicing, SGSSChristian Wutz, Managing DirectorSGSS Deutschland

2 August2010 JOURNALOFAPPLIEDITANDINVESTMENTMANAGEMENT SimCorp

CONTENTS# ENABLINGGROWTHTHROUGH

BEST-PRACTICEIT:ANORTHAMERICANEXAMPLEINAGLOBALCONTEXT 3

# GLOBALSURVEY:SIZEMATTERS–LARGE INVESTMENTMANAGERSOUTPERFORM THEIRSMALLERCOUNTERPARTS 10

# RAISINGTHEBARWITHADOPTION OFNEWMESSAGINGSTANDARDS: THESWIFTCASEFORISO20022 14

# THEFUNDMANAGEMENTINDUSTRY ANDTHEFINANCIALCRISIS:REGULATORY CHALLENGESANDOPPORTUNITIES 18

# CHOOSINGTHEOPTIMALITPLATFORM FORBEST-OF-BREEDASSETSERVICING: AEUROPEANCASESTUDY 21

# IFRS9:THECHANGESANDIT CHALLENGESINSTORE 27

# NEWSIMCORPSTRATEGYLABVOLUME ONGROWTHANDVALUECREATION INASSETMANAGEMENT 30

# BOOKREVIEWS 34

# REGULATORYUPDATE 36

# RECENTRESEARCHANDWHITEPAPERS 38

CEO COMMENT:

Taking growth a step further

EDITOR-IN-CHIEFLars Bjørn Falkenberg, Senior Vice President, SimCorp A/[email protected]

EDITORIALASSISTANTMette Trier, SimCorp A/[email protected]

PUBLISHERSimCorp A/S, Weidekampsgade 16, 2300 Copenhagen S, Denmark, Phone: +45 35 44 88 00.

Journal of Applied IT and Investment Management is a quarterly publication, published and distributed globally by SimCorp A/S. Print run: 13,500.

SUBMISSIONGUIDELINESArticles, book reviews, new reports and information on recent research can be submitted for review to Editorial Assistant Mette Trier, [email protected]. For submission guidelines, please visit www.simcorp.com/journal.

LEGALNOTICEThe contents of this publication are for general information and illustrative purposes only and are used at the reader’s own risk. SimCorp uses all reasonable endeavours to ensure the accuracy of the information. However, SimCorp does not guarantee or warrant the accuracy or completeness, factual correctness or reliability of any information in this publication and does not accept liability for errors, omissions, inaccuracies or typographical errors. The views and opinions expressed in this publication are not necessarily those of SimCorp.© 2010 SimCorp A/S. All rights reserved. Without limiting rights under copyright, no part of this document may be reproduced, stored in or introduced into a retrieval system, or transmitted in any form, by any means (electronic, mechanical, photocopying, recording or otherwise) or for any purpose without the express written permission of SimCorp A/S.SimCorp, the SimCorp logo, SimCorp Dimension and SimCorp Services are either registered trademarks or trademarks of SimCorp A/S in Denmark and/or other countries. Refer to www.simcorp.com/trademarks for a full list of SimCorp A/S trademarks. Other trademarks referred to in this document are the property of their respective owners.

ISSN 1903-6914

SUBSCRIPTIONSubscription to the journal is free of charge for members of the industry, associated institutions and academics. To subscribe, please visit www.simcorp.com/journal. Change of address should be e-mailed to [email protected].

by CEO Peter L. Ravn

WeatSimCorpviewrisk,costandgrowthasthe key strategic drivers of the financialindustry.It isourmissiontohelpcorporateclientsidentifywaystomitigaterisk,reducecostandenablegrowthintheglobalinvestmentmanagementindustry.

SharingthismissionisSimCorpStrategyLab.As an independent research institution, itrecently published its 'Report on GlobalInvestment Management Growth Survey2010.Amongtheinterestingconclusionswas

thatafteralongperiodwithfocusonmitigatingriskandmanagingcost,growthnow seems to be the first strategic priority among investment managementcompanies.Basedonitsfindings,thesurveyconcludesthatcompanieswithhigherannualrevenues,aclearstrategicfocusongrowthandasignificantproportionofMBAs/finance degrees among staff – all factors in evidence at SimCorpincidentally– likelywillcontinuetoenjoytheabove-averagegrowthratestheyhaveexperiencedinthepast.

What it also shows is that companies that focusongrowth tend toachieve it,whereasaprimaryfocusoncost–tocitejustoneexample–doesnotnecessarilyproduce the same results. Perhaps equally important, larger investmentmanagementcompaniesseemtohavemoreconfidenceintheirITinfrastructurethantheirsmallercounterparts.Giventhewaveofregulatoryinitiativescurrentlyunderway,thesurveyindicatesthattheabovetrendscanbeexpectedtoaccelerate.Thelargeracompanyis,thebettereducatedworkforce,thebetterITinfrastructure,thebetterpositionedfornewregulatoryrequirements,thebetteritwillbecapableofofferingcompetitiveproductsatcompetitivepricesandachievingprofitablegrowthduetoeconomiesofscopeandscale.

Alongwiththesurvey,SimCorpStrategyLabhaspublisheditslatestvolumeonthe global asset management industry. In ‘Growth and value creation in assetmanagement’, professionals and experts from the investment managementindustryandresearchsharetheirviewsandinsights.

They address such key issues as what it takes to implement successful growthstrategies,howvaluecanbecreatedinadurableandsustainablewayandwhatthefuture implicationsofoperational challengesandITarchitectureare.SimCorpStrategyLabhasalreadypublishedtwoessentialvolumes:oneonriskandoneoncost.Withthisthirdandfinalvolumeongrowth,SimCorpStrategyLabhastakenastepfurtherinitsmissiontoidentifythekeyparametersdrivingtheindustrytoday.

GrowthandvaluecreationwillalsobeontheagendaattheSimCorpDimensionInternationalUserCommunityMeeting(IUCM)on8-10SeptemberinBerlin.Amongtheconferenceprogrammehighlightsaresharingideasaboutexcellenceofferedbyindustryleadersandparticipatinginworkshopsaboutindustrysectorchallenges and best practices. I certainly look forward to seeing many of ourclientsthere.

Peter L. Ravn, Ph.D., is CEO at SimCorp. Read the journal online at www.simcorp.com/journal

SimCorp JOURNALOFAPPLIEDITANDINVESTMENTMANAGEMENT August2010 3

# Enabling growth through best-practice IT: a North American example in a global context

W ithitscorporatehead-quarters located at4500 Main Street,Kansas City, Mis-

souri, American Century Investmentspridesitselfinbeingmore‘MainStreet’than‘WallStreet’.Asapremierinvest-mentmanagerwithanexpandingrangeoffinancialproductsandservicesforin-stitutions,investmentprofessionalsandindividuals,ithasbeenafixtureoftheUSinvestmentmanagementscenesince1958whenitwasfoundedbyJamesE.Stowers, Jr. with $107,000 in capitalandonly24investors.Fromthesemodestbeginnings,AmericanCenturyInvest-mentshasgrowntobecomeoneofthetop asset management firms in theUSA,managingapproximately$90bil-lioninassetsforindividualandinstitu-tional investors and employing morethan1,300persons.

Since American Century Investmentswasfounded,thecompanyhasgrowntobecome an experienced investmentmanagerofferingitsclientsabroadarrayofinvestmentproductsacrossavarietyof investment disciplines. One centralbelief,sharedbyeverypersonatAmericanCentury Investments, guides theworkethic: the company succeeds when itsinvestorssucceed.

The company’s management teams areguided by well-defined, repeatableinvestmentprocessesandarededicatedto fully invested, active managementapproaches.Offeredisacomprehensive

In today's dynamic post-crisis financial environment, as fast-paced change spawns both fresh opportunities and challenges, investment management companies need innovative approaches for transforming growth strategies into reality. Taking a different approach can unleash the power of creatively leveraging new technologies.

rangeofinvestmentdisciplinesforclients,including:

• USGrowthEquity;• USValueEquity;• FixedIncome;• QuantitativeEquity;• GlobalandNon-USEquity;• AssetAllocation.

In terms of corporate organisation,American Century Investments is or-ganisedaroundfiveperformancegroups–Client,Investment,Marketing,Opera-tingandPeople.This structure ensuresalignment,accountabilityandallocationofresourcesbasedoncompanypriorities.The Client Performance group unifiesand integrates all of the company salesoperations. Its areas include: Institu-tional Sales; Intermediary Sales; andGlobalandNon-USDistribution.

Investment Performance oversees thecreation and management of invest-ment strategies for the company bystrivingtoproduceoutstandinginvest-mentresultsandinnovativeproductsforclients and investors. The investmentmanagement activities are divided asfollows: American Century ResearchCenter;AssetAllocation,FixedIncome,Global Trading; International Equity;InvestmentBusinessManagement;Port-folioAdvisoryGroup;QuantitativeEq-uity;USGrowthEquityandUSValueEquity. Combined in the MarketingPerformance group are all corporate,product and channel marketing and

related functions to create a client-driven marketing organisation. Theteamshere include:Brand andAdver-tising; Corporate Communications;Direct Sales & Service; MarketingCommunication; Corporate Strategy;Product Management; Client Market-ing;CreativeServices;PublicRelationsandAcquisitions.

TheOperatingPerformancegroupcon-sists of departments that provide stra-tegic services to the company and itsclients. Operating Performance groupareas are: Client Operations; Finance;Information Technology; InvestmentOperations; Internal Audit; FacilitiesandLegal&Compliance.

ThePeoplePerformancegroupcombinesfunctionsthathelp leveragepeoplere-sources in supportofbusiness strategyand values-based culture. This areaincludes: Compensation & Benefits;TalentManagement;StaffingandCom-munityInvestments.

GROWTHBEYONDTHEUSBut American Century has not con-fineditsgrowthtotheUSmarketalone.Aspartofitsobjectivetobecomeaglo-balproviderofinvestmentmanagementproductsandservices,thecompanyhasexpandeditsnon-USpresencetoincludeofficesinHongKongandLondon.ThiscomplementsitsUSactivities,whichinaddition to its Kansas City corporateheadquartersalsoincludeofficesinMoun-tainView,CaliforniaandNewYork.

Merele A. May, Senior Vice President of Investment Operations, American Century Investments, Kansas City, USA.

August2010 JOURNALOFAPPLIEDITANDINVESTMENTMANAGEMENT SimCorp4

FromitsAsiaPacificsalesoffice,openedinHong Kong in May 2009, AmericanCenturyisextendingitsinvestmentman-agement capabilities tofinancial inter-mediariesandinstitutionalinvestorsacrossAsiaPacific,includingAustraliaandNewZealand.Theprimaryobjectiveistocon-tinue to deliver superior investment per-formancewithafocusonriskmanagementandqualitysecurityselection.

The development into the Asia PacificregionfollowedonfromthesuccessfulopeningofaLondonofficein2008.In-creasingly,non-USinvestorsarerecog-nising the applicability of AmericanCentury’sinvestmentapproachtotheirportfolios,whichhascreatedatremen-dous opportunity for expansion. TheHongKongopening complements thecompany’s commitment to execute ahigh-qualityproactivestrategytoserveitsexpandingclientbaseofnon-USin-vestorsmoreeffectivelyandtogrowitsinternationaldistribution.

The London office is initially focusingon delivering the company’s equitygrowthstrategiesacrossglobalgrowthandUSgrowthequitysectors.Whereasall asset management responsibilitiescontinuetobemanagedintheUSA,the

Londonsalesteamtargetsfinancialin-termediariesandinstitutionalinvestorsacrosstheUnitedKingdom,EuropeandtheMiddleEast.

Also in 2009, American Century re-ceived regulatory approval in Luxem-bourgandtheUnitedKingdomtosellopen-ended mutual funds throughoutWesternEurope.Inaddition,itsignedastrategicagreementwithZurichFinan-cialServicesGrouptobringAmericanCentury’s mutual funds to Australia.Thestrategicreasoningbehindallthesemovesisthatgreaterexposuretointer-nationalmarketswillhelpthecompanytodiversifyandavoidunnecessaryvola-tilityinassetsundermanagement.

CALIBRATINGTOTHEHIGHESTSTANDARDSButthetypeofgrowththatAmericanCentury is pursuing also brings chal-lengesinadditiontocreatingopportu-nities.Internationally,itisreallyfocusedontheinstitutionalinvestor.Inthebe-liefthattheinstitutionalinvestoristhemostdemanding,AmericanCenturyistrying to calibrate the company to thehigheststandardsineverythingitdoes.While the firm already has attractedbillionsofdollarsfromnon-USclients,itrealisestheinstitutionalsalescycleisnormally slow and that achieving suc-cess requires patience and a long-termperspective.

WhileAmericanCenturyoffersarangeofinvestmentstrategies,non-USclientsaremostinterestedinthefirm’suniquephilosophyofgrowthinvesting,whichis founded on the belief that accelera-tinggrowthinearningsandrevenuesismore highly correlated to stock priceperformance than theabsolute levelofgrowth. This philosophy often directsthecompanytoresearchdifferentcom-paniesthanothergrowthmanagers,asAmericanCenturydoesnotrequireanabsolutethresholdofearningsorreve-

nuegrowth.Thisenablesitsinvestmentmanagerstotakeadvantageofboththenormal price appreciation that resultsfromacompany’searninggrowth,plusthe market’s re-rating of a company’sprice-to-earningsmultiple.

Inthiscontextofcalibrationandcorre-lation,theInvestmentOperationsbusi-nessunitofAmericanCenturyplaysapivotalroleinthisarea.Withastaffofjust45persons,whichissmallbyrelativestandards,theunit’sprincipalactivitiesentail mutual fund accounting for thecompany’srangeofretailfunds,whichinclude overseeing the mutual fundaccounting that has been outsourcedto JP Morgan; assuming tax-relatedresponsibilitiesforthemutualfundsideofthebusiness;mutualfundreportingand the actual accounting for institu-tional products. In the last instance,American Century deploys the inte-grated investmentmanagementsystemembodiedinSimCorpDimension.

Thebusinessunitalsohasclearlydelin-eateddatamanagementresponsibilities.These include: setting up the securityattributes forallportfoliosand instru-menttypesusedbythecompany’sport-folio managers; ensuring that tradessettle;reconcilingwithfront-officesys-tems to make sure positions and cashare tied out and aligned; and invest-mentreporting(i.e.portfoliocharacte-ristics,performance,holdings).

Aspartofitsroleinhelpingtofulfilthecompany’s growth objectives, the pri-marygoaloftheInvestmentOperationsbusinessunitistoactasanauthoritativesource of data, ensuring that data isaccurate,preventingerrors infront-to-back office operations and providingfullsupporttotheinvestmentmanage-ment teams. This entails providingthemwithcash informationandaccu-rate and timely data as and when it isneeded.

“Increasingly, non-US investors are recognising the applicability

of American Century’s investment approach to their portfolios, which

has created a tremendous opportunity for expansion.”



'Profits with a Purpose': Through American Century Investments' ownership structure, more than 40% of company profits support research to help f ind cures for gene-based diseases such as cancer. The company also supports LIVESTRONG, the foundation established by Lance Armstrong (Armstrong's cycling gear is exhibited in the company's lobby).

“In this context of calibration and correlation, the Investment Operations business unit of American Century plays a pivotal role in this area.”

6 August2010 JOURNALOFAPPLIEDITANDINVESTMENTMANAGEMENT SimCorp

Thereisamajorresponsibility involvedin providing sales channels with therightdatatheyneedtoserviceandmain-tainexistingAmericanCenturyclientsor to go out and acquire new clients.Thishasbecomeall themoreapparentin the present financial environmentwhere a harsher business climate hasgenerated reductions in staffing levelsandothercostefficiencies.

GEARINGUPFORGROWTHWithagrowthstrategyinplacethatde-manded that international expansionplay an integral part in meeting thecompany’sbusinessobjectives,thetimehad come to evaluate the environment

forenablingandsupportingthatgrowth.Themaincriteriawereasfollows:

• support international expansion (i.e.viaHongKongandLondon);

• removetheriskofbottlenecksintheintroduction of new institutionalproductsandservices;

• expedite time-to-market for the ad-ditionofnewfinancialinstruments;

• aimtobecomemoreself-reliantandnotalwaysbeoverlydependentonITforchangesthatneededtobemadetothesystem;

• maintain data accuracy to mitigateoperational risk of using inaccuratedatainthebackoffice.

Opening new offices in London andHongKongwithaviewtomovingmoreinto the institutional space meant thattheclientportfoliosundermanagementwouldbefacedwithotherreportingre-quirements,suchasbeingdenominatedincurrenciesotherthantheUSdollar.Additionally,theabilitywasrequiredtoscalethebusinesswithoutincreasingtheheadcount or overloading the existinginfrastructure. The company’s account-ing system was built for precision andaccuracy, and from an accounting per-spective, American Century was com-fortable that it could deliver the rightdatatoitsusers.

But then the question was how bestcould it incorporate the new reportingrequirements within the existing ac-countinginfrastructure?HowcouldIn-vestment Operations ramp up to sup-port the expansion of the company’sinstitutional and international businessactivities? With the old system, the

time-to-markettoaddnewproductsorinstrumentswasnotasquickasitcouldbe.Becauseofthelanguageofthecur-rent proprietary system, code changeswould have to be made and tested toaccommodate new holdings, new pro-ducts,newinstruments,etc.Theoldin-frastructure was based on a sturdymainframeCOBOLsystemand ithadserveditspurposewellovertheyears.

AmericanCenturythenstartedtakingalookatallitsinternalsystems.Itenjoyedareputationofbeingknownin the in-dustryforbuildingitsownhigh-qualityin-housesystems.Asthemarketschangedand with the arrival of new leadershipwithin the company, it was decided tobroaden horizons and start examiningpotentialpartnersindifferentareasthatwould make sense for the business. Inthespotlightwerescalabilityandbestofbreedinthemarkettomaintaindataac-curacy,toscale,toaddnewproductsinatimelyfashioninsuchawaythatmiti-gated the operational risk associatedwithsupportingthebusiness.

CHOOSINGAFULLYINTEGRATEDANDFLEXIBLEITPLATFORMAmericanCenturywentlivewithSim-CorpDimensioninMay2010,deployingmodules covering back-office account-ing,performance,andcertainaspectsofreconciliation.Takingpartintheselec-tion process at American Century wastheSeniorVicePresidentofInvestmentOperations, Vice President of Invest-ment Operations and Assistant Treas-urer, SVP and Chief Technology Of-ficer, the respective Vice Presidents ofApplication Development and Institu-


“In the spotlight were scalability and best of breed in the market to maintain

data accuracy, to scale, to add new products in a timely

fashion in such a way thatmitigated the operational

risk associated with supporting the business.”


tionalClientStrategy,aswellasITandbusinessprojectmanagers.

Amongthefunctionalitiesthatinitiallystoodoutwasagreatereaseofusebyac-countants who report that it is nowmucheasier to investigateandfindtheinformation they need. There is nolongeranyneedforSQLqueriestoob-tainthedatarequired.

Thebusinessunitfounditselfinaposi-tion where only certain individualsknewhowtorunthecorrectSQLque-riestoobtainthedatarequiredfromtheoldsystem.Butwithstaffingreductions,thisbecameachallenge,with thebur-den of responsibility resting with justonetotwopersons.

Withafullyintegratedandflexiblesysteminplace,followingtheinitialtrainingitisnowmucheasierfortheentireoperationsandinstitutionalteamtoobtainthedatarequiredwithoutencumberingoneortwopersonstorunSQLqueriesontheirbe-half.Itisnowmucheasierfortheaverageuser towork independentlyandbemoreproductive.Inaddition,teammembersnolongerneedtobephysicallyintheofficetopriceandportfolioscanbecalculateddailyonanautomatedbasis.

Another important factor is that be-foremovingtoanewsystem,Ameri-canCenturywasalotmorereliantonIT to make changes that were re-quired in relation to the old system.WhileITisstillneededtoundertakecertain responsibilities like transportdata, there is a great deal more thatcan be done now without having tojointhequeue.

ENABLINGGROWTHTHROUGHBESTPRACTICEOf immediate advantage in terms ofenabling growth is the value addedthatuseofafullyintegratedandscal-able system brings to help makeAmericanCentury’sinstitutionalandinternational expansion succeed. Itssalesforcewillbetheultimatebenefi-ciary.Ofparamountimportanceistheneedtobeabletoaccountforwhatevernewbusinesstheybringinandreportitaccurately.

Asthebusinessisrampedupandnewclients brought in, the lead-time tolaunchnewproductswill be reducedconsiderably.Thesalesforcecannowassurenewclients that theyhave thenecessarybackupandsupporttotakethemonwithabusinesssysteminplace

that provides a 360-degreeviewofwhatisgoingonininvestmentoperations.

Thesalesteamcanalsore-assure clients that theybenefit from a personal-ised service with custom-ised reporting that is at-tunedtoandalignedwiththeir requirements. The

ideaistobemoreflexibleandagileinresponding to client requests. With anew system based on a highly config-urableandfullyintegratedmodularso-lution as an important contributingfactor in its IT infrastructure,Ameri-canCenturyisinmoreofapositiontotailoritsservicestoaclient’sneeds.

Oneexampleofvalue-addedcustomisedreportingistheuseofmulti-currencies.With the old system, the InvestmentOperations business unit was not in aposition to account for currencies de-nominatedotherthanintheUSdollar.Operatinginamulti-currencyaccount-ingmodewasabenefitthatuseofacon-figurable and scalable system immedi-ately brought to the table. Whereaspreviouslytherewerechallengesinpro-vidingclientswiththetypeofcurrencyreporting they wanted, with use of thenewsystemthisisnowpossible.

Enablinggrowthisnotonlyanexternalfunction.Allcompanieshavetheir ‘in-ternal customers and stakeholders’ toconsideraswell.InthecaseofAmeri-can Century’s Investment Operationsbusinessunit,itwasnowinapositiontotellits‘internalcustomers’thatitdidnotsimplygooutandinitiatethenewsys-

“In order to reconcile cash and positions every day without adding staff, an efficient system is required ...”


temsprojectforuseinoperationsalone.Thiswasmoreaboutthesalesforceex-pressingadesireforthebusinessunittoimproveitsclientreportingcapabilities,aswellasitsabilitytoexpeditesupportfornewproductsandnewservices.

The unit also internally referenced theproject as an accounting and reportingproject.AlongwithInvestmentOpera-tions, theInstitutionalSalesgroupisaco-owneroftheproject.

COSTEFFICIENCIESANDSYNERGIESReducing costs and creating synergieswere also important considerations inthechoiceofamodularsolution.Whentheoldsystemwasexaminedtoascertainprecisely which processes and applica-tionswereslowordeficient,itwasdis-covered that in the area of derivatives,whetheritwasswapsoranotherinstru-ment, American Century was not asautomatedas itwished tobe.Sowheninvestmentmanagersnowbringinanew

product, a flexible and scalable systemallowsAmericanCenturytoaccountforitwithouthavingto interruptproceed-ingsandgetITinvolvedinwritingandtestingnewcodes.Thismeansthatthecompanyisnowinamuchbetterposi-tion for quick turnarounds to supportnewproductsasandwhentheyare in-troduced.Also,ITresourcescanbeuti-lised by other parts of the business insupportofthefirm’sgrowth.

Inordertoreconcilecashandpositionseverydaywithoutaddingstaff,aneffi-cientsystemisrequiredsothataccount-antshave time to reconcile cash,hold-ingsandthelikeinordertoavoidputtingtradingmanagersintheuncomfortablepositionwheretheyaretradingonbadpositions,badcash,etc.

The use and application of up-to-dateandaccuratedatagoalongwaytowardsmitigating operational risk. Having asystemwherethequalityofdataisneversubject to question and which can beeasily navigated, researched and relieduponinstilsconfidence,createspeaceofmind and helps the entire investmentprocesstobemoreefficient.

WhentheInvestmentOperationsbusi-nessunitranafive-yearforecastonthelikely return of investment engenderedintheuseofthenewsystem,thenum-bers turned out to make sense. Con-cludedwasabreak-evenpointafterfiveyears;butperhapsmoreimportantlythenumbersindicatedthatitsusewouldputAmericanCenturyinapositiontogrow.

Thenumberofsystemend-usersatAmer-icanCentury currently runs to25, splitamong accounting, data management,custody,institutionalsalesandinforma-tiontechnology.AmericanCenturyseesapotentialinexpandingtheuseofsuchsolutionswithinthecompanytoembracetheLondonandHongKongoffices.

“Having a system where the quality of data is never subject

to question and which can be easily navigated, researched

and relied upon instils confidence, creates peace

of mind ...”

American Century Investments

AmericanCenturyInvestmentsisaleadingprivatelycontrolledandindependent asset managementfirm,committedtodeliveringsu-perior investment performanceandbuildinglong-termclientre-lationships. Serving investmentprofessionals,institutions,corpo-rations and individual investors,American Century Investmentsoffers a variety of actively man-aged investment disciplinesthrough an arrayofproducts in-cluding mutual funds, institu-tional separate accounts, com-mingled trusts and sub-advisoryaccounts. Founded in 1958 andbased in Kansas City, Missouri,the company manages approxi-mately$90billioninassetswithaworkforceof1,300.


Merele A. May is Senior Vice President of Investment Operations at American Century Investments. He leads a department that has responsibility for mutual fund accounting, institutional accounting, investment reporting, financial reporting, data management and custody operations. He is a member of the company’s senior leadership team and has served as Controller responsible for all aspects of accounting related to 1940 Act mutual funds. Prior to joining American Century in 1987, he was an Audit Senior with Arthur Young & Co., working exten -sively with mutual fund, banking, and government clients. He earned his Bachelor of Science degree in accounting from the University of Missouri, Kansas City.

www.simcorp.com


Imagine we could start again

Many decisions in life, once taken, are unfortunately irreversible. In the aftermath of the crisis, many investment management firms agree that were it not for past operational decisions, more firms could be better strategically positioned for whatever the future may hold.

However, evident to most, adapting to the near future requires a significantly improved ability to mitigate risk, reduce cost and capture a profitable part of future growth. Some decisions can actually be corrected. In many cases they ought to be. Think strategically when investing in software.

SimCorp Dimension is a scalable and modular STP front-to-back enterprise system for the investment management industry that enables institutions to mitigate risk and reduce cost while enabling growth.


With financial markets showing strong signs of recovery and a more optimis-tic mood prevailing in the investment management industry, the 'Report on Global Investment Management Growth Survey 2010' by SimCorp Strategy-Lab shows that focus is shifting from risk management and cost control toward growth. Larger companies are in the best position to capitalise on this growth due to economies of scale, investment in infrastructure, global reach and a highly educated workforce.

Larger companies (defined asthose with 1,000 employeesormore)haveweatheredtherecentcrisissomewhatbetter

than their smaller counterparts. In2009, four in ten companies managedto grow their revenue by 3% or more.However, 60% of larger companiesachieved this level of growth, whileonly33%ofsmallercompaniesdidso.A similar pattern applies to earnings(EBIT): twice as many larger compa-niesgrewtheirEBITby3%whencom-paredtothesmallercompanies.Thepastyearhasbeenquitehardontherespondents:morethanhalfexperiencednegativeornegligible(under2%)growthin both revenue and earnings (EBIT).Theoutlookfortheupcomingyearisabit more positive, with only about athirdofrespondentsexpectingtogrowrevenue/EBITbylessthan2%.Aseriesof trends are apparent with respect torespondents’ growth plans going for-ward.Most(84%)ofthebusinessessur-veyedindicatethattheyhaveagrowthstrategy and that this strategy is re-viewedat leastonceayear.Morethanhalf see growth as having increasedstrategicimportance,andalmostoneintwoseegrowthasahigherprioritythaneitherriskmanagementorcostcontrol.Almostall(87%)seeITinfrastructureasimportantinsupportinggrowth.What are the characteristics of a suc-cessful high-growth investment man-

agement institution? While there arealways exceptions to any rule, a cleartendency emerges with respect to theprofileofasuccessful,high-growthin-vestment management company. Sucha company typically has over 1,000employees,atleast$1billioninannualrevenueandaclearemphasisongrowthin revenue, earnings and assets undermanagement,aswellasahighconcen-trationofMBAsorfinancedegrees.Whyisthisthecase?Thesurveyresultsshowthatpastrevenue/EBITgrowthismuch better for companies with morethan1,000employeesthanforsmallercompanies(seeabove).Similarly,com-panieswith$1billionormoreinannualrevenue are roughly twice as likely tohavegrownbothrevenueandEBITby3% and up when compared to theircounterparts with less annual revenue.Whethercomparingbyemployeecountor annual revenue, growth projectionsare decidedly more optimistic amongthelargercompanies.Aclearemphasisongrowthalsohelps;thosecompaniesratinggrowthasstrategicallyimportantand/or high priority have significantlybettergrowth rates than companies inwhich growth is less prominent. Thefindingsalsodemonstrateaclearcorre-lation between a company’s past andfuture growth and how many MBAs/masters of finance they have on staff:themorehighly educated its staff, themorelikelyacompanyistoachievehighgrowthrates.

GLOBALISATIONISKEYAMONGBUSINESSESINNORTHAMERICAANDASIAWhilesizeandgrowthfocusundoubt-edlymatter,theimpactofglobalisationshould not be overlooked. The surveyshowsthatwhileonlyoneinthreeEu-ropean companies intends to open anew locationor locationsby2011, thedesire to do so in other parts of theworldisatleasttwiceasstrong.ThisisreflectedbythefactthatNorthAmeri-can/Asian respondents are more likelytoseegeographicexpansionasagrowthdriverthanEuropeanbusinessesare.Asopportunities in domestic markets be-

Dave Beveridge, MBA, Research Consultant, SimCorp StrategyLab.

Lars Falkenberg, Assistant Director, SimCorp StrategyLab.

# Global survey: size matters – large investment managers outperform their smaller counterparts

Report on Global Investment Management Growth Survey 2010. Download the full report and learn more about enabling growth at www.simcorp.com/enablegrowth.


Learn more about SimCorp StrategyLab at www.simcorpstrategylab.com

Figure 1. Primary objectivesAs the investment management industry emerges from the f inancial crisis, increased emphasis is placed on enabling growth versus risk mitigation or cost control.

Figure 2. Factors for future growthThere are many factors for future growth, almost all of which are considered highly or very highly important by at least two-thirds of respondents.

38% 33% 29%

30% 23% 47%

32% 44% 24%

100%80%60%40%20%0%

1st Rank

2nd Rank

3nd Rank

Mitigating riskManaging costPreparing for growth

100%80% 90%60% 70%40% 50%20% 30%10%0%

18% 53% 27% 2

26% 47% 19% 6% 2

24% 45% 23% 4% 4%

24% 44% 26% 4% 2

28% 40% 24% 4% 4%

34% 46% 16% 2 2

22% 45% 26% 5% 2

31% 51% 13% 3% 2

20% 45% 28% 3% 3%1

25% 46% 22% 4% 1 2

24% 36% 35% 3%11

Regaining client condence

Ability to change

Scalability

Financial market stability

Signicant distribution in leading markets

Product breadth and consistency

Capital strength

Strong risk management capability

Technology investment capability and skills

Marketing and sales skills

High customer service quality

Avg

3.9

3.8

3.9

3.8

3.8

3.8

3.8

4.1

3.9

3.8

4.1

29% 46% 21% 4%

27% 47% 23% 3%

26% 44% 24% 6%

20% 53% 23% 4%

20% 48% 31% 1

22% 47% 27% 3% 1

27% 46% 24% 1 2

19% 45% 30% 5% 1

17% 47% 25% 5% 4% 2

23% 44% 25% 5% 2 1

20% 37% 34% 6% 2 1

22% 42% 26% 6% 3%1

Low price and production cost

Strong brand

Organisational/management capability

Ability to attract talented motivated sta�Ability to implement increased/tighter

regulation/complianceAbility to meet increased competition

Ability to meet demands from clientsAvoidance of an extended real economic,

stock market or nancial market slumpAdequate liquidity and reserve capital

Ability of IT systems to scale

Increased focus on costs

Budget availability for expansion/growth

Avg

3.7

3.9

4.0

4.0

4.0

3.8

3.9

3.7

3.7

3.9

3.9

3.8

54321Don’t know

100%80% 90%60% 70%40% 50%20% 30%10%0%

1=Not at all 5=To a very high degree


gin to dry up, there is an inexorablemovement towards expansion beyondnational/regional borders, particularlyfrom North America and Asia intoothergeographicalmarkets.COMPANIESTHATPUTEMPHASISONGROWTHAREMOSTLIKELYTOACHIEVEITDespite the fact it may seem obvious,thereisacausalconnectionbetweentheprioritisationofgrowthandthegrowthrates a company expects to achieve.Companiesplacingthehighestlevelofstrategic importance on their growthefforts are also those companies likelyto have both a growth strategy and aformal growth framework in place.These factors, combined with growthacceleration strategies such as newproducts or launching into new seg-ments, show that these businesses areamongthetopperformersin2009andexpect to assume the same positionagainin2010-2011.Infact,threetimes(36%)asmanycompaniesratinggrowthas very strategically important antici-

patedouble-digitrevenuegrowththancompanies with less of a focus ongrowth(11%).COSTMANAGEMENTASPRIMARYFOCUSISANALOGOUSTOLOWREVENUEANDEBITGROWTHIn a sign that better times are ahead,55% of the businesses surveyed indi-cated that growth has taken on morestrategicimportanceinthecurrenten-vironment,withonly7%indicatingtheopposite.Infact,47%ofallbusinessessurveyedidentifiedgrowthastheirtoppriority going forward, relegating riskmanagementandcostcontroltosecondand third place respectively. However,giventhecurrenteconomicenvironmentoffallingorflatGDPandfinancialmar-kets in various stages of recovery, thistendencywillleadtoincreasedcompe-titionandincitecorporateDarwinism.Simplyput, thegrowth-focussedcom-panies’ ambitions to increase the sizeandscopeoftheirbusinessabovemar-ket growth rates will come at the ex-

penseofthosecompanieslesspreparedtogrow.Companiesprioritisinggrowthtendedtohavemarginallyhighergrowthrates (revenue and EBIT) in the mostrecent year compared to risk-focussedcompanies and much higher growthratesversuscost-focussedcompanies.This legacy of results carries forwardintothepresent,withgrowth-focussedcompanies expecting higher revenueandEBITgrowthratesintheupcom-ingyearandwiththeproportionofriskandcost-focussedbusinessesexpectingfuturegrowthtomoreorlessmirrorthepreviousyear’sresults.AWELL-EDUCATEDWORKFORCEISAGROWTH-ENABLEDWORKFORCECompanies with a high proportion ofMBAandfinancedegreeholdersareinabetterpositionforgrowth,whichmaybewhywelloverhalfoftherespondentsare looking to increase the number ofMBAsemployedbytheirorganisation.Thesurveyshowsthatthosecompanies

Figure 3. Expected annual revenue growth crossed with top corporate priorityCompanies prioritising cost management over risk mitigation and growth are far less likely to achieve meaningful revenue growth rates going forward.

60%40% 50%20% 30%10%0%

Negative

0-2%

3-5%

6-8%

9% or more

Don’t know

Prefer not to disclose

Mitigating riskManaging costPreparing for growth

3%

30%

23%

7%

20%

13%

3%

48%

35%

9%

9%

36%

23%

13%

21%

6%

# Global survey: size matters – large investment managers outperform their smaller counterparts


looking to expand geographically havethehighestproportionofMBAsamongtheirstaff:overathirdofthesecompa-nieshaveatleast31%oftheirworkforceholdinganMBA.Theimplicationisthatadvancedbusinessacumenisneededifacompany has aspirations of capturingshare outside its traditional geogra-phicalmarkets.Growth-driven companies employ ahigher complement of MBA/financedegree holders than do their counter-parts that are driven primarily by riskmanagement and cost control. One inthreegrowth-drivencompanieshaveatleast30%ofstaffholdinganMBA,ver-susoneinfourofrisk-drivencompaniesand only one in twelve of cost-drivencompanies. It is very tempting to con-clude that companieswithahighcon-centration of staff with MBA and fi-nance degrees have higher growthambitions and are more focussed onbusinessandvaluecreation.When thisobservation is coupledwiththe earlier findings that growth- andrisk-centriccompaniesweremuchmorelikely to achieve revenue growth thancost-drivencompanies, it canbe statedthatholisticbusinessacumen–expres-sedasapercentageofMBAsinanorga-nisation–isakeyharbingerofgrowth.Putanotherway,curtailing investmentand reducing spending is not the stra-tegytofocusonifmeaningfulgrowthistobeachieved:moreemphasisshouldbeplacedonbusinessandvaluecreationasopposedtocostmanagement.The revenue growth projections alsosupport the contention that growth ismorelikelywithawell-educatedwork-force. As an example, one in five re-spondentsprojectingatleast6%revenuegrowth have two-thirds of their staffholdingMBAs.Onlyonerespondentof26 with 3%-5% projected growth canboastofasimilarproportion,whilenotasingleoneoftherespondentswithlow(less than 2%) revenue growth projec-tioncanclaimtohaveasmanyas61%of their staff with MBA degrees. Thenumbers are not radically different forthosewithamaster’sdegreeinfinance.Itseemsthatwhilebusinessandfinancedegreesmaynotbeapanaceatoensuregrowth,acompany’sabilitytogrowand

gainmarketshareiscertainlyenhancedby a higher presence of MBA and fi-nancedegreeholders.ITINFRASTRUCTUREISKEYINSUPPORTINGGROWTHOBJECTIVESHavinganITinfrastructurecapableofsupportingacompany’sgrowtheffortsisessential. Only one respondent out of100believedthatITinfrastructurewasnot at all important in supportinggrowth;87%hadtheoppositeview.The‘importanceofIT’and‘capabilityofITto support growth strategy’ ratingsacrossvariousparameterssuchasreve-nue, geography and growth strategywere fairly homogenous, although acoupleofpointsdostandout.In particular, the survey showed thatrisk-centric companies were signifi-cantly more pessimistic when it comesto assessing the capability of their ITinfrastructuretosupportgrowth.Thisislikelyareflectionoftheincreaseinleg-islation and regulation–both real andanticipated–and its impactonacom-pany’sabilitytogrowinthefaceofmorestringent compliance requirements.Once again, size is a factor: smallercompaniestendtohave lessconfidenceintheirITinfrastructurethanthelargercompaniesdo.LargercompaniestendtohavetheresourcestoinvestintheirITinfrastructure and are therefore betterpositionedtoexploitgrowthopportuni-ties than smaller companies with lesscomprehensive infrastructure. Ostensi-blythismeansthatlargecompaniescanautomate several processes that thesmallercompanieswillhavetodoman-ually. The consequence is that thesmallercompanieswillbespendingtimeon error handling, administration andotherroutineactivitiesratherthancre-atingadditionalvaluefortheirbusiness.Where geographies are concerned, allregionsbelievethatITinfrastructureiscriticaltorealisingtheirgrowthstrate-gies.Ingeneral,Europeanrespondentsare more sceptical than their NorthAmericanandAsiancounterpartswhenitcomestothecapabilityoftheircurrentITinfrastructuretosupportgrowth.Finally, thesurveyresults indicate thatthemajorityofrespondentsaresatisfied

toahighorveryhighdegreewiththeirinvestment management system. Ingeneral, companiesplacing thehighestdegree of strategic importance ongrowth tend to have lower satisfactionratingsfortheirinvestmentmanagementsystemthanthoserespondentsplacingless emphasis on growth. This is a by-productofthefactthatcompanieswithaggressive growth strategies tend tohavemoredemandingrequirementsfortheirinvestmentmanagementsystem.GROWTHISABY-PRODUCTOFSTRATEGYASOPPOSEDTOASTRATEGYINANDOFITSELFThereisgeneralconsensusthatfocusongrowthisimportant:fiveoutofsixbusi-nesseshaveagrowthstrategy inplace.Ofthese,95%reviewtheirgrowthstrat-egy at least once every second year.However,itisnotexactlyclearwhatthisstrategyis,giventhat lessthan30%ofbusinesseshaveagrowthframeworkormethodology in place. This indicatesthatwhilemanybusinesseshaveaspira-tionsofgrowth,therearenotthatmanythathaveconcretestrategiesinplacetopromoteandmanagegrowth.

Inotherwords,theprevailingsentimentisthatgrowthistheresultofotherwell-executedstrategies (e.g.geographicex-pansion,newproducts,mergerandacqui-sition)asopposedtoastrategyonitsown.Growthistobeachievedinanumberofways.Themostcommongrowthaccel-eration strategies mentioned are intro-ductionofnewproducts(65%)andnewclientsegments(60%);atleastathirdofbusinesses surveyed also listed expan-sion into new regions (37%) and newindustrysegments(36%)aswell.Threeof four businesses surveyed target abroadarrayofinvestmentmanagementmarket segments; only 19% have a fo-cussedstrategythatisconcentratedonanarrowsegmentorsegments.CLIENTRELATIONSHIPISNOTAKEYFACTORINGROWTHPROSPECTSMost(69%)businessesseetheirkeydif-ferentiatorsintheareaofproductinno-vationversuslow-costleadership(22%).The innovators (88%) are much morelikely to have a growth strategy thantheir low-cost counterparts (68%) and

seegrowthfactorssuchasclientconfi-dence, branding, attracting motivatedstaff and avoiding another economicslumpasmuchmoreimportant.Despitethesedifferences,thepercentagegrowthinrevenue,EBITandassetsunderman-agement(AUM)–bothinthepastyearand expected for next year – are verysimilarinnature.CONCLUSIONANDADDITIONALREMARKSBased on the results, it can be con-cludedthatcompanieswithhigheran-nualrevenues,aclearfocusongrowthandasignificantproportionofMBAs/financedegreesonstaffwillcontinuetoenjoy the above-average growth ratesthattheyhaveexperiencedinthepast.

Tobeblunt,therearevalidreasonswhysomesmall-andmedium-sizedcompa-niesgrowuptobelarge,multi-nationalconglomerates,nottheleastofwhichisawillingnesstoinvest ingrowth,hirecompetent business-minded personnelandcapitaliseonvaluecreation,aswellashavingtherightfocusattherighttime.Havingsaidthat,itisnotalwaysreadilyapparenthowcompaniesexpecttogrow,giventhatrelativelyfewhaveanyframe-workinplacetoachieve it.Thereareaplethora of initiatives to expand thebusinessandcaptureshare;itcanbear-guedthatgrowthinrevenue,EBITandAUMistheresultofwell-executedcor-porate strategies as opposed to a con-certed effort to grow. In any case, theevidence is in place that those compa-nies placing high strategic importanceongrowingtheirbusinessasopposedtomanaging it are likely to grow at agreater rate than their counterpartswhosefocusiselsewhere(i.e.onriskandcostmanagement).The market is becoming increasinglypredatory in a post-crisis environmentwhereweakplayers fallby thewaysideand the strong, growth-focussed com-paniescapturethemarketsharethatthesmaller, resource-poor companies areunabletodefend.Thebottomlineisthatlargecompaniesperformedbetter thanthesmallercompanies in2009andex-pect to do so again in the upcomingyears,provingthatsizematters.


Consistency in communication connectivity oils the cogs of the investment management industry. Adoption of the ISO 20022 messaging standard offers a key example of providing standardised messaging to ensure consistency as an essential prerequisite for efficient risk management, cost effectiveness and business growth.

Central to the communica-tionsmodelofmanyoftheleadingplayersintheinvest-mentmanagementindustry

arestandardstoensurethesmoothandconsistentflowoffinancialdata.Whilethe industry’s various infrastructuresbenefitfromimprovedproductivityandoperational efficiencies associatedwithstandardisation,allparticipantsextend-ingtotheend-clientgainfromtheresul-tingreductioninriskandlowercostsfordomesticandcross-bordertransactions.

Standards are a core element of thebusinessactivitiesofSWIFT,thecon-duitthroughwhichthefinancialsectorconducts its business operations withthe speed, certainty and confidence itrequires. Providing a range of stand-ards-relatedproducts,toolsandservicestosupporttheinvestmentmanagementindustry,SWIFTcollaboratesineffortstoensuretheinteroperabilityofstand-ards,sothatthecommunityatlargecanalsobenefitfrompotentialcostsavings,eliminate inefficiencies and smoothlyexpandintopreviouslyuntappedmarkets.

Specifically designed to help industrydevelopers implement standards easily,while reducing implementation costs,SWIFThasdevelopedacoherentandcohesivesetofelectronicstandardsre-sources. This range of products helpscustomerstoimplementstandardseffi-cientlyandeasily.Standardsaredevelopedinresponsetousercommunitybusinessand regulatory requirements. They areavailable for the community to trans-portacrosswhateversystemischosen.

ASINGLESTANDARDASGOALCurrently there arenumerousmessag-ing standards and standardisation ini-tiatives addressing financial informa-tionflows.SWIFTisworkingtowardsa rationalisation of standards and tofacilitateinteroperabilityandconsistencybetweenstandardsdevelopedbydiffer-entstandardsbodies.'

Inadrivetoofferabetter,cheaperandfaster way of developing and imple-menting message standards, SWIFThasbeenheavilyinvolvedintheestab-lishmentandimplementationoftheso-calledISO20022standardisedmessag-ing infrastructure. SWIFT uses theISO20022modellingmethodology initsstandardsdevelopmentandpromotesits adoptionglobally.FurtherevidenceofSWIFT’scommitmenttostandardi-sation is in its role as a registrationauthority,whereitactsastheguardianofISO20022’sintegrity.

ISO20022isinstrumentalforfinancialinstitutions that want to streamlinetheircommunicationinfrastructureandassociated costsbyopting for a single,common language–or lingua franca–forallfinancialcommunications,what-everthebusinessdomain,thecommu-nicationnetworkandthecounterparty(other financial institutions, clients,suppliers and market infrastructures).

It is targetedat these standards initia-tivesthataregenerallydrivenbycom-munitiesofuserslookingformorecost-effective communications to supportspecific financial business processes

withaparticularviewtofacilitateinter-operabilitywithotherexistingprotocols.

ISO20022:HISTORICALCONTEXTThe financial world is built on highlyreliable, fast, auditable and seamlesslyprocessable intra- and inter-companycommunicationsofinstructionstoena-blebusinesstransactions.Moneymovesfinancial assets. Historically thesemovements (or messages) evolved intostandard formats based on national orregionalboundaries,marketparticipantinitiatives, or standards mandated byspecific industryutilities likeSWIFT.These message standards developedaround silos of automation based onmarket practice or geographical loca-tions, and themessage standardswerenotcompatible.

In order to address this compatibilitychallenge,theInternationalOrganiza-tion for Standardization (ISO), theworld’s largestdeveloperandpublisherof international standards, developedtheInternationalStandardISO20022–Universalfinancial industrymessagescheme (since abbreviated to ISO20022).InitiallydevelopedtoadheretotheISO7775standardandtosupportthe functionality used by SWIFTfor their telex messages from around1977, it grew out of the ISO 150022standard of the 1990s and hence intoa type of second edition also knownas SWIFTML, which covered justsecurities. In 2004 the scope wasexpandedtoincludeabroaderremitofallfinancialservices.

Arun Aggarwal, Managing Director, UK, Ireland & Nordics, SWIFT, London, UK.

Sophie Bertin, Global Head of Asset Servicing and Custodians, SWIFT, London, UK.

Hervé Valentin, Senior Business Development Manager, Marketing, SWIFT, Brussels, Belgium.

# Raising the bar with adoption of new messaging standards: the SWIFT case for ISO 20022


The need for an ISO 20022 standardaroseintheearly2000swiththewide-spreadgrowthofInternetProtocol(IP)networking, theemergenceofeXtensi-bleMark-upLanguage(XML)asthede facto open technical standard for elec-troniccommunications,andtheappear-ance of a multitude of uncoordinatedXML-basedstandardisationinitiatives,each having their own ‘XML dialect’.Ontopofofferingacommonwayofus-ingXML,thenewstandardshieldsin-vestments from future syntax changesbyproposingacommonbusinessmod-elling methodology (using UniversalModellingLanguageorUML)tocap-ture, analyse and syntax-independentlydescribe the business processes of po-tential users and their informationneeds.

ISO20022:AWORKINGDEFINITIONISO20022istheinternationalstandardthat defines the ISO platform for thedevelopment of financial message stan-dards. Its business modelling approachallowsusersanddeveloperstorepresentfinancialbusinessprocessesandunder-lyingtransactionsinaformalbutsyntax-independent notation. These businesstransaction models are the ‘real’ busi-ness standards. They can be convertedinto physical messages in the desiredsyntax.AtthetimeISO20022wasdeve-loped, XML was already the preferredsyntaxforelectroniccommunication.

The ISO 20022 standard provides thefinancialindustrywithacommonplat-formforthedevelopmentofmessagesinastandardisedXMLsyntax,using:

• a modelling methodology (based onUML) to capture in a syntax-inde-pendentwayfinancialbusinessareas,business transactions and associatedmessageflows;

• asetofXMLdesignrulestoconvertthemessagesdescribedinUMLintoXMLschemas.

ISO20022isastandardforstandards–amethodology for thecreationofcon-sistentmessagestandardsusingdatatodescribedataandinteractions.Thisflex-ible framework allows communities ofusers and message developmentorganisations to define message setsaccording to an internationally agreedapproach and to migrate to the use ofcommonXML-basedsyntax.Itisessen-tiallytheroadmaptoestablishingacon-sistentlingua francainglo-balfinancialmarkets.

In developing businessstandards to supporttransactionsinthefinan-cial markets for pay-ments,securities,treasuryand trade services, tradi-tional MT messages arecomplementedbythenewISO 20022 XML-based(MX) messages, whichenable the transfer ofricherdataformorecom-plex business transac-tions.FortransportacrossSWIFTNet, messagesareeitherwrappedinsideaSWIFTNetFileActenvelope,orpack-agedinoneofthegrowingrangeofso-lutionsthatSWIFTprovides.

MX messages are increasingly used inthe securities industry, with adoptionextending beyond Europe to Asia andtheUSA.MXmessagesoffermoreclarityandhavewiderapplicationthanearlierprotocols, so their use enables invest-ment managers to improve straight-through-processing(STP)rates.Conse-quently they can drive down costs,reduce operational risk and readily ac-commodate increased volumes as theirbusinessesgrow.

SWIFTBOOSTSMXUSUAGEIn the specific case of SWIFT, MXmessagesusageissteadilyincreasingformutualandpensionfundflowsautoma-

tion, while new MX messages to sup-port corporate actions and securitiessettlementaresettogolivein2010.TherangeofMXmessagesofdirectinteresttotheinvestmentmanagementcommu-nity, notably for securities settlementandcorporateactions,willbroadendra-maticallyoverthenextyearandbeyond.

Reflecting this development, SWIFThas linked up with SimCorp in an

agreement to use SimCorp Dimensionasanintegratedandscalablesolutiontoaccept, process and transmit SWIFTISO20022MXmessages.Theproofofconcept involved bringing togetherSWIFT’sAllianceIntegrator, thecon-figurable SWIFT-specific integrationplatform, and SimCorp in a combinedsolution, which will be complementedin future by one based solely aroundSimCorpDimension.Asa long-stand-ing member of SWIFT's partner pro-gramme,SimCorpisgeareduptoposi-tionitselfasaleadingsoftwareproviderintermsofMXadoption.

The investmentmanagement industry’sabilitytomeasuretheprogressofauto-mation and standardisation in cross-border fund order processing has re-ceivedasignificantboostasaresultofa

“Central to the communications model of many of the leading players in the investment management industry are standards to ensure the smooth and consistent flow of financial data.”


regular annual survey jointly carriedoutbySWIFTandtheEuropeanFundand Asset Management Association(EFAMA), the representative associa-tionoftheEuropeaninvestmentman-agement industry. According to thesurvey findings for 2008, key successfactorsincludeadoptionofthenewISO20022-based single template for fundorders, implementation of EFAMA’sbest-practicerecommendationsforfundprocessing,aswellasuseoffocusedandlarge-scale standardisation campaignsby fund managers, transfer agents(TAs)andplatforms.

Anongoingpriorityistoforcethepaceof adoption and to reach the levels ofstandardisationthathavebeenattainedfor other securities. According to thelatest survey covering 2009, the per-centage of automated orders based onthe ISOmessaging standard increased

to 45% in volume terms. This is anincrease of 4.3 percentage pointscompared to 2008. EFAMA’s FundProcessing Standardisation Group hasissued recommendations to guide in-dustrybestpractice,servingasaleadingadvocate of ISO 20022 as the singleEuropeanstandardforfundmessagingandasthebasisforelectroniccommuni-cationinprocessinginvestmentfunds.

EFAMAhasproposedthatISO20022shouldbeadvancedaspromptlyaspos-sibleas abasis for interoperability andthatproprietarymessagestandardsbe-

tween client- and fund-side institutions shouldbeavoided. In line with thisobjectiveandtoencouragea prompt and efficienttransition from manualprocessing to ISO stand-ard automation, SWIFThas announced a set ofmilestonestoguidemigra-tion to ISO 20022 fundmessaging over theSWIFT network, culmi-nating in full adoption bylate2012.

ASTANDARDTOSUPPORTGROWTHIn one corporate example

of migration to ISO 20022, leadingSpanish fund manager and distributorAC Gestión opted for ISO 20022 tosupport the business growth of itsguided architecture platform. It wasabletoreusetheSWIFTinfrastructureofsistercompanyAhorroCorporacion

Financiera,meaningitcouldminimiseIT infrastructure costs and achieve afastertimetomarket.

ACGestiónseesaverypowerfulbene-fitintheautomationofstatusmessages,which confirm that the content of anorderisapprovedandwillbeexecuted.Most TAs generate status messageswithinminutesoforderreceipt,mean-ingtheyarereceivedwellbeforecut-offtime, supporting timely identificationandresolutionofanyproblems.

In another example, UK-based invest-ment management company Legal &General Investment Management(LGIM)wasoneof theearlyadoptersof ISO 20022 messages within thepensions industry, setting a precedentfor how fund management firms canmaximise efficiency while reducingcosts and risks by automating fundprocessing operations. Despite the2008-09financialcrisisandthegeneraldownturn in market conditions,LGIM’s business has continued togrow,with thenumberof transactionsgrowingbyover25%in2009alone.Itwasabletoabsorbthisgrowthwithoutanyheadcountincreaseandprojectionsindicatethatitwillcontinuetodothis.

For LGIM, automated processes in-volve a significant number of rulechecks.Thismeans thatmanual inter-ventionisonlyrequiredforexceptions,whichrepresentaverysmallproportionof the orders processed. LGIM hasbeenabletouseeconomiesofscaleforthe support of its SWIFT infrastruc-

“... leading Spanish fund manager and distributor

AC Gestión opted for ISO 20022 to support the

business growth of its guided architecture platform.”

# Raising the bar with adoption of new messaging standards: the SWIFT case for ISO 20022


ture as this is used across the entirebusiness, i.e. for custody and settle-ment. The main drivers of the LGIMISO 20022 business case have been:riskreductionbycontinuingtodriveer-rorratesdown;servicebyenablingSTPto enhance the service proposition tocounterparties;andscalabilitybybene-fittingintermsofcostcontainmentwhileenjoyingsubstantialbusinessgrowth.

MAPPINGOUTISO20022ADOPTIONIt has long been recognised that thesimple existence of an ISO standarddoesnotensure that itwillbeutilisedbyindustryparticipantsinaconsistent,coherentandcohesiveway.Adoptingaharmonised single template for ISO20022messagingiskeytoensuringef-ficient use of this message standardacrosstheindustry.

Mandatedchangeisinitiatedbyregula-tion, through migration by networkproviderssuchasSWIFTfromtheoldMT to the new MX standards, or bydemandsofthebusinesstosupportnewtransactionflowsonlyavailableinISO20022. While it will increase costs inthe short term, ISO 20022 also offersopportunityforcompetitiveadvantage.

BusinesstransactionsbasedontheISO20022 standard increase the reach ofcompaniestomoreclientsinmoreloca-tions with less concern for nationalboundaries and local legacy standards.This also allows more companies toreachintonewmarketswithlowerbar-rierstoentry.

Tounderstandtheeffectsofmandatedchange, a current example of applica-tionisfoundinthepaymentstandardsusedbytheSingleEuroPaymentArea(SEPA) initiative.Here it is clear thattherewillbeatransitionperiodofco-existenceofatleasttwoyearsandpos-siblylongerduringwhichexistingsys-tems will be required to support bothlegacyandnewstandards.

Most investment management compa-nieshavealreadydrawntheconclusionthatadoptionofISO20022hasreachedthepointofnoreturn.

Allindustryplayersrealisetheyneedacohesiveplanforhowtheywillsupportboth legacy standards and new stand-ardsduringthetransitionperiod.Oneoptionistosimplytrustthattheirven-dorsuppliershavetheanswers.Ifthisisthe case, companies should be sure toaskthemforaroadmap.

Alternatively, and more advisedly,companiesshouldhaveanarchitecturalroadmap that capitalises on reusingISO 20022 messaging and integrationservices.

Theyshouldlooktousestandards-basedintegrationtechnologiesthatsupportthelegacyand thenewXML-basedmerg-ing standards, as well as solutions thatprovide platform-neutral deploymenttechnologies to use with existing com-putinginfrastructure.AdoptionofISO20022 is not a big-bang approach, butmore a market-driven migration to acommonlanguage.

Arun Aggarwal is Managing Director, UK, Ireland & Nordics at SWIFT. He joined from Tata Consultancy Service Limited where he held the position of Head of Global Consulting Practice, EMEA. Before his tenure at Tata Consultancy, Arun was a Managing Director at LCH Clearnet Group Ltd. Arun began his career at Price Waterhouse in 1979. Arun earned a BSc (Hons) Mathematics from the Imperial College London, is a qualified Chartered Accountant (FCA) and an Honorary Member of the Association of Corporate Treasurers.

Sophie Bertin is Global Head of Asset Servicing and Custodians within SWIFT. Prior to joining SWIFT, Sophie worked for The Bank of New York, where she held different management roles. Before The Bank of New York, she worked for six years at McKinsey, where she specialised in the Financial Institutions Group and the Corporate Finance & Strategy Practice. Sophie holds an MBA from INSEAD and graduated from the Ecole Supérieure de Commerce de Paris, with a major in Corporate Finance.

Hervé Valentin is Senior Business Develop-ment Manager in the Marketing division of SWIFT. Before joining SWIFT in 2001, he worked for JP Morgan and Euroclear Bank managing the network of custodians banks and CSDs. Hervé holds a Master degree in Management Engineering (Ingénieur Commercial) from Université Catholique de Louvain in 1995, and holds Certificates from International Capital Market Asso-ciation and Solvay Business School in Belgium.

“Adoption of ISO 20022 is not a big-bang approach, but more a market-driven migration to a common language.”

SWIFT

SWIFTisamember-ownedco-operativethatprovidesthecom-munications platform, productsand services to connect over9,000bankingorganisations,se-curities institutions and corpo-rate customers in209 countries.SWIFT enables its users to ex-change automated, standardisedfinancial information securelyand reliably, thereby loweringcosts, reducing operational riskandeliminatingoperationalinef-ficiencies. SWIFT also bringsthe financial community to-gethertoworkcollaborativelytoshape market practice, definestandards and debate issues ofmutualinterest.

Moreinformationatwww.swift.com.


The EU fund management industry faces challenges that are similar to other areas of the financial sector in the emerging post-crisis environment: a new regulatory wave and tighter supervision. This article gives a brief overview of the main elements of the changes to come and the related opportunities.

A s in other sectors of thefinancial industry, thefund market can expectmore and more detailed

regulationandsupervisionintheyearstocome.AlthoughtheEuropeanregu-lated fundmarkethasnotbeen in thecentreofattentionofthefinancialcri-sis,itwillhavetocopewithnewrulesandstricterenforcement.Thelatterwillresultfromthecreationofnewauthori-ties,essentiallytheEuropeanSecuritiesMarketAuthority(ESMA),theformerasaresultofissueswhichhavecomeup

during thefinancial crisis, such as theroleofdepositariesandthedefinitionofmoney market funds, and the imple-mentation of UCITS IV, which wasproposedjustbeforethecrisiserupted.But there is also more regulation tocomeforthenon-regulatedsideoftheindustry in theAlternativeInvestmentFund Managers (AIFM) directive,which will level the playing field intermsofregulatedfunds.2008sawamassiveoutflowoffundsinthe regulated fund sector, as well on

bothsidesoftheAtlantic.Althoughtheregulatory frameworksand issuesdifferconsiderably,itisremarkablethat1)bothsectors have acquired similar sizes (seeFigure1below);2)bothhaveseenabigdropin2008,whichhasonlybeenpar-tiallyrestoredin2009;3)similarprob-lemshavearisenintheassetallocationofmoney market funds, although thesewere much more debated in the USAthanintheEU.AssetsmanagedbytheEU and US regulated fund industriesamountto88%oftheglobalfundman-agementindustry(accordingtoICI).

Karel Lannoo is Chief Executive Officer of the Centre for European Policy Studies (CEPS).

20092008200720062005200420032002200120001999

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

EUUSA

Figure 1. European and US total net fund assests comparedData sources are the European Fund and Asset Management Association (EFAMA) and the US Investment Company Institute (ICI). European data include UCITS (about 75%) and regulated special funds (including a limited number of hedge funds). US data include primarily mutual funds (about 90%), closed-ended funds, exchange-traded funds and units of investment trusts, following the 1940 Investment Company Act.

# The fund management industry and the financial crisis: regulatory challenges and opportunities


The Lehman collapse and the MadofffraudrevealedaninterestingregulatorydifferencebetweentheEUandtheUSAin the segregation between asset safe-keepingandfundmanagement.This isanobligationintheEUaccordingtotheUCITS directive – although probablynot always well-respected – but not intheUSA.Itisclearthatthishasbecomeanimportantissueinthepost-crisisde-bate,astheEUCommissionhasalreadyindicated with the public consultationonUCITSdepositaries.

TOWARDSUCITSIVThenewUCITSIVdirectivewillallowforfundsectorconsolidationandration-alisationandgiveanewboosttotheEu-ropean fund sector. The directive fur-thercompletes theUCITSframework,whichstartedin1985withthefirstEUdirective covering investments funds,theso-calledUndertakingsforCollectiveInvestment in Transferable Securities(UCITS). UCITS IV must be imple-mentedbyJuly2011atthelatest.

TheUCITSIVrulesfollowforthefirsttime in thesector the ‘Lamfalussy’ap-proach,meaningthatnotonlyprimarybutalsosecondary legislation is largelyharmonised at European level. Theseso-called implementing measures,whichwerepublishedbytheEuropeanCommission in July 2010, are another100pagesplusofrules,detailingthecorenewelementsofdirective.Itconcerns:

• detailedconductofbusinessrulesforfundmanagers,coveringconflictsofinterest,governanceandtherelation-shipwithdepositaries;

• thecontentofthekeyinvestorinfor-mationdocument(KID)andtheuseof electronic media for dissemina-tion. The regulation specifies meth-odologiesoncalculatingafund'slevelofriskandcharges;

• fund mergers and master-feederstructures. The measures detail cer-tain investor protection measures inrelation to asset pooling techniques,andestablishacommonapproachtothe sharing of information betweenmaster and feeder UCITS. It alsocovers detailed rules on the liquida-tion, merger or division of a masterUCITS;

• supervisory issues and notificationprocedure,suchastheformandcon-tentsofstandardisednotificationandattestationletters,proceduresforon-the-spot verifications and investiga-tions, and the exchangeof informa-tionbetweencompetentauthorities.

Theupshotofthenewrulesshouldnotnecessarilybenegative,onthecontrary.Moreharmonisedrulesshouldeasetheoperational conditions for large fundmanagers in the EU’s single market,which is what is expected to emergefromUCITSIV.

ThenewUCITSwill for thefirst timeallow for the separation between au-thorisation of fund registration andfund management in the ‘managementcompanypassport’,whichfundmanagersare busily preparing for. To date, thememberstatescouldrequirefundman-agementtohappeninthesamestateastheregistrationoffunds,whichwasan

advantageforcountriessuchasIrelandandLuxembourg.Nowthatthisobliga-tionis lifted,fundmanagementcanbeexpected to reap scale economies andconvergeinafewfinancialcentres,whichwillbenefitlargewell-organisedplayers.

A related change is the facilitation offund mergers across borders, whichshouldreducethesub-optimalsizeofthefundsectorinEurope,andagainfacili-tate scale enlargement. These changescanbeexpected tounleash furtherdy-namicprocesses,withmoreinvestmentintechnologytocopewiththenewrules,but also to gain strategic advantage aswasthecasewiththeMarketsinFinan-cial Instruments Directive (MiFID),coveringbrokerdealersandexchanges.1

THERELATIONSHIPWITHAIFMANDMIFIDAttheotherendofthespectrumisthemuchmoredebatedhedgefundsdirec-tive, or Alternative Investment FundManagers(AIFM)directive.Althoughthefinalformofthedirectiveisnotyetknown,itisclearthatlegislationofthislargelyunregulatedpartofthefundin-dustryisnowdefinitelycoming.

Thischangestwofactsfortheregulatedfundsector:1)itlevelstheplayingfield,and will probably dampen the stronggrowth which the alternative invest-

“The new UCITS IV directive will allow for fund sector consolidation and rationalisation and give a new boost to the European fund sector.”

1. See by the same author The MiFID Metamorphosis, ECMI Policy Brief no. 16, April 2010, available from www.eurocapitalmarkets.com


mentfundsectorhadseenoverthelastyears,and2)itopensthewayforwell-establishedfundmanagerstoalsoofferfunds using alternative investmenttechniquestotheirregularoutlets,withasinglelicenceforthewholeoftheEU,andwithgrosso modothesamerulesforinvestor information and reporting totheauthorities.

Thebigoutstandingissuesforthesectorremainfunddistributionrulesandtax-ation.Althoughfunddistributionfallslargely under the EU’s MiFID direc-tive,withrulescoveringsuitabilityandappropriateness, tackling conflicts ofinterest (including retrocession fees)and price/fee transparency, the rulesseem to have been badly implementedso far,2 and cover only fund productsdistributed by banks or investmentfirms,notinsurancecompanies,forex-ample.Theexpectedreductioninsizeofthebankingsector following thecrisismay lead to a re-emergence of inde-pendent intermediaries, reducing themarket power of thebank’s retail net-works, but this will take a long time.

More tax harmonisation, on the otherhand,isnotontheagenda.Taxavoid-ance has been tackled in the EU’ssavings taxdirective,but tax ratesanddeductions remain an entre national competenceandverydivergent.

ThecreationoftheEuropeanSecuritiesMarketAuthority(ESMA)bytheendof2010shouldensurethattheregula-tory framework will be effectively thesamealloverEurope,butalsothatsu-pervisioncanbestreamlinedinaglobalindustrysuchasfundmanagement.

ESMAwillhavethefacilitytomediatebetweenEUmemberstatessupervisoryauthorities,andtodelegatesupervisorytasks between them. ESMA will par-ticipateinthesupervisorycollegiatesofinternationalfundmanagersandacttocomplysupervisorydatabases.

CONCLUSIONInaperiodof25years,thefundindus-tryhasseenahugedevelopment,froman essentiallynationally-based industryto a largely European-wide organised

sector.EUregulation,primarilytheUCITSdirective, has been ahuge contributor tothis process, to thedegree that it is seenas one of the mostsuccessful EU direc-tivesintheareaoffi-nancial markets.UCITS IV shouldgive a new boost tothe permanence ofthe UCITS brand,leading to furtherinternationalisation,butatacostoffurtherrules and complexity.Thechallenge for theindustry is to turnthisintoabenefit.

Karel Lannoo has been Chief Executive Officer of the Centre for European Policy Studies (CEPS) since 2000 and senior re-search fellow since 1997. Karel Lannoo has published books and numerous articles in specialised magazines and journals on gen-eral European policy, and specifically fi-nancial regulation and supervision mat-ters. He is a regular speaker at international gatherings and in executive programmes. Karel Lannoo holds a baccalaureate in phi-losophy, an M.A. in history from the Uni-versity of Leuven in Belgium (1985) and obtained a postgra duate in European stud-ies (CEE) from the University of Nancy in France (1986).

“In a period of 25 years, the fund industry has seen

a huge development, from an essentially nationally based

industry to a largely European-wide organised sector.”

2. See Diego Valiante, MiFID Real Implementation, ECMI Policy Brief, forthcoming with www.eurocapitalmarkets.com

Centre For European Policy Studies (CEPS)

FoundedinBrussels in1983,theCentreforEuropeanPolicyStud-ies(CEPS)ranksamongthemostexperienced and authoritativethink-tanks operating in the EUtoday. CEPS serves as a leadingforum for debate on EU affairs,butitsmostdistinguishingfeatureliesinitsstrongin-houseresearchcapacity,complementedbyanex-tensive network of partner insti-tutesthroughouttheworld.CEPSorganises a variety of activities,involving its members and otherstakeholdersintheEuropeanpol-icydebate,includingnationalandEU-levelpolicy-makers, academ-ics, corporate executives, NGOsandthemedia.Moreinformationatwww.ceps.eu.

# The fund management industry and the financial crisis: regulatory challenges and opportunities

21SimCorp JOURNALOFAPPLIEDITANDINVESTMENTMANAGEMENT August2010

# Choosing the optimal IT platform for best-of-breed asset servicing: a European case study

To excel in today’s difficult financial environment, investment managers must learn to grasp the opportunities and challenges of client service. Playing a key role in this task is asset servicing. With this acquired knowledge, the full benefits of a robust IT infrastructure that supports client-driven innovation and excellence can be derived.

A s one of the eurozone'sleading banking and fi-nancial services compa-nies, the French-based

SociétéGénéralegroup’sactivitiescen-trearoundthreecorebusinesses:Retail&FinancialServices;Corporate&In-vestment Banking; and Global Invest-mentManagementServices.

Of these three, the Global InvestmentManagementServicesdivisionincorpo-rates asset management, private bank-ing, securities services and multi-assetbrokerage. Responsible for securitiesservices is Société Générale SecuritiesServices(SGSS),whichisestablishedin28locationsworldwidewithmorethan4,000employees.

SGSSprovidesafullrangeofsecuritiesservicesthatareadaptedtothelatestde-velopments in financial markets andregulatory changes: clearing services,custodyandtrusteeservices,retailcus-todyservices,liquiditymanagement,fundadministrationandassetservicing,funddistribution and global issuer services.SGSSisthesixth-largestworldwideglobalcustodianandthesecondlargestinEuropewith€3,246billionofassetsundercustody(asat31March2010),providingcustody

findthataccesstoscalableservicingop-erations capable of supporting rapidgrowth will give them significant ad-vantagesovertheircompetitors.

Building asset servicing operations thatmeettheseneedsrequirestimeandgoodplanning, but is ultimately essential foranyfinancialservicescompanyintentonestablishingandmaintainingasuccessfulplatform for asset management. Manyfinancial institutions around the worldhavebuilttheirbusinessoriginatingloansfortheirownbalancesheetandhavecre-atedservicingoperationsthatmeettheirinternalneeds,butnotnecessarilythoseofstructuredfinanceinvestorsandinter-nationalratingagencies.

ACUSTOMISEDOPERATINGMODELA scrutiny of core versus value-addedcapabilitiescanintroducealternativesinoperatingmodeldelivery,withautoma-tionbeingoneofthepossibleoutcomes;the other being outsourcing. With theoutsourcingmarketbecomingmorema-ture,providers arebeing challenged toofferatailoredoperatingmodelwiththemerits of competitive pricing and highservicestandards.Coreservicessuchastrade confirmation, investment ac-

andtrusteeservicesfor2,946fundsandthevaluationof4,555funds,representingassetsunderadministrationof€459bil-lion.SGSSalsoranksamongtheEuropeanleadersinstock-optionmanagement.

ASSETSERVICING:AWORKINGDEFINITIONAsset servicing encompasses a broadrangeofservicesforcustodyandcorpo-rateactionsincludingsafekeepingserv-ices for physical securities, data infor-mation for DTC-eligible securities,dividend, proxy and reorganisationservices,restrictedsecuritiesservices,aswell as the electronic registration andtransferofsecurities.Assuch,itcanbestbedescribedas a core serviceprovidedbycustodians.Thisservicealsoincludescollecting dividends and interest pay-ments, processing corporate actions andapplyingfortaxrelieffromforeigngov-ernments on behalf of customers. Asinvestment management companiesacross the globe get to grips with theexigencies of the post-crisis financialenvironment, theirability toeffectivelyservice the assets placed under theircontrolwillinmanycasesbethesinglelargestdeterminantastowhetherornotthey are successful in taking a dealthroughtocompletion.Companieswill

Alex Buffet, Head of Market Data and Asset Servicing, Société Générale Securities Services (SGSS), Paris, France.

Christian Wutz, Managing Director, SGSS Deutschland KAG, Munich, Germany.


counting,fundaccounting,andsecuri-tieslendingprocessingarenowbeingof-fered as staple products with standardservice level agreements and withoutpremiumpricing.

On the other hand, a situation hasarisenwherevalue-addedserviceshaveevolved with the demands of invest-ment managers, and now encompassmiddle-andfront-officefunctionssuchasperformancemeasurement,clientre-porting,complianceanddatamanage-

ment/technology.Forthesevalue-addedservices,standardsandpricingvaryforeachinvestmentmanager.Overall,pro-viders with increasing market shareappear to be acquiring new skills andcapabilitieswhilecontinually investingintechnologyinordertoremainaheadofthegame.

Thesubstantialgrowthinhedgefundsand alternative investments witnessedinrecentyearshasincreasedregulatorypressures, while the specialised labour

poolisonthedecrease.Automationofthebackofficeandoutsourcingarean-ticipatedintheneartermtohelpclosethe widening gap or at least slow itsgrowth.Assettlementwindowsshortenandinvestmentsbecomemoresophisti-cated, eliminating external-providerinefficiencies should continue to be apriority. Focusing on top performingtechnology/datavendors,outsourcingpro-viders,globalcustodiansandbrokerscanbemission-criticaltocapturingefficienciesinpre-andpost-settlementservices.

Alex Buffet is Head of Market Data and Asset Servicing at SGSS and is based in Paris, France, having held a number of senior executive positions at Société Générale for over 25 years.


23SimCorp JOURNALOFAPPLIEDITANDINVESTMENTMANAGEMENT August2010

TURNKEYOPERATIONALSOLUTIONInthespecificcaseofSGSS,ithasde-velopeditsassetservicingsolutionsoverthepastfiveyearsdeliveredoutofParisandMunich.Thesesolutionscanstandalone or form part of a more globalpackage. They are based on a turnkeyoperational solution which includespricing, middle-office services, perfor-manceandriskmeasurementandattri-butionasasinglepackage,allfullyinte-gratedwithitsextensiveglobalcustody

and/orfundadministrationservices.Inresponse to the increasing sophistica-tionoffinancialinstrumentsandman-agement strategies, SGSS through itsasset servicing capabilities providesassistance in accessing an adaptabletechnologicalsolutionthatcanbeindi-vidually tailored toaclient’s activities.Another provision is an independentpricingofaclient’sportfoliotoassistinsatisfying regulatory requirements. Itsindependent pricing service for OTCproducts (swaps, convertibles, high-

yieldbonds, foreignexchangeoptions)and complex products covers variousasset classes (interest rate, inflation,equity, foreign exchange, commodity,credit, commodities and hybrids). It isbasedonarangeofefficienttoolsmoni-toredbyateamofspecialisedfinancialengineerswithhands-onexperienceinusingquantitativeanalysis.

Professionaltradingdeskstandardssuchas front-to-back software are used forthe valuation of plain vanilla products

Christian Wutz is Managing Director at SGSS Deutschland KAG and works out of Munich, Germany, with more than 15 years of experience in the international banking f ield.


as well as a range of proprietary andcommercialanalyticsusedforthevalu-ationofstructuredproducts.Theoffer-ing also relieson relevantmarketdatasources that include partnership withOTC brokers and banks for complex

parameters such as implied volatilitiesor correlations as well as a databasededicated to the management of stan-dardandexoticmarketparameters.

LEADINGGERMANPOSITIONInadditiontobeingpresentinmostofthe important markets across Europe,SGSSalsoholdsaleadingassetservicingposition in Germany through its sub-sidiarySGSSDeutschlandKAG.Hereits customers include Pioneer Invest-ments KAG (Germany), W&W AssetManagement,Veritas InvestmentTrustandAvanaInvest.

Its legal predecessor was Activest In-vestment KAG mbH, whose originsdatefrom1960,andwhichwasownedby the German HypoVereinsbankgroup. With 50 years of experience inthe German institutional fund busi-ness,itcandrawon30yearsofcoopera-tionwithmore than100 leadingassetmanagers,becomingpartoftheSociétéGénéralegroupinDecember2007.

Withassetsunderadministrationtotal-lingaround€65billion,fundsunderadmi-nistrationnumberingover500andstruc-turedproductsstandingataround1,500,SGSSDeutschlandKAGcombinestwocloselyrelatedbusinesssegments.

The one is providing Master-KAGservices(i.e.specialfundandwhite-la-belling) for institutional investors andasset managers, including severalDAX30-listedcompanies,medium-sizedcompanies, non-profit organisations(i.e. churches, social associations, em-ployer liability insurance associations),and financial service companies (asset

managers, insurancecompanies,banksandsavingsbanks).

Theothersegmentcoverstheprovisionofinsourcingservicessuchasfundad-ministration, reportingandmiddleof-ficeforinvestmentcompaniesandassetmanagers. Here its customers includePioneerInvestmentsKAG(Germany),W&WAssetManagement,VeritasIn-vestmentTrustandAvanaInvest.

SGSSDeutschlandKAG’smiddle-of-ficeportfolioforcomplexproductspro-videscustomisedoutsourcingsolutions.Together,theteamsandtechnologiesatthedisposaloftheGermanoperationsensureanexcellentlevelofoperationalsupportcoveringallfunctionsessentialtotheprocessingofOTCinstrumentsandstructuredproducts.

Themiddle-office servicesprovidedbythe German operations are deliveredover its own leading edge platform,which seamlessly manages trade sup-port, compliance monitoring and col-lateral,whileassuringtheleveloftrans-parency required by regulators.Incorporating rigorous procedures formonitoringandcomparisonthatensureconsistencyandaccuracyofresults,thesolutionoffersafullsetofstandardre-porting formats for middle office, riskand payment systems, as well as fullycustomisedreports.

AFULLYINTEGRATEDAPPLICATIONTheservicesofferedtoclientsaremodu-lar and fully integrated, providing ex-tensive flexibility and adaptability toeverysourcingstrategy.Afullrangeof

“As investment management companies across the globe

get to grips with the exigencies of the post-crisis

financial environment, their ability to effectively

service the assets placed under their control will

in many cases be the single largest determinant

as to whether or not they are successful in taking a

deal through to completion.”



middle-officeservices(tradematching,settlement instructions and routing) isavailableeitheronastandalonebasis–with very flexible connections and in-terfaces through an advanced connec-tivity hub – or in combination withotherservicessuchasfrontofficeASP(automatedflow).

By choosing this combination, SGSSDeutschlandKAG’sclientshaveaccesstoanintegratedapplicationintheformof SimCorp Dimension, which offersanextensiverangeoffunctionalitiesin-cludingposition-keeping,cashforecasts,simulations, analysis and order mana-gement. Another benefit is an assort-ment of pre-customised templates,whichisavailableandcanbeindividu-alisedonrequest.

As part of SGSS Deutschland KAG’sITinfrastructure,thehighlyconfigurableandflexiblesystemlargelysupportstrading,middle-andback-officeservices.Heretherequirementsarepartlyregulatedbylaw,sothattheservicesarestandardisedandhavehigh-qualityrequirements.

Theperformancespectrumisextensiveand the automation rate (STP) high.However, the frequency of changes inthisareaislow,generatedeitherbyleg-islative changes or new customer re-quirements.Inthecaseofspecialserv-ices (accounting reports, tax treatmentandkeyratios),thecomplexityishigh.Inaddition,theintroductionofnewfi-nancial instruments is governed by ahighfrequencyofchange.

In terms of technical application, thescalablesystemisbasedonOracle10g

and isusedforallof thecorebusinessprocesses,comprehensivelymanagedbytheCronacleschedulingsystem.TheCrystalReports reporting engineembedded in the investmentmanage-mentsystemisusedforallprocessingreportsandstandardreports(i.e.legalreports). The mapping of complex taxissues and specific figures are takencare of by an in-house developed ap-plicationanddatawarehousingsystem,while a team of specialists deals withnewinstruments.

PERFORMANCEANDRISKREPORTINGIntheareaofperformanceandriskre-porting, SGSS works to provide thecontrol and visibility clients need tomeet their investment goals, trackingthegrossandnetperformanceoffundsand comparing the results with keybenchmarksatanyfrequencydesired.

Performanceresultsareanalysedacrossacomprehensiverangeofcriteria(geo-graphies, sectors, interest curves, cur-rencies, selection of key positions andmore),basedonthevaluedpositionsofclient portfolios. SGSS’s performanceattribution services provide complexbreakdownandperformanceattributionthat factors in a broad range of para-meters,suchasasset,countryandsectorallocationaswellasstock-picking,and,forbondportfolios,currencies,interestratecurves,creditandselection.

Fastandaccuratecomputationofmarketindicators and ratios (i.e. Sharpe, Infor-mation Ratio, Jensen, Treynor, alpha,beta,trackingerror,volatility,correlation)provides invaluable information on the

risk/returntrade-off,andex postanalysisisappliedinlinewithGlobalInvestmentPerformanceStandards(GIPS).

Riskismeasuredex anteusingtheValueatRisk(VaR)method,andcanbecom-puted according to three approaches:parametric,deterministic,orMonteCarlo.TheSGSSsolutioncomplieswithregu-latory requirements, and measurementcan be customised to precise require-ments with stress testing and multiplecriteria.

Inaddition,VaRcalculationscanbecom-plementedbyConditionalVaR(CVaR),whichtakesintoaccountextremeevents.

Aswithperformancetracking,riskcal-culation(VaR,trackingerror,volatility)isappliedtoeachdecisiontakenduringthemanagementprocessbyassettype,geographiesandsectors.Inshort,clients

“Focusing on top performing technology/data vendors, outsourcing providers, global custodians and brokers can bemission-critical to capturing efficiencies in pre- and post-settlement services.”


benefitfromtheindustry’smostcompre-hensive,accurateandflexibleperformancetrackingsolutioncoveringmeasurement,analysis,attribution,andriskmodelling.

ASSETSERVICINGBASEDONSTRENGTHHelping to set SGSS DeutschlandKAG apart from its competitors is acombination of innovation, flexibilityandclient focus: innovation in theuseof innovative solutions to help it stayaheadof thecompetition;flexibilityasreflectedingoal-orientedthinkingandfast-trackadaptability;andclientfocusto ensure that satisfied clients serve asthebestreference.

Some 50 years of experience in theKAG business, combined with a pro-active and inter-active working rela-tionship with clients, have ensured avery high level of client satisfaction,with an estimated 80% of new clientswonbyword-of-mouth.

Secondly,thesuccessfuluseofasophis-ticatedinfrastructure,includingin-housecustomising, individual interfaces, rapid

extensions, short processing times andIT efficiencies, have contributed to ahigh degree of flexibility and addedvaluefortheclient.

Finally,thedevelopmentofcustomisedsolutions,promotionofavarietyofco-operationsandpartnerships,theatten-tiontoalargeandexpandingnumberofexistingcontactsintheformofbrokers,assetmanagersandcustodians,aswellastheapplicationofprovenandtestedinterfacesandprocesseshavehelpedtocreateaservice-orientedone-stopsolu-tionofbenefittoclients.

Bybuildingonthismarket-leadingposi-tion,SGSSanditsGermanassetservicingoperationshavederived the fullbenefitsofa robust IT infrastructure that sup-ports client-driven innovation and ex-cellence,whilealsoprovidingflexibility,scalability,functionalityandreliability.

Alex Buffet is Head of Market Data and Asset Servicing at Société Générale Securities Services (SGSS) and a member of its International Management Committee.

After holding a number of senior executive positions at Société Générale for nearly 25 years, Alex Buffet joined Société Générale Securities Services in December 2008, taking on the responsibility for creating a new division dedicated to Market Data and Asset Servicing. Alex Buffet is a graduate from the Institut d'Etudes Politiques in Paris.

Christian Wutz is Managing Director of SGSS Deutschland KAG, responsible for Insourcing and the departments Asset Servicing, Product Management, IT, Customer Care and Client Projects. With more than 15 years of experience in the international banking field, he has held senior positions at HypoVereinsbank, Activest Investments and Pioneer Invest-ments, prior to taking on the role as Managing Director of SGSS Deutschland KAG. He is a graduate of the Ludwig-Maximilians-University in Munich.

Société Générale SecuritiesServices (SGSS)

As a business division of majorFrench bank Société Générale,SGSS is established in 28 loca-tionsworldwidewithmore than4,000 employees. It provides afull range of securities servicesthat are adapted to the latestfi-nancial markets and regulatoryevolution: clearing services, cus-tody and trustee services, retailcustody services, liquidity man-agement, fund administrationand asset servicing, fund distri-butionandglobalissuerservices.SGSSisthesixth-largestworld-wide global custodian and thesecondlargestinEurope.

“Helping to set SGSS Deutschland KAG apart from its competitors is a combination of innovation, flexibility and

client focus: innovation in the use of innovative solutions to help it stay ahead of the competition; flexibility as

reflected in goal-oriented thinking and fast-track adaptability; and client focus to ensure that satisfied

clients serve as the best reference.”



The IFRS standard for accounting for financial instruments is changing. The new standard IFRS 9 will be succeeding the existing IAS 39. Not only does this mean that investment management organisations have to change their financial report-ing in the future. For large parts of the investment management industry, the transition also requires a conversion of holding categories and of accounting values. This article addresses the IT aspects of these conversion projects.

In 2009, the International Ac-countingStandardsBoard(IASB)embarkedonathree-phaseprojecttoreplacethecurrentstandardfor

financial instruments, IAS 39, with acompletelynewstandard,whichhasbeengiven the name IFRS 9. The threephasesare:

• the first, ‘Financial Instruments:Classification and Measurement’,waspublished in itsfinal version inNovember 2009.Due to the reviewcommentsontheaccountingforlia-bilities, the update of the rules forliabilities was spun off as a fourthphaseoftheproject,‘Phase1A’;

• the second, ‘Financial Instruments:Amortisation and Impairment’, wassentoutforpubliccomment inNo-vember 2009, with a deadline forcommentssetfor30June2010;

• the third, ‘Financial Instruments:HedgeAccounting’,isexpectedtobesent out for public comment in thesecondhalfof2010.

Although the introduction of IFRS 9primarily is a business and proceduralproject, each phase also poses its spe-cificchallengestoITsystemsandtoITprojectcapabilities.

Organisationsthathaveneverusedcat-egories other than the fair value cate-gory would probably consider them-selvesveryfortunate.Theydonothavetochangeorconvertanything,provided

their accounting policies and businessmodelsremainunchanged.

PHASE 1; ‘FINANCIAL INSTRU-MENTS: CLASSIFICATION ANDMEASUREMENT’

LEGALFRAMEWORKThetimetableforIFRS9Phase1isthatearly adoption was permitted alreadyfor2009andthatthestandardwillbemandatoryforaccountingperiodsstart-ing on or after 1 January 2013. How-ever,inspiteoftheoriginaltimepres-

sureputontheIASBtoactfast,sofarveryfewlegislativeandsupervisoryau-thoritieshaveactuallyapprovedtheuseofIFRS9Phase1withintheirjurisdic-tion.ThestatusoftheEUendorsementprocessisjustoneexample.

PROJECTFRAMEWORKThelackoflegislativeprogressisworry-ingprojectplanners,bothonthebusi-ness side and on the IT side, who areconcerned that political pressure mayresult in last-minute modifications ofthe standard. Such uncertainty oftencauses decision-makers to delay the

Arne E. Jørgensen, M.Sc., Domain Manager for Accounting, SimCorp.

# IFRS 9: the changes and IT challenges in store

“Although the introduction of IFRS 9 primarily is a business and procedural project, each phase also poses its specific challenges to IT systems and to IT project capabilities.”


project start, which may result in a‘ketchup’ effect where many projectswillbestartingatthesametime,withamuchshortertimeframeandincompe-titionforinternalandexternalresources.

IFRS9Phase1primarilyentailsare-structuringand reductionof thehold-ing categories compared to IAS 39,most significantly abolishing the IAS39‘AvailableForSale’category.

FromanITperspective,itisfortunatethatthetechnicaltoolsrequiredforthenew holding categories already wereusedbytheold.Thetools,suchasam-ortisation and fair value adjustment,willsimplybeappliedinnewcontexts.

CONVERSIONPROJECTThedecisionconcerningwhatfromtheoldcategoriesgoeswhereinthenewisabusinessdecision,butmayneedITsup-port for ad-hoc analyses and data ex-tracts.Determiningtheinitialvaluestouseinthenewcategoriesisalsoprima-rily a business task, which may alsoneedsomead-hocITsupport.

The crucial question from an IT per-spective is how the IFRS 9 categoriesandvaluesaregoingtobeimplemented.

Two approaches come tomind: aperiodofparallelaccountingora ‘big-bang’conversion.

The‘big-bang’conversion,whereallassetsandliabili-ties are transferred fromoneoftheoldcategoriestoone of the new categorieson the date of transition,requiresverycarefulplan-ningandanextensivetestphase. There is no secondchance if business is toresume the next day. Theprocess must include an

updateof thebookedvalues accordingtotheIFRS9transitionrules.

TheconstructionofcomparableIFRS9figures forpreviousyears touse in thefirsttwoIFRS9reportswillprimarilybeamanualtaskforthebusinesssideoftheorganisation,unlesstheconversiontakesplaceunderthe(very)earlyadop-tionrules.

Accounting in parallel for IAS 39andIFRS9foraperiodoftimeislessvulnerable to mistakes. The IAS 39figures will still be present in an un-changedfashionandtheIAS39resultswillbetheofficialfinancialresultsforone or two reporting period beforeswitchingover.

Theorganisationcanusethetimetoac-quaintitselfwithIFRS9,andtheanal-ysisoftheeffectsofthedifferencesbe-tween IAS 39 and IFRS 9 followsalmostautomatically.

InitialisationoftheIFRS9frameworkcan be done (for example, six monthsearlier)andcanberepeatedifnecessary.The comparable IFRS 9 figures fromthe parallel period are automaticallyavailable.

PHASE1A:‘FAIRVALUEOPTIONFORFINANCIALLIABILITIES‘ThisspinofffromPhase1wassentoutasanexposuredraftinMay2010withavery short reviewdeadline, i.e.16 July2010. For a 30-page document, thedeadlineisprobablyreasonable.Anin-vestmentmanagementsystemthatcanseparate value changesdue to changesincreditriskfromtheoverallchangeinfairvaluewillalreadyhavethetechnicaltoolstomeetthischallenge.

PHASE2:‘FINANCIALINSTRUMENTS:AMORTISATIONANDIMPAIRMENT‘

IFRS9Phase2isnotfinalisedatthispoint.Thefinalstandardisexpectedinthe second half of 2010 and the datefromwhichitwillbemandatorywillbefixed in that final version. Given thecommentsaswellas themeetingsandotherinitiativestakenbyIASB,itisal-mostcertainthatthefinalstandardwilldifferfromtheexposuredraftonseve-ral points. The most disputed pointsseem to be the amortisation based ontheexpectedcashflowandtheimpair-mentprocess.

Technically,theuseofanexpectedcashflow means that an integrated invest-ment management system must allowfor two parallel cash flows for a givenbond:thecontractualcashflow,whichstill controls the payments (until thedebtoractuallyfailstopay),andtheex-pected cashflow for amortisationpur-poses. Two cash flows for the samebond, one of them potentially quitevolatile,willprobablyposeanITchal-lenge.TheresemblancetothetreatmentofimpairedsecuritiseddebtsunderUS-GAAP’sEITF99-20mayhelpinsomecircumstances.

“However, in spite of the original time pressure put on

the IASB to act fast, so far very few legislative and supervisory

authorities have actually approved the use of IFRS 9 phase 1 within their jurisdiction.”

# IFRS 9: the changes and IT challenges in store


NothingaboutIFRS9Phase2 iscer-tainfornow.ThefinalstandardandanycommunicationfromIASBwillbereadeagerlyinindustrycircles,bothonthebusinesssideandontheITside.

PHASE3:‘FINANCIALINSTRUMENTS:HEDGEACCOUNTING‘

TheexposuredraftforIFRS9Phase3iscurrentlyexpectedtobesentoutforcommentinthesecondhalfof2010.

Giventhenewholdingcategories(Phase1), hedge accounting will probablyapplytofewercasesunderIFRS9thanunderIAS39.ThediscussionsandthepreliminaryinformationfromIASBin-dicate that the only mechanism ofhedge accounting will correspond tothecurrentcashflowhedges.

An IT system that already supportscash flow hedges will probably onlyhaveminorchallengeswithPhase3,al-thoughthecontextmaychange.

OUTLOOKAny organisation that currently usesthe‘AvailableForSale‘holdingcategoryunderIAS39facesachallengingcon-versionprojectwhenimplementingPhase1ofIFRS9.

There are three main challenges: thestructureofthefuturefinancialreport-ing;thebusinesschallengeoftheactualconversion (classification and initialvalues);andthetechnicalITchallengeoftheactualconversion.

ThetechnicalITconversionforIFRS9Phase1dependsonacrucialchoiceofconversion model – a business critical‘big-bang’ or a period of parallel ac-countingbefore thetransitiondateac-cordingtobothIAS39andIFRS9.If

askedforhisopinion,theauthorofthisarticle would recommend a period ofparallelaccountingalthoughthispresentsmorepressingprojectdeadlines.

ThefinalformulationofIFRS9Phase2isstillpendingatthetimeofwriting.Ifthe rules suggested in the exposuredraft from November 2009 becomestandard,therewillbenewchallenges,bothforthebusinesssideandfortheITside.Theparticipantsintheinvestmentmanagementindustryshouldfollowde-velopmentofIFRS9Phase2withthegreatestinterest.

Only very preliminary information iscurrently available regarding IFRS 9Phase3.Whatisknownsofarindicatesthat IFRS9 Phase 3 will pose smallerchallenges than Phase 1 and Phase 2.Wewillknowmorebytheendoftheyear.

Arne E. Jørgensen is domain manager for accounting in SimCorp. He holds an M.Sc. in Engineering from the Technical Uni-versity of Denmark and a Diploma in Fi-nance from Copenhagen Business School. Prior to joining SimCorp in 1988, he worked with IT development at Copenha-gen Handelsbank (now part of Danske Bank), and before that at the Danish con-sulting engineering company Carl Bro.

“An IT system that already supports cash flow hedges will probably only have minor challenges with phase 3, although the context may change.”


A new SimCorp StrategyLab volume addresses key issues as to why and in what way investment managers must reassess their strategies to ensure value creation and growth in the new financial environment emerging in the global asset management industry after the financial crisis.

Howcaninvestmentmana-gerswininthe‘newnormal’of thefinancial industry?Willitbebacktobusiness

asusual, or shouldnewapproachesbedevelopedafter themajor ‘re-set’wit-nessed in financial markets and assetmanagement in particular? Will thewinners of tomorrow be the same asthoseofyesterdayortoday?Whatdoesittaketoimplementsuccessfulgrowthstrategiesgoingforwardintheinvest-ment management industry? How doinvestmentmanagerscreatevalue inadurable,sustainablewaythataddressesthe needs of clients, intermediaries,regulators,managersandshareholders?Whatarethefutureimplicationsofope-rationalchallengesandITarchitecture?

Thesequestionsaresomeofthekeyis-suesaddressedinthelatestvolumeonthe global asset management industrypublished by SimCorp’s independentresearcharmSimCorpStrategyLab.In‘Growth and value creation in assetmanagement’, the third and final vol-umeinaseriesonrisk,costandgrowth,professionals and experts from theinvestment management industry andresearch centres share their views andinsights.

Thebookhasbeenwrittenfortheman-agement of the global asset manage-ment industry. However, the issuesraisedandthefindingsreachedwillalsobe highly relevant for anyone with aninterest in this industry, whether they

areresearchersorstudents.Theinsightspresentedcanwithoutdoubtserveasabasis for future research and develop-mentaswellastostimulatenewtheo-reticalorempiricalstudies.

DIVERSITYANDRICHNESSThevolume’saimisnottoclosethegaporfilltheapparentvoidbetweengrowthambitionandspecificgrowthstrategiesor frameworks, even less to provide acomprehensivecoverageofallthestra-tegic issues facing the asset manage-mentindustryworldwide.

Itis,however,theambitiontooffersomerelevant, possibly new approaches, in-sightsandconclusionsfromrecentandongoing research and developments inthe industry from a variety of vantagepoints,astheseareemergingfromtherecentworkofacademics,think-tanks,consultantsandindustryexperts.

Whileeachofthecontributionshasbeenselectedforitsoriginalityandthought-provokingqualities,webelievethecol-lection represents adiversity and rich-nessofperspectiveswhichareintended

more as pointers to engage in furtheranalysis and strategic reflection ratherthanasready-madeanswerstothevariousstrategicquestionsandopportunitiesthatarearisingoutofthecurrentenvironment.

Truetothenatureofanystrategicprob-ing and strategy-making, we believethat ready-made answers and generalprescriptions can never be offered ingeneraldiscussionsorpublicationsany-how,whatevertheirnatureorobjective.Thoseanswerscanonlybeachievedinthe specific context of any particularbusinessandorganisationandcanonlybe successfully implemented by theirownmanagersandexecutives.

“... the collection represents a diversity and richness of perspectives which are intended more as pointers to engage in further analysis and strategic reflection ...”Professor Paul Verdin,

Solvay Business School, Brussels, Belgium.

Mette Trier, MA, Office Manager, SimCorp StrategyLab.

# New SimCorp StrategyLab volume on growth and value creation in asset management


STRUCTURE,REGULATIONANDBUSINESSMODELSThevolumeisdividedintoanintroduc-tion, three parts, and a conclusion,makingup11chaptersinall.Followingthe introduction, which provides thecontext and overview of the volume,Part1openswithadiscussioninChap-ter2oftheindustrialorganisationandinstitutionaldevelopmentoftheglobalasset management industry by IngoWalteroftheSternSchoolofBusinessat NYU and Director of SimCorpStrategyLab.

Professor Walter argues that the assetmanagementindustryislikelytobeoneofthelargestandmostdynamicpartsoftheglobalfinancial servicessectorandexplains why it is likely to resume itslong-term growth after the impact oftherecentcrisis.Atthesametime,thechapterprovidesanoverviewofthema-jorplayersonthebuysideofthebusi-ness(frompension,insuranceandmu-tualfundsandUCITStoprivateequityandhedgefunds),andthemainfactorsaffecting them as a basis for the com-petitive dynamics observed in the in-dustryandasabasisforfuturestrategydevelopment.

MassimoMassa,whoistheRothschildChair Professor of Banking and Fi-nanceatINSEAD,takesusinChapter3 further into the inner sanctuaries ofhowthemutualfundindustryisreallyfunctioningordysfunctioning,separat-

ing fact from fiction, and distinguish-ingbetweenhope (whathecalls ‘mar-keting’)andreality(read:‘performance’).These insights are based primarily onhis own path-breaking academic re-searchandthatofhiscolleagues.

Given the growing importance of theEuropeanUCITSregime,notonlyonthe European market, the largest re-gionalassetmanagementmarketsofar,but increasingly also on the globalscene,KarelLannoo,chiefexecutiveoftheCentreforEuropeanPolicyStudies(CEPS), elaborates in Chapter 4 onpressures and opportunities comingfromtheregulatoryside,particularlyinviewof thenewUCITSIVEuropeanDirectiveandthecontinuingtrendsto-wards more or different regulations inthefield,suchasthecontroversialplansfornewhedgefundregulation.

OPPORTUNITIESANDSTRATEGIESThesecondpartofthevolumelooksattheopportunitiesandstrategiesforgrowthinthenewfinancialenvironment.Assetmanagement is no longer the prodigal

son allowing for the easy business-as-usualpracticethatisatleastinpartre-sponsible for the inconsistencies, theodditiesorthelackofsustainablestra-tegies,whichMassasoaptlypointsout.Profitswillnoteasilyreturnanditwillbecomehardertomakealiving.

Yetthereisplentyofhopeifonetakesalookatthe‘newnormal’thatJohannesElsner, Martin Huber and PhilippKochofMcKinseybelievewehavear-rivedat.

InChapter5of thevolume, the threeauthors argue that what they describeas ‘fake’ alpha will not do anymore –only true alpha entrepreneurs will re-main, but as ‘boutique players’ along-side a few really large-scale betafactories.Key to survival, revival, andcontinuedsuccess,however,istoregainthe trust from clients and investors,andtotakethecurrentcrisisasanop-portunity for strategic (re-) evaluationandreorientation.

AdamSchneider,PrincipalatDeloitteConsulting,elaboratesinChapter6on

“... the asset management industry is likely to be one of the largest and most dynamic parts of the global financial services sector ...” Professor Ingo Walter, Director of SimCorp StrategyLab

Available from amazon.co.uk and amazon.com

April2010 JOURNALOFAPPLIEDITANDINVESTMENTMANAGEMENT SimCorp32

theinnovationchallengebytranslatingit into concrete trajectories, each ofwhich can be seen as a strategic re-sponse tomajor trendshe identifies inthe investment management businesstoday.Inpassing,thesetrendsaregen-erallyinlinewithourclaimofincreas-ingcompetition in thebusinessallow-

ing fewer and fewer opportunities foreasymoney-making.

The responses he proposes illustratehowcreatingmorevalueforclientscanbe achieved by (1) delivering better,more transparent, more reliable andbetter-performing products; (2) focus-ing on profitable segments and clientsatisfaction (i.e. by better deliveringthem the value proposition they arewilling to pay for and thus also fine-tuning the offer and the pricing); and(3) by streamlining organisation andprocesses(e.g.eliminatingsomeoftheunproductive waste or side-effects ofbehaviouralandorganisationaldynam-icsidentifiedintheMassachapter).

Massa’s contribution is quite comple-mentarytotheoneinChapter7writtenbyAlistairByrne,PrincipalatInvestitConsultancy, which looks not at whatplayersintheindustrysay,butwhatinfacttheydo,andhowthisisaffectedbythe organisational dynamics and ‘or-ganisational behaviour’ within assetmanagementbusinesses.

This is a new kind of ‘behavioural fi-nance’, which we could call ‘organisa-tional behaviour finance’ – to comple-mentandjointhegrowingranksofthemore traditional ‘behavioural finance’contenders. Byrne, who has publishedmore comprehensive reviews of ‘tradi-tional’ behavioural finance findingselsewhere,exposesreadersinhischaptertoamorenovelandpath-breakingstudy

ofcustomerbehaviouranditsimplicationsforproductdesignanddevelopment.

STRATEGICALLYDRIVENITPLATFORMAstrategically andbusiness-driven ITarchitecture and platform that is fo-cussed, flexible and cost-effective willobviously be critical in this informa-tion-drivenbusiness.

Thispointisaptlyandstrategicallydis-cussedinChapter8byPascalWanner,Account Manager at SimCorp A/S,who highlights how strategic IT canandshouldbeaboutsecuringandsup-portinggrowthgoingforward.

Effective and efficient IT investmenthas to be part of the overall businessstrategy. In today’s asset managementenvironment, this requires regainingtrustbydeliveringrealvaluetoclients.The resulting approach necessitates aparadigm change in the qualificationandquantificationofITinvestmentsingeneral. Focussing exclusively on costwill limit the potential, as clients alsoexpect more and different sources ofvalueadded.

Jacob Elsborg, Head of Investment atATPInvestment, takes this further inChapter9,outliningthecrucialroleofdefining and implementing an appro-priateoperationalplatformstrategy–asdistinctfromanITstrategy,asitisgen-erally known or referred to. Whenproperly managed and conceived, the

# New SimCorp StrategyLab volume on growth and value creation in asset management

“Asset management is no longer the prodigal son

allowing for the easy business-as-usual practice

that is at least in part responsible for the

inconsistencies, the oddities or the lack of

sustainable strategies ...”


operational platform can even be con-sideredastrategicasset,andshouldbemanagedassuch.

Dependingonthenatureofthebusinessactivity, the relevant business modeland themarket inwhichplayersoper-ate,thiscouldindeedbecomeacrucialelement indifferentiatingoneself fromthe next competitor and in particularcouldactasaplatformforgrowth.

ASTRATEGICPROSPECTIVEInthethirdpartofthevolume,MathiasSchmitandLin-SyaChaooftheSolvayBrussels School of Economics andManagementelaborateonthispointinChapter 10. On the basis of literatureandempiricalfindings, theyproposeapragmaticframeworktobettermanagethis ‘growth risk’ eminentlypresent inany (growth) strategy. If we make bigmoves, ifwechasegrowth for itsownsake,evenifwefollowtheproperpathdown the value curves and value seg-ments,weshouldbeawareoftheriskswearetaking.Sustainablegrowthandvalue creation can only be based on asoundcontrolofcostsandrisks.

The basic premise in the concludingchapter 11 is that growth will not re-turnbydefaultifitistobesustainable

andprofitable.Infact,growthinandofitself isnot reallya strategy– it is theresultofagoodstrategy:astrategythatrefocusesonsustainedvaluedeliverytoclients and appropriate ways to sharethat value fairly and sustainably withthe client for the benefit of manage-ment,employeesandshareholders.

The link between growth and valuecreation therefore seems essential. Asarguedintheconcludingchapter,thereisnogoingbacktotheold‘business-as-usual’practice.Ratheritmeansthatonewillneedmoreand true innovation intermsofdeliveringvaluetotheclientifoneistowininthisnewandchalleng-ingenvironment.

The editor, Paul Verdin (Ph.D., Harvard), holds the Chair of Strategy and Organisa-tion at Solvay Business School (ULB, Brussels) and is Professor of Strategy and International Management at KULeuven in Belgium. He is a former Distinguished Visiting Professor at INSEAD, where he has been on the faculty for over 15 years, and other international business schools, and has taught and consulted widely on strategic issues and processes in the financial sector (banking, insurance, asset management).

“Sustainable growth and value creation can only be based on a sound control of costs and risks.”

Karel Lannoo, CEO of the Centre for European Policy Studies (CEPS), elaborates in Chapter 4 on pressures and opportunities in the global asset management industry originating from the regulatory side. (See also article by Karel Lannoo on page 18.)

Massimo Massa, Rothschild Chair Professor of Banking and Finance at INSEAD, discusses in Chapter 3 whether the mutual fund industry is really functioning or dysfunctioning.

Ingo Walter, Director of SimCorp StrategyLab and Professor of the Stern School of Business at NYU, discusses in Chapter 2 the industrial and institutional development of the asset management industry.


# Growth and Value Creation in Asset Management: how to win in the 'new normal'

A fter the substantial lossesasaresultoftheglobalfi-nancial crisis and all thediscussions about new

regulations in financial services, it istempting to ask (1) if and how assetmanagement would be able to createvalue in the future, and (2)wherepo-tentialfuturegrowthcouldcomefrom.

Based on an interestingly assembledcollectionoforiginalandthought-pro-voking articles, this book makes aconvincingcase that thecurrentsitua-tioncouldallowforatruerecoveryandemergenceoftheassetmanagementin-dustryasoneofthemostdynamicpartsoftheglobalfinancialservicessector.

First of all, it is argued that generaltrendslikethemovementtowardspro-fessional management of discretionaryhousehold assets, the displacement ofdefinedbenefitpensionplans,increasesinindividualwealthinvariouspartsoftheworld,thereallocationofportfoliostowardslessriskexposure,andchangesinvariousareasofregulation(forexam-pleUCITSIV in theEU)willbe theunderlyinggrowthdriver.Ontheotherhand, industry consolidation could al-low successful competitors to exploiteconomies of scale and operating costefficiencies, and therefore potentiallyresultinvaluecreationforthemaswellasfortheirclients.

WINNERSANDLOSERSINTHE‘NEWNORMAL’The evolution of the asset managementindustrywill–asanotheroneofthearti-cles predicts –lead to a ‘newnormal’.Aheavier regulatory hand, a pronounceddifferentiationbetween large-scale “betafactories” versus true “alpha entrepre-neurs”,andafightforregionalaswellasglobalpolepositionswillmakethe ‘newnormal’averycompetitiveplace.

Growth, profitability, and market sharewill decidebetweenwinners and losers,andthemainfocuswillincreasinglybeonclientservice/clientprofitability.Further-more,itispredictedthatinthisenviron-mentitwillbeessentialforassetmanage-mentorganisationstoalignITwiththeirbusinessstrategyandtreatITinvestmentsnot just as cost reducers, but also asgrowthdrivers.

Two interesting points are made abouttheinvestors.Onedealswiththe“reluc-tant investor”,whohas limitedfinancialknowledge, does not want to make de-tailed investment decisions and wouldthereforepreferthatexpertsdoitonhis/her behalf. Based on findings from be-havioural finance, it is recommended tofocusonthedevelopmentofafewwell-designed and effective products whosebenefitsaretransparentlycommunicated.Inamoregeneralway,anotherarticlear-guesthatperformanceevaluationofmu-

tualfundsismostlyillusory.Whileinthepast the non-performance of individualfunds seems to have been counterbal-ancedbyperformancepersistenceat thefundfamilylevel,thiscouldchangeinthefuture. Investors may find it more eco-nomicaltoeitherinvestincheaperindexfunds (beta strategies) or in better per-forming hedge funds (alpha strategies)thantostaywithfundfamilies.

Asthefinalarticlepointsout,clientsareno longer focused only on returns; theyare also concerned about liquidity andtransparency,whichwillofcoursechangethe value equation. Nevertheless, as thebookconcludes,“…sustainedvaluecrea-tion and profitable growth will alwaysresult from strategies which create anddeliversuperiorvaluetoclients…”

Thereisnodoubtthattheideasoutlinedinthisbookprovideessentialreadingfortheassetmanagementcommunity.

Alfred Mettler is a Clinical Associate Profes-sor at Georgia State University, Atlanta, USA, and an Adjunct Professor with the Swiss Fi-nance Institute. His principle interests are in selected areas of International Banking and Finance, Risk Management of Financial In-stitutions, and Financial Education. He is active in various Executive Education Pro-grammes in Europe and the USA, and has consulted for numerous organisations.

The publication ‘Growth and value creation in asset management’ completes atrilogybySimCorpStrategyLab,allwrittenwithmanagementoftheglobalassetmanagementindustryinmind.Thecontentsofthesevolumeswillalsobehighlyrelevantforanyonewithaninterestinthisindustry,whethertheyareresearchersorstudents.

Title: GrowthandvaluecreationinassetmanagementOther books in this series:Understandingthefinancialcrisis:investment,riskandgovernance(July2009).Operationalcontrolinassetmanagement:processesandcosts(January2010)Editor: ProfessorPaulVerdinSolvayBusinessSchoolandKULeuvenNo of pages:224Publisher:SimCorpStrategyLabPublication date: 30June2010

Availablefromamazon.co.ukandamazon.com

Alfred Mettler, Clinical Associate Professor at Georgia State University, Atlanta, USA.

BOOK REVIEW:


T hisisnot anormal crisis.Worldgrowthmay expe-rience a structural down-ward shift for the next

decade.Asia'sexport-ledgrowthmodelis shattered, and has not changed fastenough to take on the new post-sub-prime paradigm. China is liberalisingits insurance sector (seen as the 'gold-mine' in the future of world financialdevelopment)andtryingtodevelopfi-nancial derivatives for insuranceprod-ucts. Many analyses on the subprimecrisissofarhaveinsufficiencies,includ-ing a lack of integrated analysis fromthe Asian perspective, misunderstand-ings about the Asian and Chinese as-pectsof thesubprimecrisis,misplacedviewsonthenatureofthecrisis,igno-ranceofAsia’scontributiontotherootof the subprime crisis, and erroneousanalysesofthemacro-policyimpactonthe global system in the aftermath ofthecrisis.

This book seeks to remedy these mis-conceptions, and is the first to placeAsia-inparticularChina-andthede-velopedworldtogetherinthesubprimecrisis context. Its integrated approachuses both macro (systemic) and micro(corporate) analysis to draw valuableconclusions from the disaster. The au-thorusesacriticalapproach,question-ing conventional wisdom at times, toassess the subprime crisis's causes andimpactandtodebunkmisconceptions.Cuttingthroughhypeandbias,ChiLodiscussesAsia'scontributiontotherootof the crisis, traces the regulatory andpolicylessonstobelearnedandpredictsthe economic and financial aftermath.Combining research thoughts, data,factsandeconomiclogicwithrealworldexamplesandanecdotestoelaborateonthearguments,thisthought-provokingbookliftstheveilonthe'financialtsu-nami'toexposeAsia'seconomiclifeinthepost-subprimeworld.

CHI LO is an economic strategist and head of investment research at a major asset man-agement company based in Hong Kong. His previous roles include China Director Research at HSBC, Asian Chief Economist at Standard Chartered Bank, Economic Ad-visor at the Canadian Deposit Insurance Corporation, and senior research positions at blue-chip investment banks and regula-tory bodies in North America, the UK and Asia. In 2000 and 2006, he was listed as a member of the International Who's Who Professionals. Chi Lo has written several books on Asian and Chinese economic transfor-mation, and highly acclaimed research pub-lications in the international media and periodicals. He has taught applied econom-ics, macro-economics and banking and finance at various universities in Asia and North America, and spoken at international semi nars such as the Asian Development Bank and United Nations conferences.

# Euro Crash: The Implications of Monetary Failure in Europe

T he book 'Euro Crash:Implications of MonetaryFailureinEurope’addres-ses the number one issue

ininternationaleconomicsandfinance:the causes of the global credit bubbleandbust.Amongthecurrentinvestiga-tions to apportion blame and comeupwithremedies,EuropeanMonetaryUn-ion(EMU)andtheEuropeanCentralBank (ECB) have hitherto remainedoutside the target areas for research.Thebook,asequeltothewell-receivedEuroonTrial (hailedby InternationalBusiness Review as 'the euro-sceptic'sbible'), corrects that omission, arguingthat the launch of a deeply-flawedEMU, togetherwith subsequentgravepolicy errors by the ECB, played keyroles inprovidingfuelforthelooming

economic and financial disasters.Brownexploresthepossibleremediestoimprove the functioning of EMU, in-cluding a complete re-vamp of theECB'smonetaryframework.InBrown’sopinion, the ordo-liberal order as ex-pressedintotalindependencefromtheECBhasbecomeapassportformone-tary incompetence and should be re-placedby theclassical liberal traditionofthecentralbankresidingwithinthedemocratic political process but withthe aim of monetary stability estab-lished as a constitutional principle.Such transformation would require aSecondTreatyofMaastrichtcreatingagreater degree of political union be-tweenthecountriesbelongingtoEMU.

Brendan Brown, Palgrave Macmillan, 2009.

BOOK REVIEW:

BOOK REVIEW:

# Asia and the Subprime Crisis: Lifting the Veil on the Financial Tsunami

Chi Lo, Palgrave Macmillan, 2009.

BRENDAN BROWN is Director and Head of Economic Research, Mitsubishi UFJ Securities International plc. Based in the City of London, Dr. Brown has au-thored many previous books on interna-tional financial topics, including monetary problems in the USA, Europe and Japan and asset market pricing (including ex-change rates) in a global context. The books have treated both contemporary trends and historical topics. The author’s postgraduate degrees are from the University of Chicago and London School of Economics. Dr. Brown is a regular contributor to the Japa-nese and European financial media.

§Regulatory update This regulatory update covers major new regulatory requirements and substantial developments that affect the investment management industry.

NEWUKGOVERNMENTTODEVOLVEFSA,MAKINGITBANKOFENGLANDSUBSIDIARY(UK)Inmid-June,newChancelloroftheExchequerGeorgeOsborneannouncedsweeping changes to the UK financial regulatory apparatus, effectivelyabolishing the Financial Services Authority (FSA) and incorporating itsmandate into a new subsidiary of the Bank of England (BoE). A new'ConsumerProtectionandMarketsAuthority'willbecreatedtoregulateeveryfirmprovidingfinancialservicestoconsumers,andanewFinancialPolicyCommitteewithintheBoEwillbegiventheauthoritytoexamine"macroissuesthatmaythreateneconomicandfinancialstabilityandtakeeffectiveactioninresponse".

http://www.ft.com/cms/s/0/0203b99e-797f-11df-b063-00144feabdc0.html

EUROPEANREGULATORYFUNDSNEWS-MAY2010ThisupdatefromErnst&YoungtouchesuponrecentregulatoryactionsimpactingtheEuropeanfundindustry.TheupdateincludescoverageofanewIrishlawwhichallowsnon-IrishfundstomigratetoIrelandwithoutchangingthecorporatestructure;theimpactofthenewInvestmentFundAccountingandValuationOrdinance(Investment-Rechnungslegungs-undBewertungsverordnung: InvRBV) that theFederalFinancialSupervisoryAuthority (Bundesanstalt fürFinanzdienstleistungsaufsicht:orBaFin) inGermany has instituted to provide uniform valuation of funds in thatmarket;andanassessmentofrecentEUedictsregardingre-domicilingofinvestmentfundsinEurope.

www.ey.com/Publication/vwLUAssets/European_regulated_funds/$FILE/European_regulated.pdf

STANDARDISEDCATASTROPHESCENARIOSFORTHEINSURANCEINDUSTRYOn 15 June, the Committee of European Insurance and OccupationalPensionsSupervisors(CEIOPS)presentedafinalproposaloncalibrationsofNonLifeandHealthCatastrophestandardisedscenarios.Theproposalisthe outcome of a joint industry and CEIOPS working group called theCatastrophe Task Force (CTF). The proposal provides a calibration ofcatastrophe risk at the 99.5% VaR for undertakings that are exposed toextremeorexceptionalevents.Theproposalcontainsinformationonbothhowundertakingsshouldapplythescenariosandhowtheyhavebeencalibrated.

www.ceiops.eu/content/view/17/21/

SECPOLITICALCONTRIBUTIONRULESFORINVESTMENTADVISERS(US)TheSecuritiesandExchangeCommission(SEC)isadoptinganewruleunder theInvestmentAdvisersActof1940thatprohibitsan investmentadviserfromprovidingadvisoryservicesforcompensationtoagovernmentclientfortwoyearsaftertheadviserorcertainofitsexecutivesoremployeesmakeacontributiontocertainelectedofficialsorcandidates.

The new rule also prohibits an adviser from providing or agreeing toprovide,directlyorindirectly,paymenttoanythirdpartyforasolicitationofadvisory business from any government entity on behalf of such adviser,unless such third parties are registered broker-dealers or registeredinvestment advisers, in each case themselves subject to pay to playrestrictions.Additionally,thenewrulepreventsanadviserfromsolicitingfrom others, or coordinating, contributions to certain elected officials orcandidatesorpaymentstopoliticalpartieswheretheadviserisprovidingorseekinggovernmentbusiness.

www.sec.gov/rules/final/2010/ia-3043.pdf

IASBRELEASESRESULTSOFPROJECTTODEFINEACOMMONMEASUREOFFAIRVALUEINCOOPERATIONWITHFASBThis comprehensive project summary, prepared by the InternationalAccountingStandardsBoard(IASB)staff,providesthebackgroundoftheIASB’sfairvaluemeasurementprojectandexplainshowtheIASBplanstofinalise an IFRS on fair value measurement. In March 2010 the IASBcompleteditsinitialdiscussionswiththeFinancialAccountingStandardsBoard(FASB)todevelopcommonrequirementsformeasuringfairvalueandfordisclosinginformationaboutfairvaluemeasurements.

Oncethecommentperiodends(September2010)andadditionaldeliberationshavebeencompleted( January2011),it isanticipatedthattheIASBandFASB will publish a common set of IFRS and US GAAP fair valuemeasurementstandards.ThesestandardsareexpectedtobepublishedbytheendofMarch2011.

www.iasb.org/NR/rdonlyres/5179C9D9-F7D8-4742-939C-2B6677F75FF7/0/FVMprojectsummaryJuly2010.pdf

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April2010 JOURNALOFAPPLIEDITANDINVESTMENTMANAGEMENT SimCorp36

37SimCorp JOURNALOFAPPLIEDITANDINVESTMENTMANAGEMENT April2010

RESTORINGAMERICANFINANCIALSTABILITYACTOF2010(US)TheStabilityActof2010proposesbroadchangestotheexistingregulatorystructure, such as: creating a host of new agencies (while merging andremovingothers)inanefforttostreamlinetheregulatoryprocess;increasingoversightofspecificinstitutionsregardedasasystemicrisk;amendingtheFederalReserveAct;promotingtransparency;andadditionalchanges.

banking.senate.gov/public/_files/TheRestoringAmericanFinancialStabilityActof2010AYO10732_xml0.pdf

IFRS9REPLACINGIAS39FINANCIALINSTRUMENTACCOUNTINGSTANDARDSINMULTI-PHASEDAPPROACHTheIFRSstandardforfinancialinstruments,IAS39,isintheprocessofbeingreplacedbyanewstandard,IFRS9,inanapproachoverthreephases.The International Accounting Standards Board (IASB) issued IFRS 9phase1(Classification&Measurement)inNovember2009,allowingearlyadoption in2010 andmaking itmandatory for2013.Thepublic reviewperiodforIFRS9phase2(ImpairmentMethodology)ended30June2010andthefinalversionisexpectedinlate2010.TheexposuredraftforIFRSphase3(HedgeAccounting)isexpectedtobesentoutforcommentbytheendof2010.

http://www.iasb.org/Current+Projects/IASB+Projects/Financial+Instruments+A+Replacement+of+IAS+39+Financial+Instruments+Recognitio/Financial+Instruments+Replacement+of+IAS+39.htm

UPDATESTOUSGAAPSTANDARDSONFINANCIALINSTRUMENTACCOUNTING(US)'The Financial Accounting Standards Board (FASB) issued an exposuredraft in May 2010 proposing updates to the accounting for financialinstruments(topic825intheAccountingStandardsCodification)andforderivatives and hedging (topic 815 in the Accounting StandardsCodification).Thedeadlineforcommentsis30September2010.BoththeFASB and the IASB are encouraging users of IFRS also to review andcomment to theFASBon this exposuredraft, to the benefit of the twoboards’convergenceproject.

http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB/FASBContent_C/NewsPage&cid=1176156902600

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POSTFINANCIALCRISISCHALLENGESFACINGTHEINVESTMENTMANAGEMENTBUSINESSNow that the securities and investments industry is emerging from thebiggestfinancialcrisisinrecentmemoryandassetsundermanagementarebeginningtoclimbbackupforbothtraditionalmoneymanagersandalternativeassetmanagers,itistimetolookatthefutureofassetmanagementandtheforcesthatwilldrivethisbusinessinthenextfewyears.ThisTowerGroupViewPointdiscussesthreemajor challenges facing theglobal active assetmanagementbusiness andoffersbriefrecommendationsfortheindustrygoingforward.

‘PostFinancialCrisisChallengesFacingtheInvestmentManagementBusiness',TowerGroup2010www.towergroup.comTowerGroup,January2010

SPRING2010INSURANCEM&A:OVERCOMINGTHECHALLENGESANDLEVERAGINGTHELESSONSLEARNEDFROMTHEFINANCIALCRISISThe article raises challenges like evaluating risk, manoeuvring in an evolvingregulatory environmentand IFRSand tax issues in the contextofmergers andacquisitionswithintheinsuranceindustry.Inthelightoftherecentfinancialcrisis,the authors discuss how insurance companies might improve in mergers andacquisitionsdeal-makingandintegrationactivitiesandgainpremiumgrowthandastrongcompetitiveadvantage.

‘Forwardfocus:2010InsuranceM&A’,HowardMillsandDavidSimmons,DeloitteLLPandDeloitteTaxLLP2010www.deloitte.com/view/en_US/us/Industries/Insurance-Financial-Services/c5b00af0fa077210VgnVCM200000bb42f00aRCRD.htmDeloitte,12pages,March2010

TOP10TRENDSFORHEALTHANDLIFEINSURANCE,2010AnewreportfromAiteGroup,LLC,presentsthetop10trendsinthehealthandlife insuranceindustriesfor2010.Brokendownintothetopfivetrendsineachcategory, the report sheds light on key areas of focus within rapidly changingmarketenvironments.

‘Top10TrendsforHealthandLifeInsurance,2010’,AiteGroup2010www.aitegroup.com/reports/201003081.phpAiteGroup,23pages,March2010

2009LIFEINSURANCEOPERATIONSBOOKOFMETRICS:EXECUTIVESUMMARYCostcontainment,asinprioryears,remainsparamountforinsurers.Coupledwiththe fact that investment incomehasdropped significantlydue to the economiccrisisandrobustgrowthcontinues toproveelusive, theresult isadireneed forinsurerstofocusonefficiencies.

‘2009LifeInsuranceOperationsBookofMetrics:ExecutiveSummary',Deloitte2010www.deloitte.com/view/en_US/us/Industries/Insurance-Financial-Services/article/c1cd52d89c295210VgnVCM100000ba42f00aRCRD.htm?id=gfsi-list-insDeloitte,18pages,January2010

ASSETMANAGEMENTNEWSQ12010Justlikethebroaderindustryitserves,theassetmanagementindustryisreturningtogrowth.Yetthisgrowthisfarfromuniform–therearepocketsofflourishingactivity and areasof continuingweakness.Also included are assetmanagementnewsupdatesfromaroundtheworld.

'AssetManagementNewsQ12010',PwC2010www.pwc.com/gx/en/asset-management/assets/pdf/AMN0310.pdfPricewaterhouseCoopers,28pages,March2010

CHALLENGINGTHEDOMINANCEOFMUTUALFUNDS?POSITIONINGFORANEWFINANCIALLANDSCAPEThisreportprovidesbackgroundonExchange-TradedFunds(ETFs).Itdescribeshow they are formed, and provides a comparison between ETFs and MutualFunds(MFs).ItalsolooksattheproposedchangesinETFregulationsandwhatthefutureholdsforETFs.Lastly, itconsiderswhetherETFswillchallengethedominanceofMFs.

‘Challengingthedominanceofmutualfunds?Positioningforanewfinanciallandscape',Deloitte2010www.deloitte.com/view/en_GX/global/industries/financial-services/investment-management/Deloitte,24pages,March2010

EVOLVINGMODELSINTHEHEDGEFUNDINDUSTRYThisreportoutlinesthestepsrequiredtoachieveanewprofitablebusinessmodel,andoutlinestheimportantrolethatrelationshipswillplayinensuringthathedgefundsandtheirprovidersoperateinamorenetworkedmanner.

‘Evolvingmodelsinthehedgefundindustry',Deloitte2010www.deloitte.com/view/en_GX/global/industries/financial-services/investment-management/Deloitte,24pages,February2010

GLOBALITSPENDINGTRENDSINFINANCIALSERVICESTHROUGH2012–SURPRISINGOPTIMISMONTHEHORIZONThisResearchNotepresentsTowerGroup's2010forecastofglobalITspendinginthefinancialservicesindustryandidentifiessomeoftheprincipalmacroeconomicand financial service industry drivers of this spending. Separate projections bymajorregionandlineofbusinessareprovidedanddiscussedinthecontextoftherapidlychangingmacroeconomicclimate.

‘GlobalITSpendingTrendsinFinancialServicesthrough2012–SurprisingOptimismontheHorizon',TowerGroup2010www.towergroup.comTowerGroup,March2010

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Recent research and white papers

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August2010 JOURNALOFAPPLIEDITANDINVESTMENTMANAGEMENT SimCorp


RUN-OFFSURVEY2010Inasurveyregardingthemanagementofdiscontinuedbusinesses(so-calledrun-off ) in the insurance industry,KPMGmade anumber of findings.The surveytargeted153keydecision-makersofinsurersinGermany,SwitzerlandandAustria.Thesurveyincludedquestionsregardingrun-offissuesandtheimpactofSolvencyIIinthatcontext.SomeofthefindingswerethatSolvencyIImaytriggermorefuture transactions, and that due to knowledge of their own portfolios, manycompanies prefer in-house management to external providers. Another findingwasthat85%oftheparticipantswereengagedindiscontinuedbusinesses.

‘Run-offsurvey2010’,KPMG2010www.kpmg.com/EU/en/IssuesAndInsights/Articlespublications/Pages/Run-Off-Survey-2010.aspxKPMG,28pages,June2010

SPRINGFINANCIALSTABILITYREPORT2010In a recent report, the Committee of European Insurance and OccupationalPensionsSupervisors(CEIOPS)presentsdevelopmentswithintheinsuranceandoccupationalpensionfundmarkets.Thereportcoversmarkettrendsforthelastfew years and it also gives an outlook for the future.The report concludes forexamplethattheinsuranceindustryfacesseveralrisksandchallengesregardingtherisksforlowordecreasinginterestrates,depressedequitymarketsandvolatilityofcredit spreads on bonds going forward. Another conclusion is that the recentfinancialcrisissignificantlyimpactedtheconsumerconfidenceforpensionfundsandalsoimpactedthemasinstitutionalinvestors.

‘Springfinancialstabilityreport2010’,CEIOPS2010www.ceiops.eu/media/files/publications/reports/Fin-Stability-2010-1/CEIOPS-Spring-2010-Financial-Stability-Report.pdfCEIOPS,45pages,June2010

New reports published and information which could be relevant for listing can be submitted for review to: Editorial Assistant Mette Trier, [email protected]

ALPHAORBETA:CHALLENGESANDOPPORTUNITIESFORTRADITIONALACTIVEMANAGERSAsthemarketcontinuestopolarise,traditionalactivemanagersarefacingchoicesbetweenbecominganalphaorbetaprovider.Providing“beta” returnsat“alpha”prices is no longer an option. Many traditional active managers face a choicebetweenrepositioningtobecomeavolume-based“beta”provider;focusonhighrevenuegenerating“alpha”or;aimtoprovidea“totalsolution”providingbothtypesofreturnstoproviders.

‘AlphaorBeta:ChallengesandOpportunitiesforTraditionalActiveManagers’,Deloitte2010www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Financial%20Services/gfsi-1004-Alpha%20or%20Beta.pdfDeloitte,20pages,April2010

RISKMANAGEMENTFORASSETMANAGEMENTSURVEY2010Ernst&Young’s‘RiskManagement forAssetManagement2010’ surveyoffersarevealing insight into the challenges confronting the industry's risk managementprofessionals.Incomparingtheviewsof29headsofriskandchiefriskofficersatseveral leading asset managers in the UK and continental Europe, the surveyprovidesindicationsaboutthefuturedevelopmentofthecontinuingevolutionandstrategicimportanceoftheriskfunction.

‘RiskManagementforAssetManagementSurvey2010’,Ernst&Young2010www.ey.com/Publication/vwLUAssets/Risk_Management_for_Asset_Management_Survey_2010/$FILE/Risk_Management_for_Asset_Management_EY_Survey10.pdfErnst&Young,44pages,May2010

SOLVENCYIIITVENDORSPECTRUMIn this report, Celent presents a number of IT vendor solutions for insurancecompanieswithinriskmanagementandcompliancewithSolvencyII.SomeofthevendorshaveabroadcoverageoftheareaswithinSolvencyII,whileothershavesolutionscoveringspecificpartsofSolvencyII.ThereportemphasisesthatinsurersmustaligntheirITsolutionswithintheframeworkofSolvencyII.

‘SolvencyIIITVendorSpectrum',Celent2010www.celent.com/124_3042.htmCelent,90pages,April2010

REALITY-CHECKINGTHEEVOLUTIONINCOREINSURANCESYSTEMSInarecentreport,Celenthasresearchedapanelofmorethan30insurersabouthowtobestpartnerwithinformationsystemvendors.Thepartnershipisconsideredbothon the strategic level and the tactical level andalso reactive andproactiveapproaches are considered.The author of the report thinks that legacy systemshavealotofvaluableintellectualcapitalcodifiedintothembutthesesystemsarealsoinflexibleandunresponsivetoongoingchangesintheenvironment.Hedrawstheconclusionthatvendorsabletoaddresstheseissueswillbehighlyvalued.

‘Reality-CheckingtheEvolutioninCoreInsuranceSystems’,Celent2010www.celent.com/124_2903.htmCelent,22pages,April2010

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SimCorp is a leading provider of highly specialised software and expertise for the investment industry. Established in 1971,

with more than 1,100 employees, SimCorp is listed on the NASDAQ OMX Copenhagen A/S. SimCorp enables global

investment management organisations to mitigate risk, reduce cost and enable growth through development and

implementation of its integrated and market-leading financial software solution SimCorp Dimension. SimCorp is

headquartered in Copenhagen with subsidiaries and branches in Amsterdam, Brussels, Frankfurt, Helsinki, Hong Kong,

Kiev, London, Los Angeles, Munich, New York, Oslo, Paris, Singapore, Stockholm, Sydney, Toronto, Vienna and Zurich.

www.simcorp.com


Journal of Applied IT & Investment Management - Vol.2,No.2

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