Money Markets - Volume 6-7 by Money Markets Ltd.

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42 | Money Markets

MONEY MARKETS

FOREWORD CUSTODY

The Role of Central Banks in a Globalised Economy

Custodian Evaluation, Selection & Monitoring in a Changing Landscape

Jean-Claude Trichet

Ross Whitehill

2007 Custody Review Regionalisation - Survival of Asiaâ&#x20AC;&#x2122;s Fittest

19 22

Elizabeth Chia

The Evolution of Sub-Custody in Asia

Neil Daswani & Simon Walker

ANZ - Setting the Standard in Australian Sub-Custody

Mandy Rashleigh

The Changing Face of Greek Custody

John Avgoustis

Nordic Custody Overview

Anne-Lise Kristiansen & Peter Dahlgren

Icelandic Custody Gathers Momentum Gudrun Blondal

MONEY MARKETS

CUSTODY

South African Custody - Reaching New Heights

Andre Jansen van Vuuren

The Value of Local Expertise

Paul Heffernan & Fearghal Woods

Client Relationship Management - A Winning Formula

Bob Poferl

Raising the Bar in German Sub-Custody

Moritz Ostwald

SECURITISATION

The “Subprime Crisis” and the Future Challenges for the European Securitisation Market

Carlos Echave

2007 Securitisation Review Taking Workflow Solutions to the Next Level

59 61

Ira Keller

The Future of Transaction Processing Hugo Doswald

PROVIDER, a t r u s te d AD V I S O R m o re t h a n a

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domestic and global trust and custody products and services, including performance measurement, accounting and reporting, online reporting, benefit payments, securities lending, commission recapture and transition management. More than that, we offer a lasting relationship in which we serve as a resource and a trusted advisor focused on your success. Delivering great service has always been a key part of all Wells Fargo relationships. Now Strategic Relationship Management takes the experience to a whole new level. To find out more, call Wells Fargo Institutional Trust Services at 1-800-368-1225.

For over 150 years, Wells Fargo has provided the outstanding service that our customers have come to expect. The Strong Box continues to represent our financial strength and unwavering commitment to clients. © 2007 Wells Fargo Bank, N.A. All rights reserved.

MONEY MARKETS

SECURITISATION

Securitisation - Tackling the Issues

Barbara Dilges, Rainer Pruy & Dr. Frank Kardel

The Evolution of the Trustee

Sue Lawrence

Real Estate Corporate Finance - Adding Real Value

Raffaele Lino

REAL ESTATE INVESTMENT

Investing in Overseas Property

Paul Owen

Portuguese Real Estate Investment - The Legal Process

Dr. Alexandra Pereira

The UKâ&#x20AC;&#x2122;s Real Estate Investment Hotspots

Seamus Nugent

Where to Find the Best Real Estate Opportunities in Europe

Ken Wilson

Las Vegas: The Premier Real Estate Investment Destination Phil Laboon 4

MONEY MARKETS

EXECUTIVE EDUCATION

Corporate Perspectives on the Executive MBA

Jason A. Price

The Executive MBA - Where Education Complements Career and Job Search Strategy

Jason A. Price

2007 Executive Education Review The MBA Selection Process

97 99

John Richards & Sue Tempest

Your MBA on the Move

103

Dr. Donald Zahn

MBA Trends and Insights

107

Dr. Darlene Smith

Products and Services Index List of Contributors

110 112 5

CEO

Victor J. Callender

Group Editor-in-Chief

Alexandra Skinner

City Editor

Jonathan Calens

Financial Controller

Anthony Gordon

Head of Production

Steven Whitaker

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FOREWORD

The Role of Central Banks in a Globalised Economy Jean-Claude Trichet, European Central Bank

Globalisation and Some of its Underlying Trends Globalisation encompasses several phenomena and trends which have led to a growing interdependence of most economies throughout the world. It displays its effects through a strong increase in cross-border transactions in goods and services, capital, labour and natural resources. I would add that, at the same time, we are witnessing a substantial increase in the cross-border exchanges of ideas and concepts between the various institutions, organisations and non-trading companies. The concept of globalisation has been of vital importance over the last 20 years – and has been even more so in the last ten years – thanks to a combination of factors, including the diffusion of ever more sophisticated and affordable information and communication technologies. The cost of shipping goods has fallen. Economies have continued to open up and many trade and financial barriers have been lifted. National barriers to the circulation of goods, services and production factors are diminishing everywhere. Foreign direct investment (FDI) flows have also surged, leading to an internationalisation of production processes and new ways of doing business as companies have established affiliates abroad both to gain access to foreign markets and to reduce input costs. Globalisation has allowed many emerging countries to enter and compete in world markets. In order to measure the phenomenon on a global scale, it should be noted that the labour force available for participating in globalised markets has probably doubled from 1.5 billion to 3 billion with the opening-up of China, India, many formerly centrally planned economies and several other emerging countries. Although labour mobility is still limited worldwide, the increased flexibility of capital flows implies that firms now have much easier access to global labour supply than before. As a result, many industries have set up supply chains on a global scale. Let me now provide you with some figures to document the magnitude and scope of globalisation.

Global trade openness – measured as world exports and imports of goods and services as a share of world GDP – has practically doubled over the last 20 years, from 33.9% of world GDP in 1986 to 60% of world GDP in 2006. An increasingly decisive factor has been the increase in trade in intermediate goods and services as a result of the rising internationalisation of production processes. Financial systems have also been deeply affected. As investors’ incentives to hold foreign assets in their portfolios and the possibilities to diversify and spread financial risks globally have grown, this has affected all facets of financial systems, be it markets, infrastructures or institutions. Let me briefly illustrate some impressive developments. The share of gross international asset holdings in world GDP – which provides a measure of financial openness – has shown an eightfold increase over the last 25 years and now stands at more than 130% of world GDP. As far as global capital flows are concerned, it is noteworthy that their composition has changed significantly over recent years. While FDI and international equity flows were dominant in the late 1990s, international transactions in mainly liquid assets have risen in recent years, making up most of the increase in global capital movements. International risk-sharing and the transfer of net savings across countries are important features of this process. Emerging market economies are gaining a larger share of global GDP. Aggregated data show that they posted net private capital flows of USD 650 billion in 2006 compared with USD 458 billion in 2005. Net direct investments remained globally unchanged over this period, with net inflows of USD 267 billion in 2006. Portfolio investments, on the other hand, which include the public sector, recorded higher outflows in 2006 of USD 379 billion, compared with USD 258 billion in 2005, while portfolio investments to emerging market economies decreased slightly. On the whole, emerging market economies have most recently been pro7

FOREWORD

viding the rest of the world with net resources corresponding to their current account surpluses. The main drivers are limited domestic absorptive capacities and underdeveloped domestic financial systems. Globalisation is fostering economic prosperity and raising living standards through various channels. There is stronger international competition and a greater transfer of technology and knowledge. This is promoting productivity gains and global economic growth. Higher efficiencies are helping to lower both costs for firms and prices of tradables. The availability of new product varieties is increasing. Resources are allocated to the most profitable activities across the world, and there are new possibilities to diversify and share risks globally. Also, scrutiny by international investors serves as a disciplining device, which enhances the quality of domestic economic policies and thus contributes to improved economic fundamentals. However, globalisation also presents some challenges and poses some risks. The ever closer global integration and the surge in capital mobility have rendered the international financial system more exposed to changes in investor sentiment. Furthermore, international trade and financial links might intensify the transmission of shocks from one country to another and amplify cross-border spillover. We should not forget that, a few years ago, a number of financial crises posed a major threat to the international financial system, including the Asian crisis starting in 1997 and the Russian crisis in 1998. Each of these crises was different and the international community managed to resolve them successfully. Each crisis illustrated the need for adequate investment in institutions and human capital to strengthen economic governance. I will come back to the impact of major financial crises for central banks in my third reflection. Past crises illustrate the vulnerability of the global economic and financial system and remind us of the importance of always being alert and never being complacent.

Europe has gone hand-in-hand with the integration of Europe within the global economy. In trade terms, for example, the euro area is very open vis-Ă vis the rest of the world; more open than the United States and Japan. Extra-euro area exports of goods and services account for around 20% of euro area GDP, roughly the same share as extra-euro area imports. This is substantially higher than in the United States, where exports of goods and services represent about 10% of GDP and imports 16%, as well as in Japan, where total exports amount to 15% of GDP and imports 13.4%. Moreover, particularly noteworthy for the euro area is that the increase in trade with the rest of the world has been even greater than the increase in exchanges within the euro area. What is even more remarkable, perhaps, is that the euro area is more financially open than the United States and Japan. Let me present four observations. The first observation is that the external assets and liabilities of the euro area, as a percentage of GDP, are very large and account for around 124% and 137%, respectively. By comparison, in the United States, the corresponding figures are substantially lower: 90% of GDP for assets and 110% for liabilities. In Japan, foreign financial assets are likewise significantly lower than in the euro area (94% of GDP in 2005), and the difference is even greater for liabilities, which represent only 60% of GDP, i.e. less than half of the corresponding figure for the euro area. This highlights how the euro area is very outward-looking.

The Integration of the Euro Area Within a Globalised Economy

My second observation is that the euro has very probably contributed to the financial opening of the euro area. On the assets side, stocks of euro area assets held abroad increased from less than 87% of GDP in 1999 to, as mentioned, over 124% in 2005. On the liabilities side, the increase was also very substantial, from around 92% to 137%. The rise has actually been much less pronounced for the United States: US assets have grown from 80% of GDP in 1999 to 90% today, and US liabilities have increased from 91% to 110% of GDP. In other words, the euro area has witnessed a more substantial increase since the start of Economic and Monetary Union.

My second reflection is about the economic and financial links between the euro area and the rest of the world. I will argue that integration within

My third observation is that the euro area is an attractive place for FDI. A breakdown reveals that inward FDI amounts to more than 27% of euro area

FOREWORD

GDP, against 22.5% for the United States. The euro area seems to have received, proportionally to GDP, a similar amount of FDI as China – 27.3% for both economies – according to IMF statistics. In net terms, the stock of direct investment abroad is only slightly higher than that of FDI within the euro area (30.4% against 27.3%, respectively). My fourth observation concerns bilateral FDI linkages of the euro area. Based on available data, it is worth noting that the stock of euro area FDI abroad is mostly held with mature economies: nearly 21% in the United States, 24% in the United Kingdom, 9% in Switzerland, and between 2.5% and 3% in Sweden, Canada and Japan. Likewise, on the liabilities side, the United Kingdom and the United States account for a larger share than on the assets side (nearly 40% and 23.5%, respectively). I should also stress that the amount of euro area FDI in emerging market economies rose quickly. Between 1999 and 2005, outward FDI from the euro area to the so-called BRIC group – which includes Brazil, Russia, India and China – increased markedly. Over this period, the stock of outward FDI in the BRIC group rose from 63 billion to 133 billion (or by 111%). In comparison, the stock of euro area FDI in the United States increased by 55%, from 360 billion to 558 billion, during the same period. The euro area itself has also become more attractive as a destination for FDI from the BRIC countries: between 1999 and 2005, FDI stocks from the BRIC group in the euro area tripled, from 4 billion to 12 billion. This is still low in comparative terms but is not insignificant> In terms of comparison, the figures for US FDI stocks in the euro area rose from 322 billion to 560 billion over the same period. Brazilian and Russian firms account for the bulk of the BRIC countries’ FDI surge in the euro area, but Chinese and Indian FDI has picked up in recent years. On the whole, this evidence suggests that there is no “fortress Europe” or “fortress euro area”

The Implications of Globalisation for Central Banks My third reflection is about the implications of globalisation for central banks in their two principal functions, i.e. setting monetary policy and helping to secure financial stability. 10

Globalisation and monetary policy. The issue of the impact that we have observed for some months of the historic episode of accelerated globalisation on inflation is both important and much debated. Economic theory has numerous channels through which globalisation can influence the level of prices, but these influences are not one-directional. I have already mentioned the basic phenomenon of the increase in the pool of labour available to the world economy with the widespread opening-up of emerging economies and the former centrally planned economies. The phenomenon exerts pressure, in particular, at the slightest rise in the cost of labour, especially unskilled labour. In a more general manner, it tends to modify significantly the previous balance between capital and labour at the global level. Globalisation also exerts pressure conducive to price stability by strengthening global competition, by reducing the ability of firms to fix prices and by exerting pressure on unit production costs in the industrialised countries. A third influence, which is in keeping with my previous two points, is that globalisation has also exerted a positive effect on the productivity of the global productive sector by facilitating, and accelerating, the phenomenon of restructuring and optimisation of the division of labour in a wider cross-border context. But it would be naive to think that the effects of globalisation on inflation go in one direction only. Indeed, the sudden emergence of fast-growing economies in the global economy is exerting upward pressure on prices for mining products and fossil fuels. This phenomenon has been particularly visible since 2003. The same phenomenon of rising prices is observable in certain areas of agricultural production. The attainment of considerably higher living standards by a new and numerous middle class translates into major changes in eating habits and, as a result, in the meat, cereal and fresh produce sectors of the world economy. Since the theoretical influences that globalisation can be said to have on prices are numerous and work in different directions, it might perhaps be natural to

FOREW0RD

suppose that globalisation, as a continuous phenomenon with medium-term effects, will translate into substantial changes in relative prices – the prices of manufactures falling and those of oil, gas and certain commodities rising – without the general level of prices being significantly affected. Empirical research does not allow this conjecture to be either irrefutably confirmed or disproved in the recent period. All in all, the available data indeed confirm that the prices of manufacturing imports in the euro area were at end-2006 still below their 2001 level. Although import prices for raw materials have risen strongly since 2003, it can be said that, over the same period, the acceleration in import prices overall, all products taken together, has been moderated by the growing proportion of euro area imports coming from countries with low production costs (countries in eastern Europe and Asia, particularly China). It remains that the phenomenon of globalisation and of its acceleration since the mid-1990s has coincided with a decline in global inflation and in its volatility. Concomitantly and as a consequence of this stabilisation of inflation at a low level, we have also seen lower volatility in macroeconomic variables. But it would be wrong to conclude that this correlation between globalisation and low inflation demonstrates a causal relationship. Indeed several other factors – independent of globalisation – can be identified as helping to explain these good results. I see at least four. In the first place, the very rapid progress in science and technology, in particular information and communication technologies – leading to significant productivity gains which coincide with globalisation and, moreover, are one of its underlying causes. In the second place, structural reforms which have been introduced in the industrialised world from the beginning of the 1980s and which have gradually increased throughout these economies. These structural reforms, like the spread of technological progress, have helped to increase the growth potential of the economies and thus to facilitate price stability. In the third place, the greater budgetary discipline which has recently characterised most economies following the previous period of poor fiscal management. And

finally, the monetary policy pursued by the central banks and their enhanced credibility. I would particularly like to stress the last point. Whatever the influences being exerted in the context of globalisation, the basic principle which allows the anchoring of monetary policy remains: in the long run, inflation is a monetary phenomenon. As a consequence, globalisation does not affect the central role and overriding responsibility of central banks to preserve price stability. In the short term, the central bank must continue anchoring inflation expectations at a level that is consistent with the central bank’s definition of price stability. Let me illustrate this by means of an example. Let’s take the significant increase in energy prices over the last few years. I will assume that a central bank credibly commits to maintain stable prices and is fully and unequivocally trusted by the public and by other policy-makers. The corporate sector, which uses energy as an input for its production processes, observes a significant and sharp rise in the price of oil. Since there is a credible commitment to price stability over the medium term and inflation expectations are well anchored at low levels, entrepreneurs easily understand that it is the relative price of energy that is rising, while the aggregate price level may not increase as much. Therefore, their incentives to fully pass the increase in input prices to consumers are reduced because, if they did, their competitiveness could be significantly eroded, especially in an increasingly competitive global environment. Hence, in this example, the credibility of the central bank clearly reduces second-round inflationary effects and minimises macroeconomic fluctuations in output and inflation. Now let me turn to the role of central banks in mitigating risks to financial stability stemming from globalisation. Widespread interlinking of the financial systems has created a global financial system that it becoming a real, significant entity at the global level. This affects the financial stability assessment performed by central banks in two ways. • The first way is that it calls for a growing global focus on their financial stability analysis.

FOREW0RD

For instance, for the euro area, a complete and comprehensive view on the key sources of risk and vulnerabilities facing the financial system cannot be formed without taking due account of wide global imbalances or concerns about excess global liquidity. â&#x20AC;˘ The second way is that it calls for enhanced cross-border cooperation and exchange of information among central banks (and between them and other authorities contributing to financial stability). This should produce a comprehensive picture of risks and vulnerabilities and identify appropriate and effective mitigating policy actions. In the European Union this goal is pursued mainly through the activity of the Economic and Financial Committee in its Financial Stability Table set-up, comprising representatives from ministries of finance, central banks and the supervisory committees in banking, securities and insurance, as well as the ESCB/Eurosystem. At the level of the G-10, this goal is pursued by the Financial Stability Forum and other sectoral committees.

The globalisation of financial systems also affects the role of central banks in the design of financial regulation and supervision. This role is played by central banks because they either have a direct supervisory responsibility or act in an advisory capacity to governments. In general, financial globalisation calls for an intensification of efforts among regulators on a cross-border basis to produce consistent regulatory and supervisory standards. The aim is to promote a level playing-field and reduce regulatory arbitrage. This is clearly illustrated by the experience of the European Union where the establishment of a single financial market is a main strategic objective and presupposes the removal of potential regulatory and supervisory barriers. The EU experience also shows the usefulness of proceeding in steps in the process of convergence by focusing first on regulatory requirements and subsequently on supervisory standards and practices. In this context, I would like to offer three considerations: â&#x20AC;˘ First, in the areas clearly identified previously it is important that the regulators of the major financial systems deepen and strengthen their dialogue at the global level. Therefore, the

FOREW0RD

initiative of the European Commission to extend its traditional regulatory dialogue with the United States to other major countries, including China and Japan, is supported in particular. • Second, we see an increase in the number of new areas in which the need for a consistent approach at the global level is becoming apparent. Financial institutions with high lever age are a good example here. On the basis of the mandate given informally by the G8, the Financial Stability Forum has played and continues to play a crucial role in developing recommendations at the global level targeted at regulators, counterparties of the leverage funds and investors in these funds. The institutions themselves have been encouraged to develop, voluntarily and under their own responsibility, their principles of best practice (“benchmarks”), both in terms of transparency towards their counterparties and their own investors, and in terms of their optimal management of risks. Credit derivatives markets could also be mentioned as another area that requires a consistent approach at the global level. • Third, in general terms, there is a still a great deal of progress to be made in harmonising effective supervisory practices at the international level. This is particularly paradoxical regarding the banks, since the Basel Committee is the oldest and most advanced in terms of ensuring that uniform principles and concepts of prudential supervision are defined at the global level. However, given the diversity of practices, a significant harmonisation effort is still necessary and is currently being made by the Basel Committee’s Accord Implementation Group (AIG), which is mandated to work on practical implementation issues for achieving convergence of banking supervision practices at the international level.

Conclusion

tion. There would be no low-cost, instantaneous transmission of information, concepts and services at the global level without new information and communication technologies. There would be no extremely rapid expansion of international trade in goods without technological progress in sea and air transport. Second, if science and technology are at the root of the current globalisation, this could be a trend that not only lasts, but also strengthens. There is no indication that scientific and technological progress is tending to slow down. In fact, the opposite is the case. Third, the rapid growth that we are seeing at the global level, and highly significant transformations which are both the cause and effect of this growth at the level of each of the economies, rapid changes of the respective economic weightings of the various continents and of the structure of the global economy all combine as a consequence to make predictions based on past regularities less reliable. Consequently, uncertainty tends to increase and economic and financial risks with a weak or very weak probability, but a strong destabilising potential, appear as the inevitable, and in fact, “normal” counterpart to an unprecedented period of economic prosperity. Now is not a time to be complacent. Fourth, more than ever during a period of accelerated globalisation, central bank credibility is essential for anchoring solidly inflation expectations and for forming a solid base for monetary and financial stability in a brilliant, mobile international economy in which uncertainty and risks cannot be ignored. Fifth and finally, it is crucial to deepen and strengthen global governance by exploiting to the full all possibilities offered by all formal and informal institutions that exist and by consolidating global financial stability, not only by unifying the principles and concepts of prudential supervision and regulation, but also by achieving real unification, resulting at the global level from the practical implementation of regulation and supervision.

I would like to conclude by drawing your particular attention to the following five points: First, let us never forget that scientific and technological progress is very much at the root of globalisa-

Jean-Claude Trichet is the President of the European Central Bank.

Custodian Evaluation, Selection & Monitoring in a Changing Landscape

Ross Whitehill

2007 Custody Review

Nordic Custody Overview

Anne-Lise Kristiansen & Peter Dahlgren

Icelandic Custody Gathers Momentum

Gudrun Blondal

Regionalisation - Survival of Asiaâ&#x20AC;&#x2122;s Fittest

Elizabeth Chia

South African Custody - Reaching New Heights

Andre Jansen van Vuuren

The Evolution of Sub-Custody in Asia

Neil Daswani & Simon Walker

The Value of Local Expertise

Paul Heffernan & Fearghal Woods

ANZ-Setting the Standard in Australian sub-Custody

Mandy Rashleigh

Client Relationship Management â&#x20AC;&#x201C; A Winning Formula

Bob Poferl

The Changing Face of Greek Custody John Avgoustis

Raising the Bar in German sub-Custody Moritz Ostwald

CUSTODY

Custodian Evaluation, Selection & Monitoring in a Changing Landscape Ross Whitehill talks to Money Markets

Significant changes and challenges in the global securities markets in recent years have shaped the future of the custodial and administrative services landscape in a variety of ways. Firstly, it has caused some groups to decide that the sum of their parts is much greater than their individuality, e.g. The Bank of New York and Mellon, while others have identified product strengths and an injection to scale that is quicker bought than built, i.e. State Street’s acquisition of Investors Bank and Trust.

Still, others world wide are questioning their position in the business, identifying new models for supporting their business going forward while others are questioning their modus operandi. The background to much of this consolidation and soul 16

searching can be traced to a variety of factors including:• Increased shareholder activism in driving boards to maximise revenue growth and profit to highly competitive levels. • Increased investment product complexity and diversification, which demands increased levels of knowledge, technology and expertise in custodian and fund administrators. • Increased competition from industry participants as they seek to build their client

base and scale. • New geographies that need to be serviced as countries develop, funded pension plans begin and new investment funds are created.

CUSTODY

These challenges and changes in the shape of the custodian industry are caused, to an extent, by the investment managers and funds themselves as they continue to diversify their investment strategies and instrument types. What is clear is that the investment management industry and the custody/fund administration industries have not worked closely enough over the years to develop closer working strategies that support each other.

have tended to be highly structured and very comprehensive in nature following defined stages as the figure below shows:Increasingly funds are adopting best market practice and regulatory obligations to monitor their custodial arrangement and this has caused the development of highly specialised Custodian Monitoring tools.

Much of the product development in the custody/fund administration industry has been lagging some distance behind the investment

• A “rating” of the custodian which is an independent assessment of the custodial business and service standards. These detailed ratings are

These services include:-

“Funds are becoming far more forward thinking and are either conducting extensive evaluation and selection review exercises to find the right custodian/administrator to support their investment strategies going forward, or monitoring their service provider much more closely.” industry and in many cases has caused custodians to acquire investment administration and support capabilities from small groups who have established themselves as specialists in various segments of the investment administration industry. In some respects, given the experience of almost the last ten years of custodians pursuing the investment administration capabilities of asset managers, it is odd that the investment and custody/fund administration industries are not closer in sync. However, funds are becoming far more forward thinking and are either conducting extensive

reflected in alpha symbology, e.g. AA – and are supported with textual analysis. • A review of the custody agreement to ensure that the appropriate risk minimisation clauses and indemnities are in place to support the institutional client. • A periodic review of fees to ensure that fees remain consistent with market bids • Ongoing service monitoring across a wide range of service factors to compare the service providers performance against a benchmark universe of service providers performance, addressing things like STP, fails management, income performance, taxation reclaims, enquiry

“The number of high value institutional reviews has increased globally in the last few years and many of those have concluded that a change in service provider is necessary.” evaluation and selection review exercises to find the right custodian/administrator to support their investment strategies going forward, or monitoring their service provider much more closely. The number of high value institutional reviews has increased globally in the last few years and many of those have concluded that a change in service provider is necessary. This has generally been to the benefit of the large well known global custodians who have been working to complement their institutional investment client base. The reviews

resolution, etc. • FX benchmarking to assess whether custodian execution rates are competitive and within day trading ranges. • Securities lending performance analysis to determine the effectiveness of the custodians’ agent lending programme compared with an industry benchmark. The benefits of Custodian Monitoring are substantial. Firstly, it sends a clear message to the 17

CUSTODY

provider that their services are under ongoing scrutiny. This can mean that commercial benefits are offered before being demanded as the providers know that the client is now armed with improved fee and overall commercial information.

commercially reasonable level and the benefits of independent assessment against a comparative universe is of significant help. Similarly, the advantage of getting a clear understanding as to where the market is, without conducting a costly Request for Proposal evaluation review, is not lost

“Increasingly funds are adopting best market practice and regulatory obligations to monitor their custodial arrangement and this has caused the development of highly specialised Custodian Monitoring tools.” It also allows the client to determine where its provider sits from a competitive market standpoint and where less than best market practice is provided, the client can seek to understand why. Many funds today are seeking to ensure that they are able to demonstrate to their regulators, trustee boards and clients that their custody and fund administration arrangements remain at a

on resource challenged investors.

Thomas Murray is a global firm specialising in the global securities industry and provides evaluation, rating (market infrastructure & custodian) and selection products and services to global, regional and domestic custodians and institutional investors worldwide. Ross Whitehill is the Chief Operating Officer of the company.

Act globally? Think locally. ANZ Custodian Services – Thinking globally. Experts locally. At ANZ our focus is where you need us most. Here. For more than 50 years, ANZ has been providing premium custodian and clearing services to local and international clients in our

home markets of Australia and New Zealand. With teams in Melbourne, Sydney and Wellington, ANZ offers a powerful mix of products, capabilities, local market insight and global reach.

Speak to the Australian and New Zealand market experts today. Call Angelo Calvitto on +61 3 9273 1907

www.anz.com Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522. ANZ’s colour blue is a trade mark of ANZ. Item No. 927346 04.2007 W108047

108047_Custodian_HalfPage.indd 1

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2007 International Custody Review

Selecting a custodian in today’s market is not easy given the plethora of value added services currently available to investors. As such, the Money Markets 2007 International Custody Review is designed to refine the filtration process and facilitate the investor’s decision-making process.

Key Performance Indicators (KPIs): Listings have been based on the following KPIs: ➔ Securities lending ➔ Reporting capability ➔ Performance measurement ➔ Cash management ➔ Foreign exchange ➔ Systems/technology ➔ STP services Data pertaining to the activities of certain custodians operating in the geographic territories listed below is considered, in some cases, to be highly sensitive. This may affect the inclusion and or exclusion of providers from this report.

Review Dates & Regions: Next review date, January 2008. The inclusion or exclusion of custodians will be subject to the findings of the review panel.

Selected Zones Only: No more than six custodians have been selected for inclusion in to any one geographic territory.

Africa SOUTH AFRICA Provider First National Bank Standard Bank

CHINA Commendation Best-in-Class

Asia AUSTRALIA Provider ANZ Citigroup HSBC National Australia Bank

Provider DBS HSBC Standard Chartered

Commendation

Best-in-Class

HONG KONG Commendation Best-in-Class Most Improved

Provider Citigroup GTS DBS HSBC Standard Chartered

Commendation Most Improved Best-in-Class Client Service 19

JAPAN Provider Bank of Tokyo Mitsubishi Citigroup GTS HSBC Mizuho SMBC Standard Chartered

FINLAND Commendation Most Improved Client Service

Best-in-Class

SINGAPORE Provider Citigroup GTS DBS HSBC Standard Chartered UOB

Commendation Best-in-Class Client Service Most Improved

TAIWAN Provider Central Trust of China Citigroup GTS HSBC JP Morgan Standard Chartered

Commendation

HSBC Standard Chartered

Best-in-Class

Commendation Most Improved Technology Best-in-Class Client Service

CYPRUS Commendation Best-in-Class

GERMANY Provider BHF-Bank BNP Paribas Deutsche Bank TSS

Commendation Best-in-Class Most Improved

GREECE Provider Alpha Bank BNP Paribas (SS) EFG Eurobank Ergasias HSBC National Bank of Greece Piraeus Bank

Commendation Most Improved Best-in-Class

Client Service

Provider Citibank Zrt. BA-CA (Unicredit Group) ING Raiffeisen Bank

Commendation Best-in-Class Most Improved

ICELAND Provider Arion Custody Services Kaupthing Bank

Commendation Best-in-Class

Provider AIB/BNY Bank of Ireland (SS)

Commendation Most Improved Best-in-Class Client Service

Citigroup GTS HSBC

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Regionalisation Survival of Asia’s Fittest Elizabeth Chia talks to Money Markets

As part of our ongoing push to grow regionally, DBS has rolled-out a $20m (SGD) regional system, which has allowed us to enjoy certain economies of scale. Naturally, the aforementioned platform and system can also be customised according to the market and client, which is very important.

Introduction Q (a). What sets DBS apart from the competition? Q (b). Kindly define the bank’s third party assets under sub-custody. Q (c). What percentage of this figure is comprised of local assets? Q (d). You are recognised as a technology intensive provider. Aside from the investment DBS has made in recent years, from a technology standpoint, how have you managed to anticipate the needs of your clients? A. DBS has been in the custody business for the last twenty years, concentrating primarily on the Singapore market. However, as DBS has expanded its footprint in the region, the custody business has grown in line with client requirements. Clients like the fact that we are

As you are aware, custody is getting very commoditised. As a result, clients are increasingly asking for additional value added services. For example, global custodians are now asking for special reporting and customization; it’s not just about providing the client with settlements services. DBS is the only bank in Asia to be appointed by the two central securities

“We are also working with our clients on a number of different products - custody, fund administration, transfer agency - something that would not have been possible or scalable as a single market provider. We are currently the only local bank and one of only three in Singapore to offer securities lending.” an Asian bank, and this is also what sets us apart from the competition; they also recognise the success that we’ve had locally. Many of our clients are global banks and global custodians. DBS understands the Asian market and is totally committed to meeting the challenges in Asia. In fact, our clients want us to focus on building an Asian custody network so as to work closer and to forge more partnerships with us. In terms of AuC, locally, we have $220bn (SGD) and we’re still growing. Over the last two years we’ve expanded into Hong Kong, India, Indonesia and China. We are now fully operational in five markets. Our target next year will be to open more network branches; in particular, we’re considering Taiwan and Korea. We believe it’s about building gradually, and in the right way. 22

depositories, Euroclear and Clearstream. We believe these appointments reflect our ability to provide a level of customisation that is second to none. The Helicopter View Q.

A number of global players have entered the domestic market, what impact has this had on competition and service levels in general? Yes, some global custodians have selectively entered some markets and have begun to in-source, which naturally saves them money. However, a number have preferred to identify local partners. The market has grown beyond core custody; fund administration is now a significant and dynamic requirement of the clients. The fund

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market in Asia has been evolving tremendously. Domestic funds in all of the local markets have demonstrated significant growth and some of these funds are now investing outside of the country. Consequently, a number of global banks are reviewing opportunities with us to develop onshore value added services. The influx of global interest pertains more to the selective building of partnerships and value added services.

China, at the last count, had a market capitalisation of approximately US$2,627 billion (as of 31 July 2007) of which about one third is freely tradable. The global quota allocated to foreign investors was initially $4bn; that figure has now increased to $10bn, and there are plans to raise it to $30bn, which is why everyone is flocking to the market. However, the high barriers to market entry have been a hindrance. It’s very much like Taiwan was in the past. But those that have already entered the market

“The fund market in Asia has been evolving tremendously. Domestic funds in all of the local markets have demonstrated significant growth and some of these funds are now investing outside of the country.” Q.

Is regionalisation - the appointment of a single custodian across the entire region- gaining momentum? Yes, regionalisation is key as it is very difficult to sustain one’s self as a single market custodian. Custody is a scale business, and that is why we have grown and expanded our custody business.

have done very well. QDII is the opposite. In the past local investors in China could not invest overseas, new regulations have overturned this rule. However, there is a caveat; a memorandum of understanding (MOU) must first be signed between the China Securities Regulatory

“Following India’s example, and addressing the expectations institutional investors thus have of Asian markets, Singapore is in the process of introducing pre-matching and STP capabilities.” China Q.

Thanks to the Qualified Domestic Institutional Investor (QDII) scheme, fund management companies, securities companies and custody banks can now invest in overseas securities markets. What will this do for the migration of international best practices? From a custodial standpoint we are focusing on the QFII (Qualified Foreign Institutional Investor) scheme. In essence, the QFII scheme allows qualified foreign institutions to trade Chinese A-shares via special accounts opened at designated custodian banks. The QFII mechanism has opened up China's securities markets and has given foreign investors an opportunity to share in China's phenomenal growth.

Commission or China Banking Regulatory Commission (CBRC), and the equivalent regulators in other markets. The CBRC, who govern banks’ investment under QDII, for example, has currently signed an MOU with the Hong Kong Monetary Authority. This is driving the growing fund markets in Hong Kong. Hong Kong Q (a). The market permits agency clearing. The next step is of course third-party clearing (TPC). Where do you stand on this? Q (b). Hong Kong Exchanges and Clearing Limited hope that the inception of TPC will enable Hong Kong’s securities clearing infrastructure to conform to international standards. Is this realistic? 23

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Yes, this is being introduced by the local securities depository in Hong Kong. They are recommending that brokers be allowed to outsource their administration to a custodian. At the end of the day, that’s what the TPC is all about. This is great news for the brokerage

Looking Ahead Q. A.

What can new and existing clients expect from DBS over the next six to twelve months? As we’ve discussed, we are expanding into the region. We are also working with our clients on

“The QFII mechanism has opened up China's securities markets and has given foreign investors an opportunity to share in China's phenomenal growth. China, at the last count, had a market capitalisation of approximately US$2,627bn of which about one third is freely tradable.” houses, particularly smaller ones, to realise economies of scale. Therefore, interest in the TPC will continue to grow as we move forward. Market drivers, such as this one, can only help the custody market in Hong Kong to grow. I think eventually more markets in Asia will follow suit.

a number of different products - custody, fund administration, transfer agency something that would not have been possible or scalable as a single market provider. We are currently the only local bank and one of only three in Singapore to offer securities lending.

Over the last few years a number of significant developments have changed the custodial

The future is not just about custody, it’s about value added services, it’s about being able to provide our clients with bespoke solutions.

India Q.

“DBS has rolled-out a $20m (SGD) regional system, which has allowed us to enjoy certain economies of scale. Naturally, the aforementioned platform and system can also be customised according to the market and client.”

landscape in India, most significantly the implementation of the market's straight-through processing (STP) infrastructure, which was introduced in 2002 and made mandatory in 2004. What impact have these changes had on the bank’s custody business locally? Following India’s example, and addressing the expectations institutional investors thus have of Asian markets, Singapore is in the process of introducing pre-matching and STP capabilities. In contrast to emerging markets, implementing a significant revamp of established infrastructure and practices in a mature market comes with its own challenges. PSMS, the central pre-matching utility, is expected to be available in early 2008, as part of The Singapore Exchange Ltd’s suite of post-trade services. As Chair of the Singapore Securities Market Practice Group and part of the user group established by SGX, DBS has been one of the driving forces behind the changes taking place in the market.

Ms Elizabeth Chia is the Head of Securities Services, Global Transaction Services division in DBS Bank Limited. With over 25 years of extensive experience in the securities markets, she is responsible for expanding the Bank’s custody network into the Asian markets, establishing new markets and developing new products and services into the region. Included in her areas of responsibility for Domestic Sub-Custody and Domestic Fund Administration, is the overall regional Product Management, Sales and Marketing, Product Development and Securities Lending. Ms Chia is a qualified Banker and certified Investment Analyst, commencing her career in the field of asset management before moving into the global and domestic subcustody services. Her experiences in securities services extend over a diverse portfolio of functions from running day-to-day operations to system development and risk management, advancing into product and business development.

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The Evolution of Sub-Custody in Asia Money Markets talks to Neil Daswani & Simon Walker

time-critical operational activity appropriately, e.g. account-profile-set-up and account opening etc, we’ve been able to redeploy staff. Consequently the ratio of front office staff, or client servicing staff, versus back office staff, has changed dramatically in each country. The aforementioned hubs, representative of non-time-critical activities, are achieving economies of scale, which in turn has facilitated a reconfigured customer-facing team. It’s not just that we’re good at client service; our operational processes and configuration have allowed us to have the staffing necessary to be responsive to customers. We recognise that client service is key and we continually look for ways to engage on a deeper and more meaningful level with clients as our respective organisations evolve.

Introduction Q. A.

How does Standard Chartered differentiate itself from the competition? Standard Chartered aims to be the 'bank of choice' for our clients in Asia, Africa and the Middle East here we believe that in being the “Right Partner’ to our clients, we will achieve our mutual objectives. Indeed, being the right partner is our brand promise to clients. This involves continually raising the bar in client service as well as meeting our clients’ needs in terms of new markets, client service and product capabilities. In terms of markets, in 2005, we became the first sub-custodian in the Dubai International Financial Exchange. Currently, in line with client needs and investor interest, we are actively looking at other markets in the Middle East as well, in addition to Africa. Prior to that, we had focused primarily on sixteen markets in Asia.

In terms of product capabilities, we feel particularly proud of the fact that we were the first bank in Asia to offer a web browser-based

“ China has a global quota of $10bn allocated to foreign investors as a global group. However, that allocation has almost been reached. So, unless the Chinese authorities raise the aforementioned quota, the market will effectively be closed.”

Clearly this is a competitive space and we recognise that true differentiation has to come from client service. A lot of people will give you that stock response, but the way we’ve managed and paid attention to customer service is a little different in that instead of simply re-engineering the client-facing aspect, we have taken an ‘inside out’ approach by re-looking at our operational processes to support our client focus. As an organisation we’ve split a lot of our operational processes in to two halves, those halves are in Chennai and Kuala Lumpur. As a result of channelling non

supporting and settlement initiation tool. It was a module called i-custody, part of a singlesign-on web browser channel called web-bank, which we offered to customers. Q.

Kindly define Standard Chartered‘s third party assets under sub-custody? What percentage of this figure is comprised of local assets? I can give you broad numbers; I would say that business has tripled over the past four or five years. Obviously we’re operating in a very buoyant market. We’ve been quite successful in winning key mandates in a number of growth

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markets, particularly in North East Asia. If you look at the balance of our business in North East Asia and South East Asia, the scales tip slightly in favour of North East Asia. This should come as no surprise though; the markets of Korea, Taiwan and Japan are quite dominant, though it must be said that India is very buoyant too.

In terms of local assets, well, you would have to look at our overall strategy for the past decade and a half, which had been to position ourselves as a premier sub-custodian in Asia; recently, we have added the Middle East to our sub-custody network.

the aforementioned territories to be key markets for Standard Chartered? You are absolutely right; these are major markets in terms of investment flows, volume of trading activity, portfolio asset size and market caps as well. If you did a league table on market caps, the aforesaid markets would certainly come out on top. We are also looking at new markets though, Vietnam is one of them. Over the past two or three months we’ve had five new appointments, which is significant, because it’s quite a small market. Overall, when expressed as a percentage of our business, it’s fairly low. However, if you rewind the tape back ten years, some of the markets which are considered medium sized today began the same way.

Three or four years ago, in response to local demand, we made a conscious effort to move up the value chain in order to provide a wider suite of securities services to meet clients’ evolving needs and the growth of wealth in Asia. As a result, we added fund administration to our portfolio. We’ve also positioned the business in response to customers that were using us for credit, or who had a forex relation ship with us, and so on. The idea was, and still is, to become a one-stop-shop for these clients.

Back to how Standard Chartered differentiates itself. Given our entrenched position overall as a bank in emerging markets, particularly in South East Asia, the Middle East and Africa, we have strong regulatory relationships. We are therefore able to act as the eyes and ears of our customers on the ground. The markets you’ve mentioned are very attractive but, we’ve got to strike a balance between the markets of today and those of tomorrow.

For asset management and insurance companies that have distribution requirements in Asia we tend to be the natural choice, given

“Client service is key, your investment and commitment to the business is key, as evidenced through innovative technology, people and the longevity of those people in the business.” our consumer banking branch network. Furthermore, given our acquisition activity of late, we’ve also expanded our branch network. This has positioned us very well as a potential distributor of products, be it bank assurance or third party fund distribution.

The Big Picture Q.

A. Over the past three or four years local assets have represented approximately 10% of our total assets under administration (AUA). Q.

You have had great success in recent years winning significant mandates in Korea, India, Japan and Taiwan. Do you therefore consider

Has the ever-increasing presence of global banks marginalised local sub-custodians in terms of expertise, scale and product offerings? The large players are always looking for new opportunities. When considering Asia for example, the overall opportunity is the growth of the mutual fund industry, the growth of the pension fund industry. Furthermore, the demo graphic and socioeconomic drivers attached to the region make it a natural choice for global banks.

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Q. A.

We view the entry of global players, and I would include our own expansion in that, positively. I think that global players, ourselves included, raise the bar for all players in the field, whether local or global. They do this by introducing a more comprehensive suite of products and services, new technologies, operating models, innovation, and offer customers a wider choice on the ground. Therefore, our view is that in the long run, competition is good. Ultimately, it improves the market; it results in product functionality enhancements and the migration of best-practice across markets as well.

and launched it took a while for the market to embrace it. However, subsequently, flows have increased dramatically. There has been a definite uplift in volumes and AUA.

With margins decreasing, what role does price play in the selection process? Pricing is just one of the factors in the overall buying decision. So, thinking back to your opening question about the importance of service, I think that service is absolutely critical. At the end of the day, unless you’re acting as a unified agent marching in block step with the global custodian or international broker dealer, you’re not going to be able to service the end up-stream client. It’s about seamless service across the markets, it’s about being responsive. Client service is key, your investment and commitment to the business is key, as evidenced through innovative technology, people and the longevity of those people in the business. Continuity is at a premium in this industry, you must be able to demonstrate that you’ve got a team that has

China has a global quota of $10bn allocated to foreign investors as a global group. However, that allocation has almost been reached. So, unless the Chinese authorities raise the aforementioned quota, the market will effectively be closed. Therefore, we anticipate an increase imminently. To what extent we will have to wait and see. The $18bn QDII quota -launched in September of last year- is of course substantially more. Our chief economist in China has suggested that the authorities might balance the two out. With QFII investment representing inward flows and QDII representing outward flows, if you kept the two quotas at a similar level you would have a balance of payments so to speak. Undoubtedly, with QFII, they’ve got to increase the investment flows.

I think it’s instructive to look at what has happened in other markets like Taiwan and Korea, especially Taiwan, which opened to foreign investors in 1992 with similar restrictions to China’s QFII. However, gradually, over time, as the Taiwanese authorities started to feel more and more comfortable with foreign investment flows regulations were relaxed.

“For asset management and insurance companies that have distribution requirements in Asia we tend to be the natural choice, given our consumer banking branch network.” been with you for a long time. It’s about relationship continuity, technology, and indeed pricing. Cost is a big concern. One of the advantages of being a regional player is that, if a customer is using you across a number of markets, you have the ability to perhaps subsidise one of those markets. China Q.

Part of our role as a sub-custodian is to facilitate the regulators and market infrastructure with such initiatives. Hong Kong Q. A.

What has the qualified foreign institutional investors market (QFII) done for competition and cooperation in the local market? When the QFII theme was first conceptualised

Will Hong Kong be the first destination for QDII banks? In terms of where we feel the initial destination of outbound flows will be, you’re right; Hong Kong will be the preferred destination. First, because of the connectivity between the mainland and Hong Kong, and second, because a number of asset management houses have

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marketing arms in China which makes it a natural destination. Q. A.

India has come a long way though; the trade cycle has been compressed from T+3 to T+2 and the implementation of real time gross settlement (RTGS) has thus far been successful. We were actually one of the pilot banks involved in the launch of RTGS, together with the Reserve Bank of India.

With respect to sub-custody, do you consider Hong Kong to be the gateway to Asia? Hong Kong has been a major recipient of investment funding over the years and we expect this to continue. You only have to look at the major IPO’s that took place in Hong Kong last year, ICBC (Industrial & Commercial Bank of China) -their $21.9bn IPO was the first simultaneous Hong KongShanghai listing- and Bank of China to name just two. There’s certainly considerable international influence when it comes to major Chinese companies. Foreign investors are fully aware of the regulatory environment in Hong Kong, and the way the exchange and the market work. Consequently, Chinese companies looking for international investment do so via IPOs in the Hong Kong market. Hong Kong has created a niche for itself, a gateway into China if you will.

However, there are still a lot of restrictions in India when it comes to the types of clients that can invest; for example, hedge funds are currently not allowed to, although we would hope for some relaxation on that. In the last week we’ve had some indication that things like short selling will be allowed in India very soon. Should this be the case you can expect stock borrowing and lending to be phased in as well. Japan Q.

India A. Q. A.

In your opinion are foreign banks dominating India's cross border custody business? There are a handful of foreign banks, especially

The electronic proxy voting platform implemented as part of a joint venture with the Tokyo Stock Exchange and the Japan Securities Dealers Association is now fully operational. To what extent will the new platform simplify the shareholder voting process? The electronic proxy voting platform has yet to be fully implemented, in terms of the number of companies involved. I think at last count it only covered about 6% of the companies listed

“We recognise that client service is key and we continually look for ways to engage on a deeper and more meaningful level with clients as our respective organisations evolve.” when you talk about the cross-border inbound sub-custody business, which have dominated the landscape. I think the benefit that foreign banks have is that they’re regional players’, not single country players, which allows them to achieve product depth and economies of scale; they’re able to present one seamless face to the customer. This applies to India. The market is dominated by three or four foreign banks, including ourselves, and I think that trend is likely to continue.

on the Tokyo Stock Exchange. From what I understand a lot of the listed companies are waiting to see how the first set of votes are processed and received, and how efficient it is before they sign up for the scheme. However, it will undoubtedly have a positive effect on the efficiency of the market. Q.

Japan's banks are known for being very strong. This has made it difficult for foreign banks to gain market share. What has Standard Chartered done to combat this? I think traditionally domestic banks do have a

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larger market share; after all, they’ve been around for a while. As I’ve already stated, we’ve been able to demonstrate that we can take on and efficiently transition large AUA mandates. Equally, we’ve been able to manage large settlement volume mandates from international broker dealers. Over the past three or four years volumes from this market have grown substantially, and so have we. Looking Forward Q.

In terms of product innovation, consolidation, and expansion, what can we expect from Standard Chartered over the next twelve to eighteen months? Over the next twelve to eighteen months, and beyond, we will continue to strive to be a bigger and better sub-custodian in Asia, Africa and the Middle East. We also plan to grow fund services

in Asia. Certainly by early Q1, 2008, we hope to have fund services right across the Asian market. In terms of geographic expansion, as I mentioned earlier, we now have a presence in Dubai and as such would like to expand our subcustodial coverage in the Middle East. We are also looking at, and considering, South Africa, Kenya and Nigeria, to name but a few. Moving forward we will continue to focus on our core business, sub-custody, whilst balancing it with fund services, the second strand of our strategy. Neil Daswani is the Global Head of Securities Services for Standard Chartered Bank. Simon Walker is the Head of Securities Services for the UK & Europe for Standard Chartered Bank.

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ANZ-Setting the Standard in Australian Sub-Custody Money Markets talks to Mandy Rashleigh

Over this time competition has increased significantly and this has led to margin compression, as well as a significant increase in service levels. Having said that, the significant growth in the Australian funds management and pension fund market has also driven significant growth in assets under custody and transaction volumes – this growth has in many ways offset margin compression; consequently, most custodians are continuing to grow their business. The growth prospects for the Australian funds management and pension fund market are still extremely positive and as a consequence, custodial services remain an attractive business to be in.

Introduction Q.

Q. A.

Since its inception, the Australian custody industry has grown significantly. However, when did ANZ first establish its custodial operations? ANZ first established its custodial operations in 1951. What sets ANZ apart from the competition? ANZ is one of only two large local banks in Australia and New Zealand that offers custodial services. We believe that our local custodial expertise, combined with our strong capability in securities lending, our leading AUD & NZD cash clearing proposition, as well as our leading domestic transaction banking proposition are key strengths. Our ability to seamlessly bundle these products and services to our clients differentiates us from the competition.

New Zealand Q.

The NZX 50 Index reached new heights in December 2006, breaking the 4000 milestone, an uplift of 19% on the beginning of the year.

“Over this time competition has increased significantly and this has led to margin compression as well as a significant increase in service levels. Yes, if assets under management and pension funds continue to grow in New Zealand in similar ways to Australia we would expect that the demand for outsourcing in New Zealand will also grow.” Q (a). Kindly define ANZ‘s third party assets under sub-custody. A. ANZ’s sub-custody assets total AUD $133 billion and NZD $8 billion. Q (b). What percentage of this figure is comprised of local assets? A. Approximately 98% of our assets under custody comprise local assets. 30% of assets are held for local investors and 70% are held on behalf of international/offshore investors. Q.

A number of global players have entered the domestic market, what impact has this had on competition and service levels in general? The entry of global players into the domestic market in Australia started twenty years ago.

Furthermore, given that the NZX 50 Index has consistently provided strong returns -24.7% in 2004, 10.1% in 2005, and 19.4% in 2006- what impact will this have on the number of foreign investors entering the market? Whilst the New Zealand equity market has delivered good returns to investors and trading volumes have increased, the level of liquidity in the market needs to improve significantly in order to increase the number of foreign investors entering the market.

Q (a). How does a country like New Zealand increase its liquidity? A. The recent introduction by the New Zealand government of the Kiwi Saver initiative will build pension fund assets in New Zealand, and

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this will help to increase liquidity. The other issues that need to be addressed to improve liquidity are around market infrastructure and in particular the manual nature of settlement matching with the depository. Any initiatives that the government and industry can pursue to improve market infrastructure and grow the domestic funds management market will assist in increasing liquidity. Q (b). A number of regulatory changes (removal of certain tax barriers to securities lending transactions/ prevention of securities lending vis-à-vis tax avoidance) have been implemented in order to expedite the aforementioned process. However, can more be done? A. Alignment of market rules with global standards.

Outsourcing Q.

Q. A.

Some sources claim that two-thirds of the country’s funds under management are administered by third parties. How accurate is this figure? If you look at the statistics from ACSA (the Australian Custodial Services Association) the total Assets under Custody are around AUD $1Trillion. This suggests that it could be greater than two thirds depending on what you believe the total size of the Australian funds management industry to be. Do you consider outsourcing to be a significant revenue stream for ANZ moving forward? Yes – we are focussing more and more on the domestic outsourcing opportunities in the market.

Technology Q.

Australia has benefited greatly from the boom in outsourcing; can New Zealand do the same? Yes, if assets under management and pension funds continue to grow in New Zealand in similar ways to Australia we would expect that the demand for outsourcing in New Zealand will also grow. Will the consolidation taking place in Australia have a knock-on effect with respect to New Zealand? Possibly, because many of the industry players in Australia are the same players in New Zealand.

Q (a). Regionalisation seems to be a growing trend. Therefore, do you tend to work with the same clients in both New Zealand and Australia? A. Yes, particularly for global investors. Broker/dealers tend to be a bit different – some use us in both Australia and New Zealand but some don’t. Q (b). With this in mind, do you provide a centralised hub? A. We do for some generic areas like product, IT and sales, but not for operations and service as we require local markets expertise.

Q (a). Since replacing your core custody system back in 2005 with CCS (Custody Clearing System) what benefits have your clients derived? Q (b). What impact has CCS had on processing speeds, automation, errors, and costs? A. We have significantly improved our rates of straight through processing as well as adherence to SWIFT message standards. The new system has also improved our flexibility and ability to respond to requests from customers to tailor processes to their needs.

Mandy Rashleigh is Head of Custodian Services at Australia and New Zealand Banking Group Ltd. She oversees ANZ’s Custodian Services business in both Australia and New Zealand. Mandy has been with ANZ for 23 years and has held management and executive positions across a variety of businesses in ANZ, including Chief Operating Officer for Trade & Transaction Services and Head of Foreign Exchange - Asia. Mandy holds a Bachelor of Science degree and Graduate Diploma in Banking & Finance from Monash University.

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The Changing Face of Greek Custody Money Markets talks to John Avgoustis

Q Introduction Q.

Although you are the oldest, and the largest, bank in Greece (founded 1841) with 569 branches, you continue to remain at the forefront of industry developments, both domestically and otherwise. Do you consider National Bank Greece (NBG) to be the spokesperson for the Greek banking community? Yes, NBG has been the leading Greek bank, not only in terms of size but also in the quality of economic numbers. NBG has also been making the headlines, both domestically and overseas, with its acquisitions, Finansbank would be a good example. This has certainly enabled us to strengthen our regional presence in South Eastern Europe. Regarding the securities and transaction business, we do represent our community in a number of Pan-European initiatives, including the Target 2 Securities Group, a newly

Regarding electronic pre-matching, we have been coordinating a binding agreement with local custodian banks which we hope will become market practice very soon through the Hellenic Bank Association. Q(a). Kindly define NBG’s third party assets under sub-custody? Q(b). What percentage of this figure is comprised of local assets? A. We have about €60bn in third-party assets under custody, the majority of which are in local assets; a little over 95% are actually Greek stocks and bonds. Q.

A number of domestic providers have started to make inroads in to South Eastern Europe. To what extent does the aforementioned territory factor in to your plans moving forward? According to the NBG three year business plan, which was presented in London in February of this year, we will be “regionalising”

“We have successfully promoted, standardised and harmonised a new process in the Greek community for dividend payments exclusively through a paying agent.” services. This means transaction services and includes securities services, which will enable us to provide a regional offering. To this end we have already established custody services in Cyprus and are actively pursuing plans to expand into Bulgaria.

established group for the Eurosystems initiative. We are also involved in the Securities and Corporate Actions Group, which deals with the elimination of Giovanni barriers, and the European Payments Council to mention but a few. We have successfully promoted, standardised, and harmonised a new process in the Greek community for dividend payments exclusively through a paying agent. In addition, we have been actively pursuing the adoption of a record-date system and the abolition of the share blocking system for proxy voting in conjunction with the Hellenic Exchanges and the Capital Markets Commission. We expect this to become law, and practice, in the local community some time this year. 32

The CSE-ATHEX Platform Q.

Following the inception of the common trading platform between the Cyprus Stock Exchange (CSE) and the Athens Stock Exchange (ATHEX) on October 30, 2006, the daily transaction volume of the CSE increased by 150% in the first five weeks. The CSE’s general index also rose by almost 11% over the same period. Can these impressive gains be maintained, and if so, for how long?

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There can be no doubting the results the common platform generated in its first month, they were very good indeed. Whether these results can be sustained remains to be seen. I will not speculate but, the numbers have been impressive. Thus far both exchanges, Athens and Cyprus, have benefited and we hope it will stay that way.

Do you feel that the aforesaid endeavor will make it easier for the pool of investors who trade in Greek stocks to own shares in Greek Cypriot companies? Absolutely. Investors are taking advantage, and will take advantage, of the increased credit worthiness and strong service level agreements we’ve established over the years.

It’s about creating a comparable environment with similar procedures that will facilitate and ensure easier and safer access to the Cypriot Market. Thus far the numbers have been encouraging. During the first six months of the common platform’s operation the average daily turnover of the CSE increased by almost 70%, while the remote members participation reached 18% from 0 levels. Q.

Looking ahead, ATHEX would like to create a common trading platform for South Eastern Europe's bourses. To what extent does the common platform help to augment ATHEX’s broader strategy? ATHEX’s common platform strategy proves that you can achieve higher revenues by enlarging the market. Second, you can reduce operating costs by sharing costs. Finally, by providing a better service you can attract the regional companies that operate in the South Eastern European region. Should Sofia join the Athens–Nicosia common platform, what will this do for transaction volumes etc? I think the Athens-Nicosia win-win experience bodes well for an Athens-Sofia deal. I also feel that the aforementioned deal has all of the characteristics of the AthensNicosia deal, in terms of revenue, cost, and the attraction of regional companies.

Q(a). Some reports have claimed that the common

platform has reduced the operating costs of the ATHEX and CSE exchanges by as much as 10% and 50%, respectively. Is this figure accurate? Q(b). What about the cost of participation for intermediaries and investors? A. Yes, absolutely, it has reduced the cost of doing business, which has allowed us to pass certain savings on to our clients. As costs go down and efficiency goes up volumes will inevitably increase. New Legislation (1) The Eurozone’s TARGET2 Payments System Q.

Vis-à-vis harmonisation and standardisation, how does the ECB's TARGET2 securities (T2S) proposal fit in with other regulatory and market initiatives – e.g. Giovannini barriers, European Code of Conduct for Clearing and Settlement, ESCB-CESR standards and the Single Settlement Engine? The T2S initiative is yet another push towards a harmonized Pan-European securities market place. It would further reinforce the removal of some of the Giovannini barriers. With all of these initiatives the political objective is to create a greater economy of scale, which should in turn create a more competitive European market against the other world markets.

(2) Harmonisation Q.

Do you feel that the driving force behind these initiatives stems from the desire to achieve increased harmonisation with respect to the markets across the EU, thus reducing the barriers to efficient and safe securities clearing and settlement systems? Yes, all of the initiatives that you’ve mentioned do point towards the same goal, one European market. Whether it’s Giovannini or T2S it’s about establishing common EU facilities, common EU platforms anywhere it makes market sense. Certainly some activities are easier to harmonize than others, i.e. settlement. The tougher ones, like corporate actions, will follow.

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The Service/Cost Equation Q. A.

Can custodians maintain service levels despite shrinking margins? Despite price reductions in Greece, service levels are at their highest. This has been acknowledged by our institutional client base. We are automating, whilst embarking upon new initiatives designed to reengineer processes at bank level and national market level. We have been growing, and scale always helps. The unbundling of fees has been discussed at great length, is this a strategy NBG will be following? Our pricing strategy is in harmony with the demands of our customers. They want simple, transparent, easy-to-understand pricing, which results, most of the time, in more bundling. Now, this does not mean that if a customer asks us to unbundle pricing we won’t. At the end of the day it’s about keeping things simple whilst trans parent to our customers.

NBG – The Future Q. A.

What can we expect from NBG in 2007? We expect higher volumes from the transaction business. We also expect portfolio sizes to grow. We want to continue to improve our technologies so that we can constantly provide better service levels at a lower cost. With the three year budget commitment we have from our chairman for automation, we are working on a number of projects with our vendor, TATA, in India to bring about new features and services to our custody product. Many of them are customer driven. Finally, we will strengthen our business through the internal consolidation of business units that we have acquired. The leading Greek broker and asset manager, P&K, would be a good example. We will also strengthen our business regionally via our three year business plan.

John D. Avgoustis is the Head of NBG’s Financial Institutions Services Division.

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Nordic Custody Overview Jonathan Calens talks to Anne-Lise Kristiansen & Peter Dahlgren

reporting layer. This is unique. Although we have the strongest position in this market we continue to back this up with ongoing investment in the product.

Competition Q.

The big US banks have started to make inroads into the Nordics, which has created a certain amount of unrest amongst established players. However, others consider the emerging business model to be that of a partnership structure between foreign players and domestic banks. Where do you stand on this? Competition amongst Nordic providers is fierce. You really must have a local presence in all four markets, because they are all still very different when it comes to market practices. With margins decreasing it would be very difficult for a global custodian to compete; they would need to cover all four markets. Our clients are increasingly looking for a pan-Nordic provider with a local touch.

The global custody landscape is completely different. Our biggest competitors are the global custodians, which are also our clients on the sub-custody side. This is why we’ve split up the business as far as global custody and sub-custody are concerned. We have an alliance with the Bank of New York in order to target the bigger clients, which has been a great success. An Integrated pan-Nordic Market Q.

The Nordic Single (NS) Project consultation

“Given that Finland has adopted the Euro and Sweden has not, this poses a big threat to the Nordic Central Securities Depository (NCSD), especially if the scope of the project is ambitious and the timetable is short.” It’s a very interesting game in the Nordics; competition is completely different between sub and global. In terms of sub-custody, we operate in a very competitive environment. However, there are only really two strong providers in the market today. Although Citibank are trying to break in, it’s on a fairly limited scale. It will be interesting to see how they grow their business. It’s very hard to compete in the Nordic market unless you’re an expert in each country. Naturally, I follow the movement of all my competitors. However, Nordea has a very strong franchise, with local capabilities in each country. We also have a “best-fit” system in each country, which is tied into a Nordic

paper (Nordic clearing and settlement model narrative) describing the implementation of a single market structure intimated that full implementation could be achieved in three to five years. Twelve months on, does this seem realistic? In order to achieve greater harmonization, and at the same time reduce costs, the European System of Central Banks (ESCB) has launched the TARGET2 project. However, TARGET2 is geared towards the Euro currency. Given that Finland has adopted the Euro and Sweden has not, this poses a great threat to the Nordic Central Securities Depository (NCSD), especially if the scope of the project is ambitious and the timetable is short.

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Looking ahead, if Finnish securities are not part of the Nordic CSD, it will be difficult to build a good business case, at least for Finland and Sweden. Should this be the case, the Nordic CSD will probably look to Denmark and Norway in order to achieve some semblance of an alliance, which will take time. I think it’s probably unrealistic, certainly in the short-term, to think that we will have a truly integrated CSD. However, Nordea will continue to work towards Nordic CSD integration, we must see real benefits for our clients though. Currently there tends to be more focus placed on

savings of 15-20%. With full Nordic CSD and CCP integration, OMX predicts cost savings could be as much as 40-45%, significantly reducing end-user costs. Surely these are savings the Norwegian market cannot ignore? In order to achieve this, at the very least, you will have to include Finland and Sweden; perhaps the other Nordic markets, Denmark and Norway, as well. Of course, if significant savings can be realized, everyone will be happy. However, in a few years from now, should Finnish volumes not be part of the Nordic CSD, these savings will be unrealistic. Although we support a Nordic CSD with full integration, market levels must be harmonized so that the

“The Norwegian market is very expensive. However, we have been working with VPS, the Norwegian CSD, providing them with information that will hopefully lead to a reduction in prices moving forward.”

corporate actions, which might be an area the Nordic CSD’s will unite on. However, compared to settlements, the business of corporate actions is a complicated one. Norway is perceived by many sub-custodians to be the main obstacle in the creation of an integrated pan-Nordic market. Is this fair? Yes, the CSD in Norway has not been very involved in the integration process. I think that if you look at the ownership of the Norwegian CSD, in the past, foreign investors were in the driving seat. Today, the makeup is completely different. The vast majority of shares in VPS belong to Norwegians. This is also reflected in the way VPS is governed. Cost pressures on local custodians are

Nordic CSD is in fact a true CSD and not just another layer which adds cost. We have to be realistic, market practices have to be harmonized. If the Nordic CSD is simply another layer on top of the existing CSD, and we keep the same account structure and market practice, I don’t think that we gain a lot. The Norwegian market is very expensive. However, we have been working with VPS, the Norwegian CSD, providing them with information that will hopefully lead to a reduction in prices moving forward. The Norwegian market is the most expensive one. We have urged VPS to participate in Nordic

“Competition amongst Nordic providers is fierce. You really must have a local presence in all four markets, because they are all still very different when it comes to market practices. With margins decreasing it would be very difficult for a global custodian to compete.” significant. However, full Nordic exchange integration could bring with it potential cost

CSD cooperation. As a market-user, with good local knowledge, clearly we have an excellent

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picture of the overall costs in the Nordics, therefore, we have also tried to influence VPS to be more cost efficient. Local Market Developments Q.

It has been suggested that the channel of communication between market authorities, namely the Norwegian Financial Supervisory Authority, and market participants has been somewhat strained. What do you attribute this to? We try to ensure that our communication with other market participants and the tax authorities

The Future Q (a). Given that you have chosen to invest in the provision of both sub and Global custody services, which is of greater strategic impor tance to your business moving forward? Q (b). Where will you be concentrating your efforts in 2007? Q (c). What can we expect from Nordea next year? A. Given that Nordea is involved in each of the Nordic markets we are able to influence developments and forthcoming changes on a regional and Nordic level. We will continue to invest in our sub-custody

“Nordea is the biggest provider in the Nordic territory today, and we continue to grow. We stay committed to the region and its development.” is very positive. We are in regular contact with the FSA and assist them with disclosures. We are more than happy for the FSA to be in close contact with clients. However, we encourage them to use the market more.

and clearing product, our growth in the region will be ongoing. We are winning more and more pan-Nordic mandates, and clients that are using us in one or two markets are tending to use us in other markets as well, so we feel that our

“We are winning more and more pan-Nordic mandates, and clients that are using us in one or two markets are tending to use us in other markets as well, so we feel that our strategy is definitely paying off.”

Taxation Q.

Following the inception of the Norwegian tax authority’s [tax] exemption model for companies domiciled in the European economic area, has there been increasing demand for your tax skills? Demand for these services has definitely risen. Foreign companies have to be evaluated to see if they are covered by the tax exemption model, and this has to be done individually, which creates a certain amount of work.

strategy is definitely paying off. Nordea is the biggest provider in the Nordic territory today, and we continue to grow. We stay committed to the region and its development. Anne-Lise Kristiansen is the Head of sub-Custody for Nordea Bank. Peter Dahlgren is the Head of Custody Services for Nordea Bank.

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Making it possible

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Icelandic Custody Gathers Momentum Money Markets talks to Gudrun Blondal

sub-custody has benefited us in both services. Being a global custody provider has enabled us to provide better sub-custody services and vice-versa.

Introduction Q. A.

How does Arion differentiate itself from the competition? Arion prides itself in its personal and tailormade services for each client. Arion services financial institutions and by focusing on our service offering we are able to provide personal service to each one. With respect to service-quality, you’ve established an excellent reputation in a relatively short period of time. What do you attribute this to? Mainly to our highly motivated staff. Our clients require reliable, professional and prompt service. Our job is to ensure that clearing, settlement and subsequent custody responsibilities run smoothly on our clients´ behalf. This enables them to concentrate on their core business and minimises time and effort spent resolving custody issues.

Given that you are the only institution in Iceland offering a one-stop-shop custodial solution do you feel unaffected by the current wave of consolidation gripping the Nordic territory? No, we never feel unaffected when it comes to progression in back office and custody. We view the ongoing consolidation taking place in the Nordic territory positively. We believe that our clients will ultimately benefit from the decrease in custody related expenses. We do not, however, envision consolidation into one Nordic market as something that will be happening quickly. Changes will take several years as co-ordination is required from

“ It’s about responding quickly, efficiently and effectively in order to facilitate the desired outcome. We have all the advantages of a small company, in terms of reaction time and flexibility.”

Q. A.

Do you consider this to be Arion’s unique selling point? Without doubt, yes. We treat our clients’ problems as if they were our own. It’s about responding quickly, efficiently and effectively in order to facilitate the desired outcome. We have all the advantages of a small company, in terms of reaction time and flexibility.

different sectors in each country and between countries. Governments, regulators and market players will have to ensure that real uniformity is achieved before the full benefits of a single Nordic market can be realised. Icelandic Update Q.

Q. A.

You offer both global and sub-custody, are you concerned that one might dilute the other? No, on the contrary, we have found that the experience we have acquired in global and

It was felt that the inception of SAXESS in 2000 would reduce the cost of access and trading in the Nordic and Baltic regions. Has Iceland realised the benefits? Definitely -the Icelandic market is extremely

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small- SAXESS has offered us technology advances that would have been difficult to attain on our own. Q.

In 2001, the Committee for Payment and Settlement Systems (CPSS) issued the Core Principles for Systemically Important Payment Systems. The Central Bank of Iceland has used these principles as a basis for developing payment systems in Iceland. What impact has this had on credit, custody, liquidity and operational risk? Two types of payment systems are in operation in Iceland, the Central Bank's real-time gross settlement (RTGS) system and the netting system operated by Fjölgrei_slumi_lun hf. (FGM). Settlements of securities transactions are also processed by these systems and I think in relation to that the system must be considered reliable and efficient. The RTGS system is fundamental to the implementation of Central Bank monetary policy. It is used in transactions by credit institutions with the Central Bank, and for gross settlements between credit institutions. The reliability of this system is therefore a prerequisite for the Central Bank to be able to realise its objectives for both price stability and financial stability. This in turn leads to increased liquidity and decreased operational risk on the market.

Consolidated marketplaces have a much better chance of maintaining good liquidity when it comes to blue chips. Although Iceland is very small, there are several large Icelandic companies listed on the OMX, for example Kaupthing, Glitnir, Landsbanki and Össur. Q.

Q. 40

OMX has continued its push towards a single integrated trading model for the Nordic and Baltic markets with the acquisition of the Icelandic stock exchange and its securities depository. What impact has this had on trading volumes? Being the most recent addition to the OMX markets we are able to observe first hand the impact this has been having on our clients. We foresee a huge impact on trading volumes as our clients prepare to enter, to begin with, the Nordic markets and then the Baltics. We are certain that we will see much higher trading volumes as a result of the access our clients now have to these markets through OMX, and OMX members have to the Icelandic market. To what extent has the aforementioned

It was hoped that the merger in 2004 between Sweden’s VPC and the Finnish APK, which formed the Nordic Central Securities Depository (NCSD), would be a stepping stone to a unified clearing and settlement environment. However, this has not been the case. Where do you stand on the single Nordic CSD platform conundrum? We have not seen many successful projects in this area over the last decade. In the late 90’s VP in Denmark and VPC in Sweden started a common project which was named S4 (Scandinavian Securities Settlement System). This project failed due to complexity, high cost and politics. The Nordiclear project sought to create a common Nordic counterparty that would provide foreign investors with a single channel into and out of the Nordic region. This also fizzled out. Hopefully the NCSD project will succeed, despite the poor results which have preceded it.

Harmonisation and Integration – Northern Europe Q.

acquisition bolstered the region’s liquidity? Well, with respect to foreign investors, access to the Icelandic market has certainly been made easier. The same is true for Icelandic investors and the Nordics.

In our opinion, a truly unified Nordic trading and settlement infrastructure is attainable. Furthermore, we are confident that this goal will be achieved in the next few years. A unified infrastructure would minimise the entry hurdle into the Nordic territory. One Nordic CSD, and one Nordic Stock Exchange, would eliminate the need for membership and connectivity. Q.

Do you feel that the European Central Bank’s proposed TARGET-2 Securities (T2S) platform could stymie the NCSD initiative? With respect to T2S, it’s early days. However, T2S will not necessarily impact the NCSD initiative. For now it is not clear whether T2S

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will offer settlement in currencies other than the Euro. Within the Nordic region we have five currencies, EUR, DKK, SEK, NOK and ISK. The impact of T2S will become clearer after it has been implemented. Q.

Might we yet see a full blown merger, as was the case with Swedenâ&#x20AC;&#x2122;s CSD, VPC AB, and the OMX-owned APK, the Finnish Central Securities Depository (Suomen Arvopaperikeskus), which signed a letter of intent in April 2004 to establish a joint CSD for the Nordic area, the NCSD? There is considerable pressure for a merger to take place. Almost all market players wish for, and anticipate, a merger as the benefits are obvious. Consolidating the CSDs will be a very complicated process; many different agencies will have to work together. In some instances legislation will need to be harmonised and this is always a lengthy process.

asked for by the client. However, they should benefit from standardised financial services, greater transparency and a higher level of service. The ultimate goal in the financial market is to achieve efficiency, innovation and a secure market. We should never sacrifice these under any circumstances. Therefore, we have to be aware of the consequences attached to overregulation. Q.

MiFID was scheduled to be introduced in April 2006 but the European Commission announced that the implementation would be delayed. The deadline is now November 1, 2007. Is this realistic? We expect that there will be a further delay; the reality is that very few will be MiFID compliant in November. Most countries have yet to pass the legislation and will not have completed the legislation process by the deadline.

The Future Industry Drivers Q. Q.

Q. A.

Markets in Financial Instruments Directive (MiFID), otherwise known as ISD2 (Investment Services Directive), heralds a transformation in the structure of Europeâ&#x20AC;&#x2122;s capital markets. How will this impact sub-custodians in affected markets? We have to adapt our systems to become MiFID compliant. However, this work is well underway. We are working closely with our clients to ensure that the added responsibilities are clearly defined. Given the lack of success with ISD, some say MiFID may go the same way. Is this a possibility? The reaction to MiFID is quite different. MiFID has a higher profile and is being handled in a serious manner. Those who are not ready are definitely striving to become compliant. We do not anticipate that MiFID will go the same way as ISD. Will the costs attached to compliance outweigh the benefits? It is hard to say, but huge amounts of capital that would have been allocated to further enhance services will now have to be used to implement the requirements of MiFID. Many of the stipulations are not required or

In terms of product innovation, what can new and existing clients expect from Arion over the course of this year? Apart from looking into enhancing automation within our operation, which is an ongoing project at Arion, we are constantly looking into new service offerings. We recently started securities lending and borrowing services for our clients, which is a new service in the Icelandic market. We have also been increasing our corporate actions services, and today we can customise this service to our clients' requirements, which vary considerably. We are currently looking into new markets and will be expanding our custody network over the course of 2007. We have around 60 funds in NAV at Arion. It's our ambition to provide quality services to these funds and to add value to our clients wherever possible. Naturally, with this in mind, the transfer agency role, compliance and risk analysis are high on the agenda. Finally, from a back office standpoint, we will continue to streamline our services in order to exceed the expectations of our clients.

Gudrun Blondal is the CEO of Arion Custody Services in Iceland. 41

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South African Custody Reaching New Heights Money Markets talks to Andre Jansen van Vuuren

FirstRand Banking Group - Custodial Update

In line with the expansion of your sub-custody business you mentioned, when we last spoke, that you were looking at Namibia and Botswana where you have physical installations.

In our opinion the client should not feel like a number on a conveyer belt provided their service experience is at the same level that they are used to in other markets.

You’ve intimated that there really isn’t the volume of assets in other parts of Africa to warrant a business case for expanding the bank’s custodial offering to a much wider audience. Granted, although volumes are generally small, relative to South Africa, indifferent peformance in certain markets must create a significant workload for some of your clients? I would guess so, although most of our clients are not active in the African markets as yet or have a direct relationship with a domestic custodian in the country concerned. That being said, there is a definite interest in expanding into the African markets to satisfy our clients needs.

Q. A.

Do the aforementioned territories still factor in to your plans moving forward? Yes, we are still on track with our plans regarding a custody offering in Namibia and Botswana via our subsidiaries in those countries. Are you considering additional locations? No, as we previously advised, we will make use of our partnership with JP Morgan Worldwide Securities Services (JPMWSS) to provide a service in those countries where they are represented. Where they are not represented we will go directly to a sub-custodian servicing that market.

“We need to be close to our clients to understand their needs and requirements in detail.”

Ultimately, when you decide to enter a new market, how important is it for you to have a physical presence on the ground? It’s not important, provided we can offer the same level of service to our clients, either via JPMWSS or the sub-custodian we have selected in that particular market. A number of providers have adopted a hub mentality, thus negating the need for a significant on-the-ground presence. Is there a danger that clients will start to feel like a number on a conveyer belt?

With this in mind, might we yet see FirstRand Banking Group creating a regional custody network over the mid to long term?

In terms of the FirstRand philosophy, the business case would have to drive the decision. As we said previously, at this stage, the volume of assets in other parts of Africa does not currently warrant a regional custody network and we do not foresee this changing over the medium term. We will, however, be watching developments in these regions in case this picture changes.

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cost savings in terms of IT infrastructure, but could introduce complications in terms of application changes where markets, which should not be affected by the change, still need to thoroughly test their functionality to ensure it has not been impacted.

Defining the Business Q. A.

Do you consider yourself to be a specialist custodian? We believe that our understanding of the South African market and our commitment to our clients are our differentiating factors. If this makes us a specialist custodian then we would be happy to be classified as such. To compete, specialists say they need to ensure that their service is more flexible than that of the global institutions. Do you concur with this? We believe that because of our knowledge of the South African market we are able to offer solutions which are tailor-made to conditions in the market. This is not as easy for global custodians who tend to use the same solutions across multiple markets.

STRATE’s current technology was first introduced in 1998. Therefore, should the aforementioned initiative have been launched sooner? No, I think the focus on dematerialising the equities markets and improving the settlement ratings for South Africa as a whole, as well as addressing the need to move the Money Market to electronic settlement, was correct. Please also bear in mind that while the system was first introduced in 1998 there have been ongoing enhancements to functionality over the period.

Winning Mandates The Future of Clearing and Settlement in South Africa Q. Q.

STRATE has rolled out an initiative called the Security Services Enhancement Model (SSEM). STRATE claim the idea behind the SSEM project is to investigate a new approach to securities settlement. To what extent will the aforementioned initiative assist South Africa in realising internationally accepted best practices? One of the prime objectives of the project is to validate where South Africa is in terms of

Q. A.

Do you feel that clients are selecting providers based upon credit ratings? This is certainly an important factor which is taken into consideration, although definitely not the only factor influencing the decision. To what extent does service quality and/or product range influence pricing? It is an important consideration – we would far rather be positioned as a custodian with excellent service quality and product range

“We believe that our understanding of the South African market and our commitment to our clients are our differentiating factors.” adopting international best practices and how we can move forward to achieve these best practices. Q.

STRATE’s initial consultations reflect the need for a single settlement platform for all financial instruments, streamlined and efficient processes, and exception-based messaging. Do you support this notion? We support streamlined and efficient processing and the use of exception-based messaging where possible, but this does not necessarily go hand in hand with a single settlement platform for all financial instruments. A single platform does provide

than be known as the cheapest in our market. That being said, value for money pricing is important. Q. A.

How much importance do you place upon relationship management? It is an exceptionally important part of our business. We need to be close to our clients to understand their needs and requirements in detail. In your opinion, are foreign institutions tending to select global banks over local sub-custodians? 43

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This could be the case where the foreign institution is investing in many markets, as it makes the interaction with the service provider far less complicated.

Infrastructure Development Q.

In order to facilitate the fine-tuning of the market’s infrastructure would it be fair to say that the custody business in South Africa is more about cooperation than competition at this stage? Yes, very much so.

Looking Forward Q.

The Service/Cost Equation A. Q. A.

Can custodians maintain service levels despite shrinking margins? We have to optimise our investments in technology and processes so that we can maintain service levels despite shrinking margins. Obviously economies of scale also become important in this environment.

The unbundling of fees has been discussed at great length, is this a strategy FirstRand Banking Group will be following? From a custody perspective we have never provided our clients with a bundled fee except when they have requested it. Our fees are normally broken down into a transaction fee, the fee levied by the depository for each transaction, and a management fee, which is based on the value of the portfolio.

What can new and existing clients expect from FirstRand Banking Group this year? An ongoing commitment to service quality and working in partnership with our clients to fully address their needs and requirements.

Andre Jansen van Vuuren is the Head of Custody Services for FirstRand Banking Group.

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CUSTODY

The Value of Local Expertise Jonathan Calens talks to Paul Heffernan & Fearghal Woods

The pure service provider/investment manager relationship can ultimately stymie the progression of services over the long term.

Introduction - The BoISS Value Proposition Q. A.

How does BoISS differentiate itself from the competition? We operate in Ireland and Ireland only and that’s a conscious decision. We are a niche service provider and as such service a number of key clients. We provide a full administration, custody, and middle office service from our offices here in Dublin.

The only occasion where price is the overriding factor is when you have a new asset manager who is moving into the fund space and putting together a fund structure. Consequently, they don’t have any experience of service providers. We like to work with reputable managers who don’t mind paying that little extra for great service. We are not the cheapest provider in the market. However consistency of service is of paramount importance to us, as is quality. One goal, and one of our strategies, is to try and exceed the expectations of our clients. The structure we’ve put in place in order to support the aforementioned strategy will obviously have an impact on the price. However, our clients can see the benefits.

Although we are one of the largest financial institutions in Ireland we intend to develop a significant footprint in the UK. Internationally speaking we have skilled-based businesses dotted around the world rather than scaledbased businesses. It’s not our intention to set up operational environments across our businesses and compete locally in a lot of different markets around the globe. However, we will set up skilled based businesses where we can take advantage of certain local market opportunities.

“It's an interesting one because the cross-border pooling element is really a byproduct of the transportable Pan-European pension. That's ultimately the goal when it comes to cross-border pooling vehicles.”

We see ourselves as a business partner and not necessarily as an outsourcing provider. As such we are more than happy to develop new products and business lines with our clients.

Hot Button Issues Q.

Is service quality, above and beyond price or consolidation, the main reason clients switch providers? Well, I think it’s a combination of all three. Price is obviously a consideration. When reviewing outsourcing arrangements it’s one of the initial considerations. However, from experience, selection is based upon service quality. Decisions based purely on price tend not to be as effective over the long term because the approach tends not to be partnership based.

Quite recently we’ve seen situations where asset managers have made a conscious decision to switch service providers because of service levels, or lack there of. It hasn’t been a price or consolidation issue, it’s been service quality. This has been the major driver behind the switching of providers. Q.

To what extent has demand for securities lending increased? 45

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It has been an educational process to get some asset managers, and in particular certain pension funds, more comfortable with securities lending. They’ve dipped their toe in the water over the past few years and are now engaging a lot more. Whilst they may have been a little bit nervous about securities lending at first they like our controlled approach, they also like the returns they can achieve over and above standard asset management activities. Consequently, we are seeing a lot more activity in the securities lending space. We really see it as a value added service. Q.

Given the investment required to accommodate these asset classes and the types of alternative investments they make you need to consider a long term business model and profit & loss model.

We’ve always taken a very controlled and well managed approach to the process of securities lending and the collateral obligations that go on behind it.

Given the importance placed upon value added services, are traditional services like tax

A select few provide a full suite of solutions for funds of hedge funds with dedicated people, technology, and reporting. Is this likely to change in the short to mid term? I think the answer to that is definitely, yes. I think the market has changed with respect to fund of hedge funds. Historically, investors have been high-net-worth and private individuals and the model has been one of high return. In relation to institutional investors and pension fund type investors, moving forward, appetite for the alternative space will certainly grow. This will result in increased allocation to the underlying manager.

“We will continue to expand our services in the hedge fund space. We will also focus on other areas, like private equity and collateralised fund obligations, which haven't typically operated in the fund space but from an efficiency standpoint will potentially be important moving forward.”

collection being forgotten? That’s an interesting question. I don’t think our clients have forgotten about the traditional servicing model. Furthermore, clients will not even consider value added services unless the traditional services are working as they should be.

Alternative Investments Q.

In recent years interest in alternative asset classes such as hedge funds has increased significantly. What impact has the growth of the global market for alternatives had on global custodians? I think there has been a fairly significant impact on global custodians. A lot of the traditional and global custodians have been very slow to get in to the alternative space. That said many have now done so via acquisition. I think the biggest challenge, and it’s an ongoing challenge, not one custodians have met readily, is the development required to keep pace with the changes in the industry.

With respect to the aforementioned strategy, because the type of investor has changed, I feel the market will move in a different direction. So much so, we actually see managers, because of investor demand, changing the domicile of funds to better regulated jurisdictions such as Ireland. Q (a). Hedge fund managers are increasingly outsourcing their core custody and fund administration services to third party providers. Would it be fair to say that universal concern over operational transparency is fuelling this trend? Q (b). Do you feel that the aforementioned trend will continue to be an important driver of new business for asset service providers moving forward? A. I think here again, investor demand is the driving force. I also think that managers want to focus on core activities. Consequently, activities they consider to be non-core are outsourced. This is certainly a trend we’ve witnessed and been involved with.

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quite considerable and far more than people possibly imagine. If you were talking about a $100-200m fund and employing these types of cross-border pooling techniques, you would not have a more efficient vehicle. When we looked at it we felt the $2bn mark would have been a breakeven point, a point where we could have started to realise certain efficiencies. It’s very much size driven.

We work with a number of mid-sized asset managers in both middle and back office services. They focus on research and investment management decisions and we look after middle and back office administration on their behalf. Things have certainly changed. The way the market has moved will be an ongoing trend. Finally, the lift-out approach will only be considered when it’s a very significant lift-out, perhaps in the region of $20-30bn worth of business. Q.

Will demand for fund of hedge funds continue to grow?

Looking Ahead Q. A.

What does the future hold for BoISS? We will continue to expand our services in the hedge fund space. We will also focus on other areas, like private equity and

“We see ourselves as a business partner and not necessarily as an outsourcing provider. As such we are more than happy to develop new products and business lines with our clients.” A.

I think there will be continued growth in the hedge fund space but it may be driven from different quarters. I think the requirement for transparency will focus more on the fund of hedge fund space though.

collateralised fund obligations, which haven’t typically operated in the fund space but from an efficiency standpoint will potentially be important moving forward. As we progress we will certainly look to add to

“Our objective has always been, and will always be, to exceed the expectations of our clients.” Cross-Border Pooling Q.

What benefits can be derived from the cross-border pooling of pension funds in Europe? It’s an interesting one because the cross-border pooling element is really a byproduct of the transportable Pan-European pension. That’s ultimately the goal when it comes to cross-border pooling vehicles. In relation to cost and efficiency, I can see significant benefits, both on the investment management side and on the custody side. However, sometimes, I feel that people overestimate the cost-benefits. It’s certainly an inventive structure to employ. I think the asset value that you have to contribute in order to make it efficient, and cost efficient at that, is

our product line whilst taking into consideration any changes taking place in the market. We build specialist teams in order to service our product lines. They receive in-depth knowledge on how their respective product works and what the service requirements and expectations of the asset managers are. Our objective has always been, and will always be, to exceed the expectations of our clients.

Fearghal Woods and Paul Heffernan are responsible for business development at Bank of Ireland Securities Services.

anagement oject m r p l l s fu r e ur service offering? o ff f o o t part tha s r h o w a ’ e s s the only provid es nds u Gu ices f for th ew serv e launch of n

Wordʼs Getting Around…

42 | Money Markets

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Client Relationship Management A Winning Formula Bob Poferl talks to Money Markets

but not in the context of their overall program. In a single look, our product will let the client know if they have an issue or not. So, they get the information quickly and therefore can respond immediately.

Introduction Q. A.

Q. A..

How does Wells Fargo differentiate itself from the competition? We differentiate ourselves in three main ways: strategic relationship management, market focus and technology-driven solutions.

Strategic relationship management is perhaps our key differentiator. In terms of client retention, satisfaction and feedback, it’s invaluable. Our strategic relationship management process works because of Wells Fargo’s geographic presence in the U.S. Having a presence in your client’s local community makes the process that much more real.

What is Wells Fargo’s AuC? We handle slightly over a trillion dollars in assets.

A. Technology Q. A.

Q. A.

What prompted you to launch an investment guideline monitoring solution? First and foremost, it was because of the increase in regulatory and corporate governance pressure our clients were facing – primarily in the form of Sarbanes Oxley and other changes in the accounting rules and disclosures. These pressures forced our clients to better monitor their compliance with investment policies and view their role, to a greater extent, as that of fiduciary. Consequently, they look to us for assistance. How have new and existing clients responded to the aforesaid technology? The initial feedback that we’ve received has been very good. The solution helps clients improve the overall management of their investments and oversight of activity, which is a huge benefit. In the past they had access to certain information,

Is the development of said technology outsourced? Yes, in part. We use the Charles River development platform. However, we use the Wells Fargo CEO (Commercial Electronic Office) to package the information. This allows us to integrate it with the rest of our reporting. Integration also extends to processing as well. If we detect that a security has been purchased outside of the guidelines, the client will receive a post-trade, pre-settlement notification in advance of any report going out. Would it be fair to say that custodians now differentiate themselves through greater and more focused investment in technology? In the trust and custody business most providers will point to technology as a differentiator, but, in my opinion, it’s a combination of technology, people and service. These are the drivers that create a sustainable and competitive advantage. Technology alone will not provide clients with a satisfactory solution.

Securities Lending Q. A.

How does securities lending impact buying decisions in custodial services? It’s a big factor, and it has been for many years. The ability to offset custody fees and other expenses with earnings and gain additional income for the investment portfolio is certainly still a factor. A number of buyers have considered unbundling securities lending services from custody services, which creates certain opportunities. However, it can also create certain risks, which need to be managed in the handoff of information. So, the buying

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which can tend to muddy the waters. I think it’s more than fair for the client to ask their provider how they derive their income. From a provider standpoint, I think it’s very important to understand your total cost and your total revenue and to expect a fair, not excessive, margin for your business.

dynamics have changed a little. Moving forward, I would expect this trend to continue. Q. A.

What do you consider to be the risk and market impact of securities lending? Securities lending is a pretty mature business. Consequently, the risks are easily apparent and fairly well controlled. If you’re dealing with a tier-one organization, you can be safe in the knowledge that additioal earnings will be forthcoming because of the supply and demand. Although you can make a securities lending program more lucrative by taking more reinvestment risk, there’s really no need to do that. A securities lending program is designed to provide incremental, additional income for your investment. If you look at it as incremental return, you should let it play out. There’s no need to be overly aggressive.

Q. A.

How can custodians guard against fee erosion? The erosion issue is an interesting one. I think that if you’ve got a good relationship with your client you should be able to educate them about the drivers of cost. They understand that you need to make money but, if, as you continue to grow and transaction costs go down, everyone wins. If you’re proactive in sharing some of these cost savings with the client you should be able to eliminate the erosion issue, or at least manage it. It’s the providers that don’t have these conversations

“Moving forward, continued emphasis will be placed upon client satisfaction and growth. Like any other provider in this industry, growth is important. The quickest way to grow your business is to hang on to what you’ve got, which is why client satisfaction is so important to us.” The Pricing Conundrum Q. Q. A.

How important is transparency with respect to pricing? I think it’s very important in custodial services. The client needs to be able to understand what they are paying for. At Wells Fargo we’ve always been very transparent with our pricing. In this business, transactional volume is far more important than asset size. You might have a very large client, in terms of asset size, with very small transactional volume who really shouldn’t be paying that much. Conversely, a very small client with much larger transactional volume should be paying more because you’re doing more work for them.

Q. A.

To what extent have providers embraced fee unbundling? Organizations vary when it comes to the level of unbundling they allow. At Wells Fargo we believe in full disclosure. Not all providers have the same mindset. I think this stems from the fact that they have other revenue sources, like securities lending and foreign exchange,

with their clients that have difficulty. In your experience, are clients prepared to pay for new products and services? I think the answer is yes, but it’s not a given. Clients will not pay for things that don’t add value to their overall process. So, you need to be able to demonstrate some long-term cost efficiency or improvement. Sometimes you can add new features to a service that you’re providing and therefore charge a fee based upon the additional benefits attached to that service or product. Although the client may be paying us more, if they are able to manage their work load with less staff and achieve greater efficiency, this can often translate in to them spending less overall because they are no longer committing the same resources. It’s about helping the client connect the dots and understand the possibilities; that’s the key.

Operational Risk Q (a). In your opinion, what are the main causes of operational risk? Q (b). Kindly define the challenges attached to managing operational risk?

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Operational risk is one of the more apparent risks. It’s one of those things that you really need to get good at from a control standpoint. Operational risk takes on an interesting dynamic when you have a third party lender involved, it creates one more hand off in the equation and other touch points which introduce operational risk.

automation and STP. It would certainly help with keeping costs down and managing risk. However, there are a lot of counterparties in the equation and not everyone has the resources to invest in technology the way we do. Wells Fargo – The Next Step

STP Update – The Settlement Gap

Q (a). Is T+1 a goal worth striving for? Q (b). How can outsourcing one’s back office improve STP rates? Q (c). What do you consider to be the most significant hurdle with respect to the evolution of straight through processing?

What can we expect from Wells Fargo over the next twelve to eighteen months? We will continue to reinvest in all aspects of the institutional business line, including technology, people and processes. You will continue to see a disciplined approach to the marketplace, focused on the areas where

“I think Wells Fargo, along with the other custody banks, would welcome more automation and STP. It would certainly help with keeping costs down and managing risk. However, there are a lot of counterparties in the equation and not everyone has the resources to invest in technology the way we do.” A.

I think that T+1 as a concept has been on the radar for a quite a while. If you view T+1 in and of itself, it’s probably not worth the expense and time. However, if T+1 drives the industry towards greater STP, everybody wins -- the brokerage community, the investment management community, the custodial banks, their clients, everyone benefits from this scenario. Currently, there are a number of hurdles attached to achieving greater STP. We do not have a regulatory mandate in place and there is no industry momentum or interest in moving the settlement cycle forward. I think the initial cost involved in getting the requisite technology up to speed may be prohibitive for some of the investment management and brokerage firms operating in this space. Although, if clients wanted this to happen, I dare say it would happen. If you look at the markets globally, every country has its own set of issues. If you can’t get a market like the United States, or even some of the bigger European markets, to operate in a standard way vis-à-vis processing, we’re still a long way off. I think Wells Fargo, along with the other custody banks, would welcome more

we feel we can add the most value, which ties in with our middle market strategy. We are not actively pursuing the $80bn+ fund, as I mentioned. We are committed to the middle market -$50m to $5bn in assets- which is where we do our best work. Remaining disciplined, working within this market, will facilitate success. Moving forward, continued emphasis will be placed upon client satisfaction and growth. Like any other provider in this industry, growth is important. The quickest way to grow your business is to hang on to what you’ve got, which is why client satisfaction is so important to us.

Bob Poferl oversees relationship management activities for the Northern Plains region of Wells Fargo Institutional Trust Services, with an emphasis on large and complex Trust & Custody customers. He has 26 years of experience in the trust industry. Prior to joining Wells Fargo, he was with US Bank (formerly First Trust). 51

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Raising the Bar in German Sub-Custody Moritz Ostwald talks to Money Markets

Q Introduction Q.

Q. A.

BHF-BANK is not the biggest provider in Germany; however, your size, in fact, has proven advantageous, has it not? It’s true that, in general and across all industries, size does matter. However, it is also true that these economies of scale are less pre dominant in the custody sector. For example, as a relatively small provider, we currently have around €275bn in assets under custody, but compared to some of our larger German competitors, our business is highly profitable. In essence, we do not need to grow our assets under custody in order to stay profitable.

We re-entered the market in 2003 under the name of ING BHF-BANK. We started by providing sub-custody services [for German securities] for affiliates of our shareholder, which was ING at the time. However, we quickly realised that the margin pressure and IT costs that had initially concerned us would not be as substantial as we had thought. We were also quite fortunate, as 85 % of the employees that had worked in the bank’s custody business in 1995 were still in the same department in 2003. So the expertise and market know-how were still present. After investing strongly in the bank’s IT infrastructure it made sense to offer these services to non-affiliated institutional clients as well.

The most important goal for BHF-BANK is to offer the best, and most flexible, service in the market. Providing service quality is in no way compromised, we are, of course, happy to take on new mandates. BHF-BANK took a hiatus from the sub-custody business, why was this? In 1995 BHF-BANK decided to partially exit

In 2004 we made significant inroads into the professional sub-custody business, winning a number of notable mandates like The Bank of New York (BNY). This was without question the turning point in BHF-BANK’s custody story.

“When BHF-BANK clients send settlement instructions that are in line with German market standards, for example, we can already achieve an STP rate of almost 100 %.”

the professional sub-custody business, after a track record of seven consecutive years as one of the world’s most highly regarded providers. Although the bank continued to offer basic custody services to private and corporate clients, we suggested that our institutional clients select one of our former competitors. The main reason for this decision was the well-known analyst prediction that a dramatic increase in IT costs would coincide with a sharp drop in margins. When did you decide to re-enter the market, and why?

Relationship Building Q.

You place a great deal of emphasis on client service. What differentiates BHF-BANK from other providers in this area? We strongly believe that trust is the key to a successful partnership. Clients need to have faith in the bank, its processes and people to establish a lasting relationship. This is precisely why client service, especially relationship management, is of such importance to BHF-BANK.

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BHF-BANK’s culture is different from that of other banks. Our decision-making channels are very short. The high level of individual responsibility offers an optimal working environment for highly motivated employees, who each service a small number of sub-custody clients very well. The ratio of relationship managers/dedicated account service officers to sub-custody clients is one of the lowest in the industry, which leads to very satisfied clients.

Over the last couple of years, one of the most important tasks has been to improve STP rates. When BHF-BANK clients send settlement instructions that are in line with German market standards, for example, we can already achieve an STP rate of almost 100 %. You can keep investing in this process but returns will start to diminish. You cannot continue improving STP rates by 5 % year on year.

BHF BNY Securities Services We do not subscribe to the “production line” mentality. Clients are not just account numbers; they are individuals with different sets of requirements. Our goal is to clearly identify the specific needs of all our clients in order to provide them with a tailor-made service. We offer solutions, not products. However, this can only be achieved once we have understood the demands and requirements of each and every client.

Technology Intensive Q (a). Do you consider yourself to be a technologyintensive provider? Q (b). Is this one of BHF-BANK’s unique selling points? A. Besides our motivated staff, IT processes are another crucial factor, of course. The entire custody industry is very technology-intensive, and we indeed believe that we have a unique

Q. A.

On the 4 July 2005, you established BHF BNY Securities Services GmbH, a jointly held subsidiary, based in Frankfurt am Main. Why did you decide to partner BNY? As the largest global custodian, BNY fits in perfectly with the bank’s strategy, which is to provide all our clients with the best-possible service. For our Germany-based clients looking for a global custodian with exceptional expertise in the German market, the fit could not be better. This means we can perfectly meet the needs of those clients requiring global services. What impact will BNY’s merger with Mellon have on the aforesaid alliance? When things settle down they will be, by far, the largest global custodian group in the world. Although it’s too early to comment on all of the possible ramifications of the merger, we

“Clients are not just account numbers; they are individuals with different sets of requirements. Our goal is to clearly identify the specific needs of all our clients in order to provide them with a tailor-made service. We offer solutions, not products.” selling proposition with our dedicated IT systems that were specifically designed to meet the needs of our custody department. We do not depend on any third-party vendors, nor do we outsource any vital services. Most of our custody specialists work very closely with our project management and IT colleagues to ensure the success of all our projects within a short time-frame. Q.

You’ve spent a great deal on technology in order to automate certain processes and procedures. What impact has this had on STP rates?

look forward to continuing our excellent partnership with BNY. The BHF BNY Securities Services alliance had a very good year in 2006 with the acquisition of some very prominent players in the German market. Drivers & Trends 2006/7 Q.

In your opinion, are global custodians increasingly appointing sub-custodians who can offer a more regional service? Yes, this trend is clearly visible, especially for non-tier-one markets. In order to relieve some of the burden global custodians and other 53

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institutional clients are facing, I think it makes sense for custodians to offer sub-custodian services in more than one market. However, to offer a service in multiple markets it is vital to ensure that there is consistent service quality across the board.

you afford to do everything by yourself? Second, the number of different types of clients is increasing. Today, not only global custodians or other banks qualify as large firms but also hedge funds, pension funds, broker-dealers etc. are requesting custody services.

With Germany being one of the top three countries in Europe there is still room for professional single market providers, although quite honestly they will be in the minority.

Some of them are considering self-clearing instead of using specialised agents, weighing the advantage of a reduced cost base against the dis

“We strongly believe that trust is the key to a successful partnership. Clients need to have faith in the bank, its processes and people to establish a lasting relationship. This is precisely why client service, especially relationship management, is of such importance to BHF-BANK.” advantage of binding more internal resources to bridge the gap between the services offered by a sub-custodian and being a direct member at CSD level.

Settlement Q.

The increase in interoperability between the central securities depository (CSD) in Frankfurt and international CSD’s in Luxembourg and Brussels, thanks to Clearstream’s Real-Time STD, was designed to increase settlement efficiency. Has this happened? I think that the introduction of the real-time standard settlement cycle has led to an increase in interoperability. Prior to the introduction of the real-time STD, cross-border settlements were increasingly delayed. Real-time STD has achieved its goal of generating higher settlement efficiency within the night time processing. Final settlement results are now available early in the morning on value date.

Q. A.

What can existing and new clients expect from BHF-BANK over the next twelve months? BHF-BANK will continue to offer the highest level of flexibility and service in the market. It took us no more than three years to re-establish the BHF-BANK brand in the professional custody arena. Over the next three years we will put all of our effort into further distinguishing ourselves from the competition. Backed by the strong commitment of our bank’s

“The entire custody industry is very technology-intensive, and we indeed believe that we have a unique selling proposition with our dedicated IT systems that were specifically designed to meet the needs of our custody department.” 2007 and Beyond Q.

Most opportunities for sub-custodians tend to come from mid-tier banks and broker-dealers and not from bulge bracket firms. Large firms see a number of choices open to them - either to self-clear, or appoint an agent bank. Consequently, are opportunities in this space becoming more limited? I would disagree. First, clearing services in general are becoming more and more complex. As such, professional partners capable of offering the entire value chain of the services requested are in demand. The question is, can

senior management, we will further invest in improving our IT processes – such as enhancing the various instruction-entry tools in our internet portal cds@web – as well as the expertise of our staff. As our AuC rise strongly, we are continually looking to attract the best talent in the market to increase the know-how and flexibility of our staff.

Moritz Ostwald is the Head of Sales & Relationship Management, Custody Services at BHF-BANK. He is based in Frankfurt and joined BHF-BANK 3 years ago from State Street.

The “Subprime Crisis” and the Future Challenges for theEuropean Securitisation Market

Carlos Echave

2007 Securitisation Review

Taking Workflow Solutions to the Next Level

Ira Keller

The Future of Transaction Processing

Hugo Doswald

Securitisation – Tackling the Issues

Barbara Dilges, Rainer Pruy & Dr Frank Kardel

The Evolution of the Trustee

Sue Lawrence

Real Estate Corporate Finance - Adding Real Value Raffaele Lino

SECURITISATION

The “Subprime Crisis” and the Future Challenges for the European Securitisation Market Carlos Echave, European Securitisation Forum (ESF)

Securitisation is a financing technique whereby residential mortgages (RMBS), commercial mortgages (CMBS), auto loans, trade receivables, credit cards, insurance liabilities and other risk is transferred to special purpose vehicles (SPVs), which then fund themselves through the issuance of rated and unrated securities to capital markets investors.

originated by a credit crisis in this part of the market, constitutes in reality a crisis of liquidity as investors have fled structured products generally to avoid contagion from US subprime. The securitisation market now faces the unprecedented challenge of restoring investor confidence in order to resume the previous growth trend.

Securitisation provides significant benefits to European consumers, large companies, small and medium size companies, central and regional governments, utilities, and many others. In the residential mortgage area, it enables banks and savings institutions to provide more funding for homeownership at a lower cost, increases consumer choice and increases competition among lenders. It provides more funding than otherwise would be available by tapping the very large global capital markets base of cash. For investors, it provides a yield premium over sovereign and government debt of comparable maturities and ratings. It has enabled banks to transfer risk to third parties and to more efficiently allocate capital. To date, securitisation has reduced systemic risk by diversifying credit risk throughout the global financial system.

As the trade association that represents all securitisation market participants in Europe, the ESF has taken the lead in the industry effort to restore liquidity with a number of recommendations that were issued on 10th September 2007. The ESF will be working with its members and other associations in the coming months to implement the measures pointed out by these recommendations.

As of 30 June 2007, the amount of term European securitisation and collateralised debt obligations (CDOs) outstanding was EUR 1.28 trillion (source: Bloomberg, ESF), with European issuance volume in 2006 of EUR 452 billion. These issuance data represent a spectacular growth from the beginning of this decade. However, the market conditions which have made such growth possible have suddenly changed within a very short period due to the so-called “subprime crisis”. The underlying problem is that the credit performance on pools of US Subprime mortgages originated in 2005-2007 has been worse than anticipated and house prices in many parts of the US have fallen at least somewhat. However, subprime mortgages only represent a small portion of the assets that have been securitised globally. The current market turmoil, though 56

Recommendations on Transparency and Standardisation of Certain Market Practices The industry, through the ESF, has already been very active on a number of fronts to promote greater transparency on portfolio-level information and the standardisation of disclosure practices. Examples of such initiatives are the ESF’s Securitisation Market Guidelines for RMBS published in May of 2006 and the ESF/CMSA-Europe’s Market Guidelines in relation to the Market Abuse Directive for European ABS and CMBS published in December 2006. The stated objective of such initiatives was, “improve the quality, uniformity and availability of pre- and post-issuance reporting for European securitisation transactions, as well as, promoting consistent trading practices for securitisation through a standardisation process of formulas and assumptions ultimately resulting in increased liquidity.” The current liquidity crisis has highlighted that there is much left to be done in this field. In relation to this, the ESF has issued the following recommendations: a) Improvement of disclosure by ABCP Conduits and SIVs

SECURITISATION

The crisis of liquidity has severely hit Asset-backed Commercial Paper (ABCP) Conduits and Structured Investment Vehicles (SIVs). These vehicles invest in long-maturity asset-backed securities to fund their investors at short-term maturities and they rely on an on-going injection of funds to continue to operate. During August of 2007, ABPC Conduit and SIV investors simply stopped rolling over maturing Commercial Paper (CP) fostered by the uncertainty of where subprime assets could ultimately reside. Given this shortage of liquidity, some ABCP Conduits have been forced to draw the liquidity lines committed by their sponsors and the SIVs to sell some of their assets in the market, which has translated into mark to market losses for them.

The ESF has issued the following recommendations in relation to these issues, on the understanding that the rating agency analytical processes must remain independent and, therefore, must not be replaced by a stategoverned rating process:

Although some ABCP vehicles distribute aggregate portfolio information to investors, certain vehicles provide less disclosure, or no disclosure. The ESF has thus recommended immediate and ongoing disclosure of portfolio holdings by ABCP conduits and SIVs. This will help identify where US subprime risk resides, including indirect exposure through CDO structures.

b) Investor education of structured finance ratings:

b) Disclosure and standardisation in valuation methodology As market participants have encountered difficulties in valuing some of the asset-backed securities they were holding, the trading of such instruments has dried up significantly during the liquidity crisis, junior tranches in particular. In relation to this issue, the ESF has recommended that the industry develop guidelines for the consistent disclosure of methodologies used to value portfolio holdings. The ESF has also recommended widespread usage by issuers of standardised data reporting fields for RMBS and CDOs. This will facilitate investor understanding of transactions by providing consistent definitions. Finally, the ESF has encouraged measures to improve accessibility to and consistency of modelled transaction data, possibly on a centralised basis. Recommendations on Structured Finance Ratings The downgrade of tranches in structured vehicles and CDOs with subprime assets in their portfolios has brought to the forefront issues concerning the “robustness” of such structures and the investors’ understanding of the ratings assigned to the structures.

a) Calibration and robustness of certain structures: The ESF has recommended that the industry, including the rating agencies, work together to maximise risk visibility across asset classes and investment vehicles. For example, mechanisms such as advisory councils could enhance investor involvement and input to rating methodologies and broader risk monitoring, particularly for the more complex structures.

The ESF has recommended that market participants work proactively to improve market education on the ratings and risks of structured products, the meaning of ratings, the difference between AAA ratings and market prices, the surveillance process, distinctions between various ABCP-funded structures, and breakeven quantification as to the level of pool credit change that would trigger a rating movement. Other Recommendations Lastly, the ESF has also issued other recommendations related to (i) the need to develop a common definition of “subprime” to prevent investors from confusing asset types with different characteristics; and (ii) the need to improve the quality of due diligence processes and the availability of audit information during the structuring process of securitisation transactions. Carlos Echave is a law graduate from the Universidad de Navarra in Spain. He joined the Madrid office of Freshfields Bruckhaus Deringer in 1999 where he specialised in Structure Finance within the Finance Department of this Law firm. In September 2003, Carlos Echave joined Linklaters where he advised on numerous securitisation and fixed income transactions. Since June 2005, Carlos Echave has been Director at the European Securitisation Forum (ESF), a trade association based in London and devoted to the growth and development of the securitisation market across Europe. He is the ESF’s legal and regulatory advisor to a number of Committees, including the Legal, Regulatory and Capital, the Accounting, the Spanish and the CMBS Committees.

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a bridge to the local market. You want an established custodian who not only supports you with a powerful network, but also with an exceptional record of market advocacy. Put the full span of Citigroup to work for you.

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Please visit our website: www.transactionservices.citigroup.com To contact us directly: Asia Pacific: Alvin Goh +65 6328 5292 Harle Mossman +852 2868 7002

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ÂŠ 2006 Citigroup Global Markets Inc. Member SIPC. All rights reserved. CITIGROUP and the Umbrella Device are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.

2007 Securitisation Review

It is safe to say that securitisation is rapidly becoming the preferred funding route for an increasing number of issuers. Indeed, over the last six or seven years, it has been one of the most prevalent contributors to the global capital markets. The reasons are clear. Securitisation offers issuers efficient, diversified sources of funding. For investors, it offers exposure to a range of credit, maturity and payment structures. Notwithstanding the fact that subprime mortgages only represent a small percentage of the assets that are securitised globally, the so-called “subprime crisis” has impacted market conditions. Consequently, the securitisation market must now restore investor confidence in order to resume growth. This is precisely why benchmarking performance has never been more important. Despite the testing climate, many providers are still adding significant value. This year’s Securitisation Review identifies the market’s best-in-class. Review Dates & Categories: Next review date, January 2008. The inclusion or exclusion of providers will be subject to the findings of the Money Markets Review Panel. Inclusion: No more than six providers have been selected for inclusion in to any one category.

CONSULTANCIES Provider Acrys Consult Deloitte & Touche LLP d-fine Consulting Ernst & Young KPMG PwC

LEGAL FIRMS Commendation Best-in-Class Most Improved

Provider A&L Goodbody Clifford Chance Dillon Eustace Gide Loyrette Nouel Mayer, Brown, Rowe & Maw Thacher Proffitt

Commendation Most Improved Best-in-Class

RATING AGENCIES Provider DBRS Fitch Moodys Investors Service Standard & Poor’s

Commendation Most Improved Best-in-Class

TECHNOLOGY PROVIDERS: SURVEILLANCE Provider Deloitte & Touche LLP d-fine Consulting Lewtan Technologies

Commendation Most Improved Best-in-Class Client Service *Innovation Award

FINANCIAL GUARANTORS Provider Assured Guaranty Corp CIFG FGIC MBIA XL Capital Assurance

Commendation Most Improved Best-in-Class

Principia Partners

TRUSTEES ISSUERS Provider ABN AMRO Eurohypo GMAC HBOS HSBC

Commendation Client Service Best-in-Class Most Improved

Provider ABN AMRO Bank of New York Capita Deutsche Bank (TSS) Wilmington Trust

Commendation

Best-in-Class Client Service Most Improved

SECURITISATION

Taking Workflow Solutions to the Next Level Ira Keller talks to Money Markets

and via direct-access to our database of securities information, which we will be expanding in 2008.

Introduction Q. A.

When did Lewtan Technologies first enter the asset-backed securities (ABS) market? Lewtan has been in the asset-backed securities market since 1986. We entered the market with a product called ABS System, which automates securitisation administration. The ABS System still remains a core contributor to Lewtan’s growth today.

Since then we have augmented our offerings to the issuers of ABS/MBS with outsourced processing (called Service Bureau), structuring capabilities (during the fourth quarter of 2007 we plan to launch our latest product, called Structuring Assistant, which will enable issuers

You were the first to offer an automated reporting system for ABS issuers. How do you continue to anticipate the needs of issuers and investors? We actually do several things. We have a very close relationship with our clients; we talk to them frequently about market trends and direction. Our clients are a great source of inspiration. They’ll come to us with business problems and we’ll try to come up with solutions that resolve the issues they’re facing. We also monitor and track the market through industry publications, coupled with the industry

“We entered the marketplace as a software company with a large back-office system geared to securitisation administration. Now we do everything under the sun, not only for issuers, but for investors as well.” to model deals themselves), web-sites, investor relations, and regulatory disclosure capabilities (ABS Discloser), and reconciliation services to handle and verify data produced and/or calculated by third parties (RECON). In addition to this and other product features, we also provide consulting and implementation services. A lot has changed over the last twenty years. We entered the marketplace as a software company with a large back-office system geared to securitisation administration. Now we do everything under the sun, not only for issuers, but for investors as well. We’re well known in the investor market for a product called ABSNET, an online ABS surveillance portal devoted to global securitisation information and data. We provide the aforementioned data to over three hundred clients worldwide through ABSNET online (www.ABSnet.net),

experience of our implementation, sales & marketing and management teams. Regulatory directives provide us with an opportunity to participate in a variety of forums. For example, we participated in the SEC’s Regulation AB debate and provided assistance with the formation of said regulations. Finally, we also conduct formal market research on a regular basis to gauge a pulse for the market. Q.

Although you are headquartered in Massachusetts, you also have an office in London. How significant is the European market to Lewtan Technologies? The European market is a major driver when it comes to the growth of Lewtan. Europe is responsible for 30% of Lewtan’s business

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globally, and we expect this percentage to rise. We were the very first to launch a comprehensive surveillance data library of European deals, as well as the first to marry that historical surveillance data library to a set of deal models that covers the largest number of European ABS and MBS bonds of anyone in the industry. Our ABSNet product has become the standard for ABS performance data in Europe. Our London office gives us greater access to the rest of the European nations, as well as access to the rest of the emerging world. We took a chance on the European market in the early days when it was less mature, and the market has blossomed tremendously. Q.

What separates Lewtan Technologies from other work-flow solution providers currently operating in the securitisation space? Over the years we’ve gained a great deal of experience, working with a diverse cross-section of buyers and sellers of assetbacked securities. One of the reasons issuers come to us, in particular, is for our expertise, it’s not just about the technology. When you combine this with the large data sets we’ve acquired in asset-backed and mortgage-backed deals, it’s a very powerful combination that few can replicate. Secondly, we are really a hybrid of several different companies. As I mentioned earlier, we got our start in the software business and as such continue to offer software tools and systems that support the needs of our clients. Some of the aforesaid systems are installed, some are hosted.

provides remoteness for bankruptcies and off balance sheet financing. When a market demonstrates these qualities it tends to be conducive to asset-backed securities issuance. Q.

Q. A.

Kindly identify the commonalities inherent in emerging ABS markets. There are basically three commonalities that we have identified. The first is a significant history of consumer debt/credit performance of underlying assets. The second commonality is a regulatory environment that’s conducive to securitisation. Third, and final, is whether there is an accounting framework which

What do you consider to be the motivations for securitisation in each of the aforementioned regions? The primary drivers tend to be source of funding and cost of funding. Regardless of which market you look at, including the US, when the conditions favour better financing, liquidity and lower cost financing, securitisation activity will take place.

Surveillance Tools Q.

A. Helicopter View: Evolution of the ABS Community and Cross Border Securitisation

In your opinion, which territories demonstrate the most significant potential for high yield and continued issuance growth? If I look at where we’ve done business, and where we’re starting to do more business, I would say that Eastern Europe, in particular the former Soviet block, is really the next assetbacked/mortgage-backed marketplace. We’ve also witnessed some consumer, mortgage and asset-backed activity taking place in South America, Latin America, China, India and Australia as well. In terms of diversity, we’re working with our investors on asset-backed deals that have been issued in Kazakhstan and Russia. So, Eastern Europe, the Pacific Rim, Latin and South America are certainly the territories to watch.

Your surveillance tool, ABSNET, has gathered significant momentum recently. How many news sources does the aforementioned tool draw upon? It’s a product that garners news and research from hundreds of content sources and thousands of data sources worldwide. In addition to rating agency reports and research from leading investment banks, we collect and distribute market commentary and articles from the leading periodicals pertinent to the securitisation industry, as well as hundreds of newspapers worldwide. On the data side we source data from servicers, issuers, rating agencies, trustees and other market participants. Our job is to bring all of these disparate pieces of data together for the benefit of

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AB has been positive. The adoption will be slow but steady.

our investors, who expect a one-stop data and information source. Q.

As the industry’s leading source for assetbacked securities surveillance, ABSNET helps issuers and investors monitor the credit and headline risks tied to structured-finance deals. However, the database of ABS deal performance data attached to this tool also provides significant benefit. How do you ensure content levels remain current? ABSNet’s database of collateral and pool performance data is, without question, the most comprehensive in the industry. We cover close to 17,000 deals worldwide, and that includes 150,000 unique bonds. We ensure that the database remains up-to-date via a combination of automated tools linking ABSNET to key issuers and trustees, together with a team of bond analysts, who are responsible for monitoring all sources of new issuances. These sources include the SEC’s EDGAR database for deal filings, trustee and servicer websites for new deal reporting, rating agency feeds, industry research for new deal pipeline reports and even personal contacts within the underwriting community. As the premier content aggregator in the securitisation space, even rating agencies subscribe to our service.

Having worked with about 40% of US residential issuers on their static pool reporting and disclosure requirements, we try to act as a shared source of knowledge on best practices. In my opinion, the issuers have struggled to interpret the regulations. Consequently, mapping out a path for their respective firms has been difficult. However, I believe Lewtan’s Webinars have helped with this, which is why we’ve had such high levels of participation. Q.

Regulation AB Q. A.

How is the market coping with Regulation AB? It’s a great thing and you’re going to see more and more of the world adopting the standards Regulation AB fosters. As I mentioned earlier, Lewtan was very involved in the inception of Regulation AB, especially when the regulations were being formulated. Regulation AB is a reflection of best practices, many of which were already taking place in the industry. However, it has codified and memorialised them, making them requirements. A year-and-a-half down the line there is certainly a greater understanding of the rules. Some of the best practices that I referenced earlier have actually started to emerge across a wider demographic. The impact of Regulation

You offered a free Regulation AB Webinar on July 18, 2007. Did this receive the level of support you expected, and do you have any plans to build upon this moving forward? We had a very successful Regulation AB Webinar. The white paper that accompanies the Webinar will be available shortly.

Regulation AB, effective January 1, 2006, is the SEC's implementation of formal rules designed to improve investor insight into the nation's asset backed securities market - estimated at more than $1.2 trillion in annual volume. What impact has this had on transparency? Transparency is the watchword, which is why, as I suggested before, you’re going to see more and more of Regulation AB, not just in the US but elsewhere. Ultimately, the goal is greater transparency and communication. It’s about giving investors more comfort and knowledge. Indeed, our ABS Discloser clients have told us that they are achieving better margins and more basis points per deal because they are able to provide the market with better information. This has always been our goal; this is why we started this business. With respect to Item 1122, of Regulation AB, what do you consider to be the challenges attached to the CPA attestation process? Let us start by defining what Item 1122 means. It’s basically compliance with applicable servicing criteria. The aforementioned Item 1122 requires servicers to assert and assess their compliance within the servicing function and report on said assessment of compliance setting forth the appropriate criteria. The servicer also

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has to obtain an attestation report from a PCAOB registered accounting firm; it’s like a comfort letter. So, in summary, Item 1122 requires two specific deliverables from servicers, an assessment of compliance, how they are doing against the regulations, and an accountant’s attestation report, an independent audit. In the case of deals which have multiple servicers, each servicer whose activities represent more than 5% of the pooled assets must comply with the auditor’s attestation report. This report includes disclosure of any non-compliance with the servicing criteria. As to the challenges attached to the CPA attestation process, the primary area of debate that still exists in the marketplace is the interpretation of what constitutes material non-compliance. From a Lewtan perspective, Item 1122 has driven the need for systems, systems with better data and more output, systems like our ABS System, which can support audit reviews and regulatory reporting. Q. A.

How do you assist issuers with ABS disclosure? With the adoption of Regulation AB, issuers have to provide static pool information as part of their data on public ABS/MBS transactions for the very first time. The data can be incorporated into a prospectus by reference or via a website, rather than in the prospectus itself. We custom-develop, host and maintain websites for our clients. The ABS Discloser product was created as a best-practices tool in order to improve the transparency and liquidity of securitised transactions by highlighting and illuminating deal performance. Again, as I mentioned earlier, ABS Discloser clients have been able to improve transparency, deal margins and basis points, because they have been able to provide investors with better information, which in turn facilitates and enhances the investor’s level of comfort.

The Future Q.

In terms of product innovation, what can new and existing clients expect from Lewtan

Technologies over the next twelve to eighteen months? The next year-and-a-half is going to be very exciting for Lewtan. We plan to introduce a number of new products in 2008 together with various product enhancements. We’re actually developing, as we speak, a next generation ABS System, the product that started the company. The product’s redesign is all but complete, and we are at the implementation stage with several clients who will go live before the end of the year. As I mentioned before, during Q4 2007, we plan to release the next version of our cash flow modelling software – Structuring Assistant. This version will enable end-users to model their own deals as well as to use the deal models that are in our library. In addition to utilizing ABS surveillance data on-line or in an Excel or XML extract, as our customers do today, we plan to launch a more robust Bulk Data offering in 2008, as well. Finally ABSNET, which was launched in 1998, is in the process of being completely redesigned to more effectively identify outliers in credit performance so that our investor clients can take advantage of the data infrastructure investments we’re making. The timeliness of data, the comprehensiveness and quality of data, and the client’s ability to use that data will be significantly enhanced.

Ira Keller is the President & Chief Executive Officer of Lewtan Technologies. Mr. Keller oversees the company’s strategic direction and all operations. He also serves on Lewtan’s Executive Management Committee and was formerly Chief Operating Officer as well as Senior Vice President of Sales & Marketing. Prior positions include Senior Vice President & General Manager at Starpoint Solutions, Group Managing Director and Senior Vice President & General Manager at Thomson Financial, and VP of Marketing for Sungard Financial Systems. Mr. Keller holds a BA in Economics from the University of Massachusetts and an MBA in Finance & Marketing from Boston University's Graduate School of Management.

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The Future of Transaction Processing Money Markets talks to Hugo Doswald

Q Q. A.

Would it be fair to say that you are in a client acquisition phase? Frankly speaking we are in two phases, which are parallel. We are moving existing clients to our new technology. We presently have thirty clients using the system for German pfanbriefe that will migrate to TXSuite in the next twelve to eighteen months. We are pleased that they are willing to take this step, because TXSuite software offers enormous flexibility, which they will benefit from greatly, and the reduced cost attached to future development of the software is also a great plus. On the other hand, we have entered the market with our software solutions and we have sold TXSuite to a client outside of DG HYP, our software development partner, a customer located in Luxembourg.

terms of transaction types we are ready for true sale and replenishable transactions. Q. A.

So the business model has not changed? No. We still have the software licencing business, we have the services related to the software, and then we have independent software services for ABS transactions.

Six to eight months ago you were developing replenishment and true sale functionality, in addition to EDR functionality, which you stated was geared towards the German pfandbrief market. How much progress has been made since we last spoke? We have developed replenishment already, which was in version 1.46, and true-sale functionality is available in 1.5, as well as EDR - electronic collateral calculation functionality is the old pfandbrief management software. We are implementing all of the functionalities that

“We still have the software licencing business, we have the services related to the software, and then we have independent software services for ABS transactions.” Q. A.

Q. A.

So basically, the suite of products is evolving all the time, is it not? Yes, I think that’s true. We are also looking at other asset classes like trade receivables, CMBS, and small and medium entity corporate loan transactions. We have done some feasibility studies and when one of our customers needs to support their trade receivables transactions, for example, with our software, we will be ready. Can you expand upon this? The foundation was laid with synthetic RMBS. The first transaction that was performed using our software was a CMBS transaction. The concepts are now in place and development is but one step away for trade receivables, small and medium entities, and ship financing. In

our existing customers have available, based upon our EDR software solution, so that they have it in the TXSuite as well. Therefore they can replace the old German pfandbrief software solution, which is still state-of-the-art, and enter the new world of TXSuite where they will have, on one hand, pfandbriefe, and on the other RMBS transactions, in addition to covered bond transactions, true sale, synthetic, whatever they want to do. They will able to compare different transactions based upon the same asset class. We have also evolved on the commercial side. We now offer our clients a number of different models whereby they can buy, rent or lease our software. Our clients are not forced to invest a great deal of money in a piece of software. They 65

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can rent it, and they can lease it, which is very favourable under Basel II. DG HYP – Case Study Q. A.

Why did DG HYP decide to partner TXS financial products? In fact TXS financial products is a joint venture between DG HYP and the Agens Group. The Agens Group is the main share holder with 74%. Agens Consulting and DG HYP have enjoyed a long-term partnership based upon the EDR software solution they worked on together ten years ago. This created the necessary trust and belief in the partnership. It’s always difficult for banks and IT companies to enter in to partnerships because they are from two different worlds.

funding and long-term lending. So you had an interest rate management and a liquidity management capacity functioning in the banking industry, and DG HYP decided six or seven years ago it would do that for credit risk. Therefore not only did interest rate and liquidity risk need to be managed on a portfolio basis, but so did credit risk. Consequently, they decided to establish a new business field, securitization, and I was the individual at DG HYP charged with establishing this business field. At the very beginning I had to decide whether to hire a large team that would be data management intensive in order to carry out actual transactions or, invest in an IT solution that would help my team and I do an efficient job with very little operational risk. I chose the latter. However, because I couldn’t find the

“We will continue to sharpen the basic framework of the TXSuite in addition to establishing an English version.” Q.

What prompted them to pursue a best-of-breed solution for structured securitisation transactions? Six or seven years ago DG HYP decided to adapt its business model to the changing banking environment in Germany. They broke the financial value creation chain down in to three parts, distribution and origination of loans, portfolio management, and processing servicing of loans. The first and third parts were outsourced. For the processing and servicing they established a company called Kreditwerk, which acquired the other big credit factory in Germany this year, Hypothecken Management. The distribution and origination part of the value creation chain was outsourced to a member of the DZ Bank Group, and they concentrated and focused on the portfolio management as a third party service for the cooperative banks. This was an important step back to a German mortgage bank. If we German mortgage banks really helping to fill the gap between

the core of look back, started by short-term

software, I had to build it. My objective was to create a completely new kind of software that would support my team and I, as well as the other bank personnel involved, in order to facilitate efficient, cost effective, and very low operational risk inherent transactions. The first transactions were carried out based upon Microsoft Excel. Later on we (DG HYP) decided to build a flexible software solution, based upon Oracle, and partnered an IT company, Hypoport, which today is our strongest German competitor. However, we went our separate ways about two and a half years ago. There were a number of reasons. Ultimately the software wasn’t as flexible, modular, and asset class/ transaction type independent as we had hoped. We also couldn’t find a common strategic basis for moving forward. It is also worth mentioning that three years ago we did a pre-study and a feasibility study involving both Hypoport and Agens Consulting and the Agens Consulting concept was better. So we (DG HYP) decided

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to go in to partnership with Agens Consulting, and later became TXS. Mainly because we wanted to establish a brand, a legal entity, and have one name that customers would recognise, TXS, the number one transaction software provider in the world. Back then I had two jobs. I was still head of securitization and infrastructure but, I was also named Managing Director of TXS financial products GmbH. In October 2005, I gave up my job at DG HYP and became the full time Managing Director of TXS financial products GmbH. I did this because I believe in the software and the direction we are moving in. Q. A.

Q. A.

So basically, DG HYP is performing more of a board function at the moment? Yes. They are also a developing partner. They financed the development of version 1.5. We now have to look for further development partners. Concentrating on the software (TXSuite) for a moment, from concept to solution, through to implementation, how long has this process taken? From the initial concept, to date, it’s over two years. What impact has this had on DG HYP’s securitization business model? It’s still quite unique in Germany, because there is this intermediary function that DG HYP has in place for its cooperative banks to help them and enable them to go to capital markets with transactions. The cooperative banks are too small to have direct access to capital market transactions like RMBS, or even covered bonds. Therefore, five or six years ago, DG HYP decided to fill this gap by establishing an infrastructure, procedures and transaction structures to bundle portfolios of cooperative banks to a large portfolio that could be transferred via the capital market.

Q. A.

So to this extent it was ahead of it’s time? Yes.

How does this compare with other German banks?

These days the landesbanks and the Westdeutsche Immobilienbank, which is the mortgage bank of the West LB group, are trying to catch up. Last year they lost the privilege of community funding, public funding, and must now redefine their respective business models. They realize that having a strong business relationship with their savings banks, and by becoming an intermediary for them –facilitation of funding and risk transfer via capital markets instruments- could be the basis for a new business model.

Can this solution, and more importantly its success, be rolled out across the board, .i.e. can those banks, which are now playing catch-up, simply approach you and simply say, “install TXS”? Yes, indeed they can. We would recommend that we do a pre-study over say thirty project days. A small project to evaluate how TXSuite could be best utalised with respect to the client’s specific needs. TXSuite offers so many possibilities, so much flexibility, you can handle almost everything in any way, and it can easily be adapted to the specific needs and situation of the Bank. We’re not talking about SAP dimensions of customizing or implementation projects. Let me point out a couple of things. The organizational structure of a Bank is more or less unique. Even if they have the same departments, they are doing business differently. The software can easily be adapted to the business workflows and organizational structure within the Bank. Then the banks usually have their unique selling points (USPs). They don’t want to get rid of their USPs by installing a standard piece of software. If all banks had the same software, and couldn’t implement their USPs within that software, it wouldn’t work; they wouldn’t be able to differentiate themselves. So we have to find the best way to implement and use TXSuite according to the specific environment. We’re not talking about an out-of-the-box solution like Microsoft Office. You can’t buy it and install it, because differentiation equals

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success. Ultimately, we want to support the success of our customers. Q. A.

Looking to the future, what can we expect from TXS in terms of new versions and so forth? With the release of version 1.5, we are, in effect, implementing most of the functionalities needed for asset backed securities transactions. We will continue to sharpen the basic framework of the TXSuite in addition to establishing an English version. Our software is multilingual; therefore it’s a matter of translating, not coding and programming. So should a client need the English version they can have it within a week or two. Before developing additional functionalities, transaction types and asset classes, we prefer to sit down with clients first in order to understand the components they would like us to integrate, se.g. trade receivables, ship financing, or aircraftfinance. I don’t think it’s fair to make existing and potential clients pay for functionalities they don’t need. We want to develop a bespok software solution that meets the needs of the client exactly, rather than pre-developing a large number of functionalities. In terms of development and implementation there will be minor things -over 90% of the software is already there and ready to use- instruments on the structuring side like cash collaterals, interest swaps, and currency swaps. The rest depends on the needs of the customer. The things they tell us, we implement.

Q. A.

How do you educate investors? We are establishing seminars for existing and potential clients. We are in negotiation with an international partner with respect to training. As a medium sized German software company we feel the best way to expand internationally is to forge alliances with strong international partners that know our customers and their respective markets.

Hugo Doswald is the Managing Director of TXS financial products GmbH.

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Securitisation Tackling the Issues Money Markets discusses the topic with Barbara Dilges, Rainer Pruy & Dr. Frank Kardel

Introduction: Getting to Know Acrys Consult Q. A.

When was Acrys Consult first established? Acrys Consult was founded in 1998 by a group of professionals who previously held senior positions within major consulting firms and a large German investment bank.

Would you describe yourself as a consultancy, technology provider, or both? Yes indeed, this is one of the secrets of our success, we are both. Clients usually need both sides of the coin, asking Acrys means you get technical and business expertise. This is one reason why clients hold us in such high regard.

Q. A.

Kindly define your unique value proposition. We guide our clients every step of the way, from initial management studies, through detailed reviews, to full-scale implementation. We believe the true value of consulting lies in the effective and efficient implementation of the solutions that we create. We take this responsibility very seriously. As a result, clients benefit from the added value of our experienced conceptualisation and implementation skills. Geographically speaking, and from a client standpoint, which territories are you currently active in? With representatives in Frankfurt, New York and Zurich/Zug, we are able to service the European market, in particular Germany, the US, and in an emerging sense, South Africa.

Asset Backed Securities Q.

Issuance of asset backed securities (ABS) has increased dramatically as the need to finance consumer obligations (such as credit card receivables, mortgage loans, auto loans, and student loans), trade receivables, and corporate bonds and loans has grown. Can this continue?

This really depends on the region. In an area where a well established ABS market exists, such as the US, we will experience moderate growth over the coming years with a trend for specialisation. However, in other areas like Europe, the market will catch up and issuance will grow in number and volume.

Asset Backed Securities: SMEs Q. A.

Q. A.

What effect have ABS had on SME finance in Europe? From the standpoint of the arranger, the minimum size of trade receivables transactions has dropped from about â&#x201A;Ź25m to around â&#x201A;Ź10m now. The aforementioned reduction in volume has meant that the relative costs involved in executing a transaction have become more and more pertinent to the overall pricing of transactions. Talk us through the impact and use of ABS with respect to SME finance? The current trend will continue. Increasingly, smaller SMEs will enter the market - trade receivable deals fulfilling liquidity needs. Given their size, the risk management aspects of ABS will not really come into focus for these players, they will also be too small to really bear any risk that would benefit from being shared with, and redistributed to, the market. Can you outline the costs, and benefits, attached to the implementation of ABS in SME finance with respect to SMEs, financial institution and investors? As they really are rather remote to the focus of our current business, I will not elaborate on investors in detail. However, the question of whether an underlying to an ABS transaction is related to an SME or a top five hundred company is second order. Investors are more interested in the intrinsic risk and final yield of their investments. Of course they benefit from 69

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increased volume available for investment. Increases in volume, together with a greater awareness of the risks attached to ABS investments, will increase the yields demanded and received by investors, thus increasing the cost of ABS transactions for issuers, arrangers and originators respectively. Simultaneously, a decrease in volume per transaction will generate a relative increase in fixed costs per transaction, forcing financial institutions and banks to take a closer look at such costs. Consequently, stricter automation is now needed. Coming back to running costs, with a reduction in per transaction volume, setup costs will become more and more important. Legal costs (for simplicity, subsuming expenses for rating and due diligences) and infrastructure changes for interfacing with the transaction administration are the main components to be considered here. As legal costs are reduced, focus will shift towards reducing execution and administration costs. Q.

Q. A.

In terms of volume and structure, what do you consider to be the key drivers currently affecting ABS transactions? Business expansion and the acquisition of new transactions -whilst maintaining revenue levelsare the most noticeable drivers. As a consequence, minimum transaction volume has decreased and new transactions are showing heightened levels of accepted risk. The by-product of this trend will be more complex structures. Kindly define the current and future risk profiles of SME ABS transactions. The lack of transparency attached to the intrinsic risk of ABS transactions has been underestimated for some time. However, recent events have refocused attention. The greater the level of indirection applied by the original financial product to a given ABS transaction, the higher the degree of risk diversification. However, at the same time, this reduces the level of information available on intrinsic risk. It is also worth mentioning that greater risk diversification can increase the probability of a problem affecting the transaction.

Focusing again on SMEs, a similar effect will arise when, in the near future, more and more companies enter the market as originators. Whilst current selection and risk assessment procedures mean that new trade receivable deals are entered based upon optimal surrounding conditions, in the future, riskier candidate transactions will be entered. This is another reason why this segment of the market needs to focus on risk. Risk: New Basel Accord Q. A.

Would it be fair to say that Basel I risk measures are no longer very meaningful? They havenâ&#x20AC;&#x2122;t really been to securitisation transactions in the past. Obviously, a true sales transaction has the affect of removing credit volumes from the balance sheet and releasing equity. On the other hand, if a bank invested in those assets, the capital adequacy directive, not being diverse enough, would not be able to perform an â&#x20AC;&#x153;adequateâ&#x20AC;? measurement of the risk involved! Given the increasing complexity of banking and the rapid innovation of the financial markets, how important is Basel II? State or government control is never a substitute for profound and detailed risk analysis and measurement systems in banks and other financial institutions. Do you feel the New Accord provides a stronger link between bank risk, risk management and capital? Referring to the discussion from the last answer, we cannot rely on the successful fulfilment of the New Accord; the link is simply not strong enough for all participants. Every bank and investor needs detailed, prompt and accurate key figures of the assets they are going to change against their money. In order to capitalise on the risk management and measurement revolution, many firms have realised that there is a financial benefit to be gained from effective risk management. How have you responded to this? Yes, for sure. When you cooperate with SMEs and guide them through the securitisation process, spin-offs occur, accounts receivable

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management, MIS efficiency etc. As a general rule, this has a very positive impact on revenue. Technology: PoolArranger - The One-Stop-Shop Solution Q. A.

Define the features and benefits attached to Acrys Consult’s PoolArranger solution? PoolArranger delivers a Web based platform that handles a wide range of transaction requirements that support a large number of competitive transaction schedules. On the technical side, a set of originator interfaces is supported in order to ease the linkage between platform and originator. The originator interfaces range from a simple OP list to full cash flows allowing for arbitrary and complex products to be submitted. Depending on the interfaces used (simple to most detailed), reports can be generated which look at the state of the transaction in several views. Views include, but are not limited to, the following areas: • debtor accounts, • asset accounts (expected and actual CF reports), • portfolio accounts, • transaction costs and enhancement reports.

production interaction can be carried out with minimal or no manual labour. Q (b). How is this achieved? A. Major emphasis is placed upon: • a complete modelling of the business domain by utilising a flexible cash flow based data model, • a simple interface catering to a wide range of originators which in turn facilitates simple interfacing whilst maintaining the full cash flow based approach of the system and • allowing extensibility by providing a single mature data model for all algorithms and significant reporting functions. Q. A.

Q. A.

The entire system is backed by a database that allows you to model the different aspects of the parties involved. PoolArranger does not follow the concept of a special purpose application. PoolArranger's data model caters to the different viewpoints of the participants involved and does not impose a limit on the underlying asset classes. In order to facilitate the flexible configuration of transaction rules, PoolArranger employs the Acryxl BusinessScript language, which allows you to formulate the eligibility and portfolio rules for the payment process. Q (a). Is the PoolArranger solution designed primarily to reduce ABS transaction costs? A. It is one of the main goals. In order to reduce transaction costs, most of the error prone, manual labour has to be reduced. This is done by using automation instead of shuffling spread sheets around. The originator will create the automatic interface once and check its functionality at the start. Subsequent

Is this solution designed exclusively for smaller transactions? No, the solution is geared to support a wide range of transactions. Transactions can differ in underlying and in size. The systems running the software are scaled to the transaction demands. Does PoolArranger afford seamless integration? We support seamless integration by providing several exchange means. The simplest interface uses CSV formatted data that is uploaded via TLS (SSL) to maintain the confidentiality of the data by using client certificates for positive client verification. For more complex data transfers the PoolArranger native format, which is XML, can be used.

The Future Q. A.

What does the future hold for Acrys Consult? We expect demand for automatic processing to increase. Territories which, until now, have propagated higher levels of manual labour are driving this demand. Moving forward, in order to handle the different kinds of risks inherent in various transaction phases, a wider range of tools will be required. The provision of fraud detection components is our first step in this direction and we look forward to building upon this.

Barbara Dilges and Dr. Frank Kardel are the Managing Partners of Acrys Consult, and Rainer Pruy is the Managing Director.

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The Evolution of the Trustee Sue Lawrence talks to Money Markets

Q Introduction

Q (a). When did you first start to provide trustee and administration services? Q (b). As a bespoke provider of trust and administrative services how much emphasis do you place upon relationship management? A. Capita Trust is part of Capita Group PLC, which is a FTSE 100 company that was established in 1984. We are part of the fiduciary group which falls in the financial services division, focusing on trustee services to the personal, pensions and corporate markets both onshore and offshore. Here in London we provide onshore trustee

We see ourselves as a niche market trustee player and are not looking to compete with full-service banking houses in providing corporate trust services such as paying agency, custody and account administration. As part of a company that has client service at its core, we have the group ethic of being very client and people focused, providing good customer service. Furthermore, we benefit from being independent of any law firm or investment bank and have a diverse client base as a result. Our parent company, The Capita Group PLC, is comprised of a number of companies, which

“If you look at the big corporate trust service providers, although they may be part of a big organisation, corporate trust is frequently at the bottom of the pile, and that’s a risk if the institution is looking to change direction.” services for personal, pension and corporate clients. The latter is split into three separate teams offering corporate trustee, full SPV services (including directors and accounts provision) and property unit trust (PUT) trusteeship to domestic and international clients. The Trustee Act was first empowered in 1908, and some of our personal trust business dates back to then through the trustee businesses of Royal Exchange Trust Company and Royal Sun Alliance which were acquired by Capita. In comparison the corporate trust business is younger, having developed in conjunction with the growth of the debt capital markets over the past decade or so. Capita Trust is still growing organically and the corporate trust team are committed to the debt market and undertaking more trustee business.

are run individually but with a strong umbrella management and group board of directors. Each company and division is given freedom to develop their markets, the clients they work with, the acquisitions they consider, and the products they promote. Capita’s core business is providing professional support services to a diverse range of, organisations including government, local authority and corporate clients. The financial services division, which we are part of continues to grow providing trustee, fund administration, registrar services, and equity and shareholder services. JPMorgan Chase is one of a long line of major institutions that have opted out of providing debt security trusteeship services. The departure of Wachovia and Bankers Trust further underlines this point. 73

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Q (a). Will other providers follow suit? Q (b). The departure of one’s fiduciary is clearly unsettling. What assurances can you provide new and existing clients with? A. If you look at the big corporate trust service providers, although they may be part of a big organisation, corporate trust is frequently at the bottom of the pile, and that’s a risk if the institution is looking to change direction. However, I’m not sure that anyone’s trying to get out of the business at this time. Nevertheless, I will continue to watch ABN Amro and their corporate trust business on the back of the takeover negotiations. If you look at the SPV providers and the smaller independent trust firms you’ve got a lot of niche companies that were set up by individuals a decade ago who are now getting to that stage where to further their business growth they may need support of a larger entity such as Capita.

The Role of the Trustee Q.

Securitisation continues to grow, both in terms of volume and value of securitised issuance and in the complexity of transactions. Naturally this had made the trustee’s job even more important, and challenging. What steps have you taken in order to address this? It’s about hiring experienced people; it’s also about training people to look at the way you do things. Our team are not just career trustees, we also have lawyers and accountants; I myself have worked as a debt issuer and arranger. You also have to talk to your clients, you have to understand what they’re trying to put in place in order to ensure that you’re meeting and exceeding their expectations. It’s also important that people understand our remit and the commercial aspects attached to each transaction.

“I think the most challenging thing for a trustee is being able to understand a diverse range of underlying assets and also identifying as much as possible the enforcement possibilities of differing jurisdictions.”

You also have niche SPV providers, set up as subsidiaries of law firms, who provide company secretariat services to the debt markets as an add on service. However, if you look at the SPV service offering today, as the deals get more and more complicated, you’re not just required to undertake company secretariat, you’re also providing experienced directors for SPVs and administration people who understand the transactions and structures on which they’re working. This is the specialised market that we’re servicing on a daily basis.

The securitisation market is at the forefront of financing techniques. Although it’s constantly changing and moving forwards the underlying structures tend to be quite similar. There’s an asset with a cash flow, that cash flow then finances the debt issue and the originator gets the benefit from providing the asset. As a trustee we need to understand structures as they change, as they evolve. I think the most challenging thing for a trustee is being able to understand a diverse range of underlying assets, and also identifying as much as possible the enforcement possibilities of differing jurisdictions.

Capita Trust is neither part of a large investment bank or a small stand-alone institution. We are committed to growing our business with our new and existing clients and have the support of our parent company to continue to grow and develop our service proposition. This commitment and focus from us as a service provider, both as a trustee and in the wider Capita group, should provide clients with the assurance that we are here to stay.

Every transaction has to be viewed individually, because the underlying assets are always going to be slightly different. They may be coming from a different originator or product set. They might be mortgages, credit card receivables or auto loans. The structure of the transaction tends to be quite similar but the underlying nature of the assets means that it can be quite different, like comparing UK mortgages to Korean credit card receivables. The overall structure is similar, but the details are totally different.

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When we take on a new transaction as trustee, we have to consider what will happen if it goes wrong and whether the documentation reflects that. What will our elements of recourse be if something happens to the underlying assets, if something happens to the transaction or a transaction counterparty? However, an arranger will look at it from a different perspective; they’ll structure, quantify the cash flows, identify the risks and place it to investors. Generally they’ll look on the positive side of things. We need to work with the arrangers to ensure that the structure works in both positive and negative environments. Whilst we look at the transaction from the default view we need to work with other parties to ensure that it’s still commercial.

simple amendment and doesn’t affect the investor, if we talk early enough, it can run through quite effortlessly. For issues where the trustee cannot make the amendment without referral to the investors or where the position is unclear, timely communication is still key. Issues arise when communication with the trustee is not working, when the trustee is not being kept informed. Regulatory Challenges Regulatory changes, e.g. the SEC’s Regulation AB and the international Basel II framework, are an inevitable fact of life in the international debt capital markets.

“We benefit from being independent of any law firm or investment bank and have a diverse client base as a result.” Q.

Trusteeship is obviously an important part of the securitisation process. Aside from the legal requirement trustees fulfil, they also provide the requisite assurance and protection investors need and want. Therefore, is the job of trusteeship as important to issuers as it is to investors? I think it is. I think issuers, originators and arrangers need to know that the transaction will

Q (a). In the wake of Enron and WorldCom, surely greater transactional transparency is both necessary and desirable? Q (b). How do you adapt to the ever-changing regulatory environment? A. I think when you look at structured transactions, securitisations, they’ve always been quite transparent. Because they’re listed on a market, they’re traded in financial markets

“Capita’s core business is providing professional support services to a diverse range of organisations including government, local authority and corporate clients.” work on day two, year two, and year twenty as well as it will on day one. Part of the trustee’s role when they onboard the transaction is to look at the lifetime of the issue, not just the issue date. At the end of the day we aim to protect the investor and look after their interests. I think the important thing for an issuer or an originator to recognise is that if they communicate with the trustee everything runs a lot smoother. If we have a good working relationship with the originator, with the arranger, with the issuer, then everything works far more efficiently. If something needs to be amended during the transaction, as long as it’s a

by experienced traders and investors, they have a certain level of sophistication. The offering circular provides all of the information, the risks as well as the rewards, in one document. It gives the whole structure and how it works and on a deal by deal basis there is sufficient information provided. However, I think that sometimes people rely on the rating agencies too much without doing the research themselves. The interdependent links between transactions is where the complexity and lack of transparency appears. Some CDOs, for example, are a repackaging of other CDO issues 75

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or other structured debt instruments. So, if one underlying debt asset defaults it may affect more than just one SPV issue and I think that this interlinking, though identified in each individual offering document, is not readily identifiable. Special Purpose Vehicles Q.

Would it be fair to say that SPVs exist, in the main, because they play a significant role in the reduction of bankruptcy costs? I’m not sure I agree. The SPVs exist as a conduit to create cash flows in order to free up balance sheets so that money can be used in other ways. The SPV doesn’t really help in the case of

individuals from diverse but relevant backgrounds, and I think this mix is important. The Next Chapter Q. A.

What does the future hold for Capita Trust? I think we will continue to grow both organically and through acquisition. As smaller players look to move out of the market it is always interesting for us to consider the opportunities this may bring. At Capita we have a history of successfully acquiring companies and books of business and integrating people and business. We have acquired a number of businesses in Jersey, which has experienced significant growth over the last two years.

“I think the important thing for an issuer or an originator to recognise is that if they communicate with the trustee everything runs a lot smoother. If we have a good working relationship with the originator, with the arranger, with the issuer, then everything works far more efficiently.” bankruptcy and I don’t believe that they are set up deliberately to go bankrupt. It may be easier in a legal sense to wind up an SPV but, at the end of the day, the assets are still in existence, the originator is still there so the SPV is just a tool for freeing up capital and managing your balance sheet.

However, we expect the same growth from the UK. We currently have fifty people looking after trustee related business but, we’d like to see that figure grow substantially over the next few years. The book of business we have includes MBS, CDOs, CLOs, etc, but we’ll increasingly be moving into the high-yield trustee role and

“I think we will continue to grow both organically and through acquisition. As smaller players look to move out of the market it is always interesting for us to consider the opportunities this may bring.” Risk Q.

Risk exposure in today’s international debt capital markets can add a particularly difficult level of complexity to the job of trusteeship. How do you tackle this? There is risk in the marketplace, but the debt capital markets wouldn’t exist without risk so you cannot avoid it completely. Appointing an experienced trustee is one element of risk control. As a trustee, this goes back to having the right people in the right positions, and these people need to have experience of both the good and bad times. Although there are a limited number of experienced trustees to choose from in the marketplace, we have brought together a committed group of professional

possibly new jurisdictions. We opened an office in Dublin this year to locally service and grow our SPV appointments as we’ve already got an existing book of Irish business. What we do not want to do is to turn into a paying agent or a custodian. We know our market and we’re keen to grow in that market.

Sue has over 23 years debt capital markets experience having worked as an issuer, arranger and service provider on a wide range of debt products including securitisations, CLOs, CDOs, MTN programmes and stand alone debt issues. She has over 6 years direct experience of providing corporate trustee services and joined Capita Fiduciary as a Director in November 2006.

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Real Estate Corporate Finance Adding Real Value Raffaele Lino talks to Money Markets

Introduction – Getting to Know DTZ Q. A.

DTZ Rockwood, has helped to augment DTZ’s existing US occupier services alliance with Staubach and enhance the firm’s ability to provide dedicated capital markets services to the North America market. A few months ago DTZ also acquired Donaldson, a leading European retail specialist with approximately 1,000 professionals.

You are one of the largest property advisors in the world, how did it all start? Indeed, DTZ is one of the three largest property advisors in the world. We are listed on the London Stock Exchange and have twelve thousand employees operating in one hundred and forty countries. We established DTZ Corporate Finance Limited, a FSA-regulated entity, in 2001 and now have a team of more than thirty people. Under the DTZ Corporate Finance umbrella we combine property with finance expertise under three main business lines; one is called structured finance, we basically arrange and advise on debt funding from banks and other institutional lenders as well as capital markets funding via securitised debt issues. The second business line is asset finance; we provide advice on raising equity and debt for acquisitions and developments and this is geared towards large, complex schemes and specialist sectors. Our third business line specialises in indirect vehicles. We offer fund initiators structuring and capital raising services and investors’ access to multiple geographic markets, asset classes and specialist managers. As the market has evolved, DTZ Corporate Finance has developed market-leading expertise in the creation, marketing and operation of indirect vehicles, along with the trading of such interests. With a dedicated team of indirect vehicle specialists we are able to provide a range of services to investors, asset managers and funds on a global basis. These include, capital raising, secondary trading, white label fund structuring and fund advisory services. In terms of expansion, DTZ bought a 50% interest in Rockwood Realty last year (May 2006), a real estate investment banking firm in the US. The company, which is now called

Moving forward, in June of this year we established a branch of DTZ Corporate Finance in Frankfurt. We have a staff of five and we are focused mainly on marketing our services and products to the Continental European market and analysing certain key European territories in order to develop products which are tailored to the specific requirements of such property markets. DTZ is not standing still though; Corporate Finance teams have also been established in New York and Hong Kong. Q. A.

How does the corporate finance team differentiate itself from the competition? We tend to compete with financial advisory boutiques, sometimes investment banks, and the bigger consultancies but very few can successfully combine property with finance expertise and have our global reach. Our unique selling point is that we marry real estate and financial know-how. If you look at firms like business consultants, and most of the investment banks, their backgrounds tend to be financial. They don’t really understand property and the property market; they don’t really have property people working on the ground day to day managing the assets. DTZ on the other hand have a team made up of very experienced bankers and investment bankers with property backgrounds, at the very least they have extensive property expertise. We can also boast great cultural diversity and language skills.

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In summary, we are a recognised leader in real estate corporate finance; we definitely have one of the top teams in Europe. In terms of securitisation, we are highly innovative. Our approach to product development is bottom up. We do not want to just sell products, we want to talk to clients, we want to develop holistic solutions. It’s a case of looking at the market and trying to identify what it wants and needs. If there’s a niche, a need for a new alternative, we will talk to potential clients. Once we’ve collected the requisite data we’ll try and come up with a suitable product that ticks all of the right boxes. Q. A.

With respect to the securitisation space, kindly define DTZ’s unique value proposition. Well, we’ve developed a very unique securitisation product for the European property market. The structure we’ve created allows property owners to securitise rent receivables directly, which in turn facilitates a more costeffective financing structure. It’s the same product the bank would sell to the capital markets in the form of CMBS secured by loan receivables; our structure has a banking license. If, between the rent receivables and the capital markets, you can take away a step, you can transfer more benefit to the property owner. Another advantage we have is that our structure is fully bank independent; in fact, we have -through our partner- the only independent securitisation platform in Germany, perhaps in Europe.

Debt Financing Structures Q. A.

Are deals being structured in order to suit institutional investors rather than banks? There are certainly situations where providers might take advantage of the lack of transparency inherent in some securitisation structures. Consequently, more risk is transferred to the investor. At times the risk attached to the paper that investor is buying might not be made clear enough. I think in the future, deals will be structured with more transparency and geared more to the needs of the investor than the originator. However, we should not forget that, for various reasons such as pressure of capital to be invested, sometimes investors have taken a very optimistic view on risk, attracted by higher returns.

Q. A.

Do you think that senior debt is growing at the expense of mezzanine debt? Vis-à-vis senior debt, loan-to-values (LTV’s) on property deals are being reduced whilst margins are being increased by commercial banks in response to the sub prime crisis. I certainly believe that equity will become more important in property transactions. For owners unable to refinance a senior debt and prohibited from taking out a second mortgage by restrictive covenants, such as those on loans rolled into commercial mortgage-backed securities (CMBS), mezzanine deals offer a way to cash out some of that increased value. Therefore, I believe the role of mezzanine debt in property deals will become more important moving forward.

Q. A.

Is back-ended amortisation heading for trouble? I think it mainly depends on the deal and the structure and quality of the cash flow. If you have a residential portfolio, for example, with renovated high-class properties, good occupancy rates and stable cash flow, the risk of having back-ended amortisation is very limited. If you have a low-quality commercial, or class C portfolio, I would prefer to see ongoing amortisation as an investor as a further risk reduction instrument.

Looking Ahead Q. A.

What does the future hold for DTZ? We expect rapid growth, particularly in Continental Europe where property has been financed in a very simple, straightforward way for many years. Now that the property capital markets have become more complex, property owners are requesting more sophisticated and efficient financial structures. In Germany alone, DTZ has grown from one hundred and ninety to two hundred and ninety people in the last fifteen months. Over the same period I believe we’ve hired in excess of four hundred staff across Europe. Finally, with the acquisition of Donaldson -a private retail advisory firm- you can add another thousand employees to this list. These are exciting times.

Raffaele Lino is the Managing Director and Head of Business Development Europe of DTZ Corporate Finance Ltd in Frankfurt.

Investing in Overseas Property

Paul Owen

Portuguese Real Estate Investment â&#x20AC;&#x201C; The Legal Process

Dr Alexandra Pereira

The UKâ&#x20AC;&#x2122;s Real Estate Investment Hotspots

Seamus Nugent

Where to Find the Best Real Estate Opportunities in Europe

Ken Wilson

Invest in Dubai Property Market

Sim Whatley

Las Vegas: The Premier Real Estate Investment Destination Phil Laboon

REAL ESTATE INVESTMENT

Investing in Overseas Property Paul Owen, AIPP

Money invested in UK bricks and mortar has performed well for many investors and the market has become increasingly accessible for the ‘man on the street’. It is that very accessibility that has encouraged the savvy investor to turn to new markets. By looking at property overseas, investors have already seen encouraging results and this market is growing at a fantastic rate, according to many commentators. The growth is not just in the number of buyers coming to market but in the number of options available. However, wider choice has its rewards and its risks. Where once it was a matter of choosing a Costa and a golf course, people can now buy on every continent under all sorts of regimes in every currency and there is a huge variety of legal systems, tax laws and exit strategies to suit every individual’s circumstances.

bring protection to the consumer and that, of course, includes the investor. In a relatively young though fast-maturing market, the AIPP will help the industry through the growing pains that any teenager has to endure. All Members have voluntarily signed up to follow a Code of Conduct, one established to help and protect the buyer of overseas property. With a qualification process, training programmes and disciplinary processes for those who transgress, this body’s standards and the reassurance it brings will change the international property market for the better. As trailblazers in any market, investors should be the first to benefit. ‘40% of overseas property buyers are full-time investors or people seeing their purchase as at least a partial investment; I suspect the majority are serious investors,’ said Sue Ash, CEO of Ash Communications, a PR company which has an

“Money invested in UK bricks and mortar has performed well for many investors and the market has become increasingly accessible for the ‘man on the street’. It is that very accessibility that has encouraged the savvy investor to turn to new markets.” With enormous choice comes wonderful opportunity. However, it also brings the prospect of long, detailed research projects or long odds that a speculative punt on a pile of rubble in ‘Never-beenthere-Never-will-land’ will bear any fruit. This explosion of choice in the market along with the tricky terrain in some established international property markets has seen the industry take a stance to help the consumer and improve the industry for all concerned. The Association of International Property Professionals (AIPP) is a membership organization that has been set up with the sole aim of improving standards of professionalism in this market. It will

overseas property division and which recently undertook a survey of AIPP Members about the market in the first six months of 2006. With emerging property markets in the last few years reporting capital gains of 20 to 30 % a year, it is little wonder the ears of the investor have pricked up. When the word ‘guaranteed’ is added to adverts, the investor really should listen and listen carefully. ‘The only guarantee on capital growth is historical,’ says Ray Withers of Property Frontiers, a property investment company based in the UK. ‘All investors know that but I continue to be surprised at how many forget it when buying abroad. The sort of adverts that mislead on this point (and on rental returns) are hurting the market. It was one of the

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reasons we joined the AIPP as Founder Members. It really is high time this industry grew up, used real figures and made promises it can keep. There are plenty of us doing that; unfortunately, there are also plenty who do not care whether the figures are right or reasonable or even believable!’ When faced with properties and schemes that offer guaranteed rental returns in the international market, it is vital to make sure that such guarantees are in the contract: if they are not, they are just promises. There are markets that have seen fantastic capital growth in the past and there will be more in the next few years. However, you need to do your research into the markets and you need to find out the names of reputable agents and whether their numbers add up.

In a simple way, the assessment of an established market, let’s take Spain, against a new one, such as Bulgaria, highlights the pluses and minuses of two routes in international property investment. Bulgaria has seen high capital growth in the last four years. Its expected entry to the EU has played its part as has its bid to host the 2014 Winter Olympics. With much of Bulgaria, you are buying into what this should become but, because it still has some way to go in building the roads, providing the facilities and attracting the high numbers of international holidaymakers, it is hard to be sure. Bulgarian society is changing too: many people are still relatively poor and most are unable to buy their own property. This could all change in the next few years and many experts feel sure it will, rewarding

““Where once it was a matter of choosing a Costa and a golf course, people can now buy on every continent under all sorts of regimes in every currency, and there is a huge variety of legal systems, tax laws and exit strategies to suit every individual’s circumstances.” As with most investments, the greatest rewards tend to come with the biggest risks. ‘If you’re buying property which you hope will realise very high year on year capital appreciation, it’s likely to be in a ‘new’ country for overseas buyers,’ said Cindy Griffith of Cavendish Brooke International which offers property in many locations across the world from its UK base.

those who have bought and benefiting the country itself as local people can buy properties themselves and drive the market more strongly. International property buyers bought an enormous amount of property in Spain over the last decade. In the late Nineties and early years of the Noughties, property prices soared. This has slowed over 2005 and 2006 in most parts. Some consider that the

“This explosion of choice in the market along with the tricky terrain in some established international property markets has seen the industry take a stance to help the consumer and improve the industry for all concerned.” ‘The promise of such results is based on an improving national infrastructure, new road and rail links or new airlines planning international routes. It’s often based on changing local demographics – certainly key to many of the emerging markets in Eastern Europe, for example – as is the potential of EU membership. But investors should not forget the established markets of Spain, France and the US. These represent a much lower gamble as you know exactly what you’re getting: the roads, the flights, the facilities are already there; the holidaymakers know them and like them. In the long term, they may prove a good bet for many investors.’

market has peaked in Spain and advise against investment in certain areas: they may be right. However, with an ‘established’ country comes a more mature market and you have a clearer idea on many things. The flights are already in place as are the roads, the trains, the bars, the restaurants and the millions upon millions of holidaymakers every year. It is hard to imagine a time when UK holidaymakers will not go to Spain. You know exactly what you will get there and you know whether you like it or not.

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Western Europe, Spain included, is home to an increasingly affluent population and it offers a lifestyle that many people want to enjoy full-time as well as during holidays. You’re unlikely to see high capital appreciation in the immediate future but, again, over the long term it is a safe, secure place to put your money and should see some capital growth. So, where to go from here? Well, we should start with the ‘safe, secure’ ending to our previous tale. Western Europe is ‘safer’ and ‘more secure’ in that many investors know it well. However, you can still easily get it wrong even in a country with which you feel familiar. Suffice to say, your money is only as safe as you make it or as risky as you accept. If you want to

investment products. We still await the final version of the UK’s Finance Act this year and its position on leaseback properties qualifying as commercial property and therefore being cleared for use in SIPPs. Fractional ownership is on the market giving a lower cost entry point. In emerging markets, developers are looking for investors to buy land and contract the building back to them and there are even islands for sale with provisional planning permission for holiday villages in place! There really is so much to cover on the possibilities of overseas property investment: which continent, which country; is it land, new build or old character property; do you want rental returns or capital

“With emerging property markets in the last few years reporting capital gains of 20 to 30 % a year, it is little wonder the ears of the investor have pricked up. When the word ‘guaranteed’ is added to adverts, the investor really should listen and listen carefully.” take a punt without doing research and without using professional companies, then enjoy the ride: it may be a good one. If you want to protect your investment, take precautions. Nobody will know how well the investment will perform, of course, but you can at least be sure that the agent is working legally and honestly, that the property is actually for sale, that you have full rights to it and that you’re paying a reasonable market value for the property. Much of this ground will be covered by a good lawyer and, yes, you should use one: they will cost you money but getting the purchase right will be one of the best parts of your investment. ‘Aside from the usual legal checks that the property details are true, that it’s safe to buy and that the contract terms are fair, probably the most important thing a lawyer can do is to save his client a fortune by choosing the right legal structure for the purchase,’ says John Howell of John Howell & Co English Solicitors and International Lawyers. This market is enormously exciting right now for investors worldwide. The world really is opening up and with that opportunity comes the prospect of good investment returns. We’ve touched on a few points to remember whilst you explore the globe at your investing fingertips. We’ve not even had the time to consider the guaranteed rental returns that are available, some long-term, on certain property

growth or both; are you looking short, medium or long term? You know the questions you’ll want answered before you invest your money. What you may not know is who you should use and how to find them. You now have some help as the international property industry works hard to present the professionals in the industry under one united body, a body that brings self-regulation, professional guidelines and consumer confidence. This market, unregulated to date, has left you at the mercy of your own research into whether a company is professional or some way short of that. You have quite enough research to do already! When searching for an agent, a developer, a lawyer, a foreign exchange provider or a mortgage broker to help you buy property overseas, looking for the badge of AIPP membership should save you one worry. The badge shows a company leading the way to a professional, regulated and reputable market. Good for them. And very good for your money!

Paul Owen is Chief Executive of the Association of International Property Professionals (AIPP), an industry body that has been set up to improve standards of professionalism in the international property market. It is a non-profit organization.

REAL ESTATE INVESTMENT

Portuguese Real Estate Investment – The Legal Process Dr Alexandra Pereira talks to Jonathan Calens

Algarve. Of late some of our clients have been looking to the North, and in particular an area called the Silver Coast, which is located between Lisbon and Oporto. Having said this, the vast majority of my clients still choose the Algarve.

Introduction Q. A.

Where in Portugal is your practice based and how long have you been established for? I first started practicing law in 1985 as an independent. Initially, I opened an office in Lisbon, offering a variety of services to various clients, gradually increasing the scope of my operation, and making inherent changes to the business. After practicing in Lisbon for some five and a half years, I then moved the practice to the Algarve in 1991. Nowadays I cover all areas relevant to property matters, including the taxation element. Do you focus exclusively on the Portuguese market and are the majority of your clients institutional or private? The short answer is No. We have clients all over the world, but given the fact that the Algarve is a high demand location, we place a

The Buying Process Q.

Property buyers should be aware of the law of subrogation, whereby property debts, including mortgages, local taxes and community charges, remain with a property and are inherited by the buyer. What steps can a foreign investor take to ensure that they are protected against this? The most important thing is to ensure that the property has a clean title. It is therefore necessary to make sure that the property is registered in the vendor’s name, and that no charges, fiscal debts or other encumbrances exist.

“Our client portfolio is made up of both institutional and private investors, whose needs vary greatly, from those simply requiring ownership of an overseas property, to those looking for development opportunities.” great deal of emphasis on this market. A large number of foreign investors come here to buy property, and as it happens, the majority of our clients are British. Our client portfolio is made up of both institutional and private investors, whose needs vary greatly, from those simply requiring ownership of an overseas property, to those looking for development opportunities. Q.

For a small country the regions of Portugal are immensely varied, from rural Minho and Trás-Os-Montes in the North, to the sandy beaches of the Algarve. Generally, where do most of your clients tend to invest? Generally speaking, the Algarve is still the preferred investment location for most of our investors; however, there is an increase of developments and interest in the Eastern

As an example, when purchasing a property in a condominium, there may well be service charges pending or taxes outstanding. In cases like this we would insert a clause into the contract, stating that after completion the seller remains responsible for all debts accrued whilst he was the property owner. Due to the high demand for new Portuguese properties, many investors tend to buy “off plan” from developers: Q (a). Does the legal process differ when buying a new property? Q (b). What do you believe to be the key benefits attached to buying a property directly from the developer? A. As property prices continue to escalate, more and more people are buying off-plan, thus 83

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securing a property well below its ultimate market value. However, one must appreciate that at this stage construction may not have commenced; the developer might only have a building license.

terms, an agreement of sale is prepared. The buyer is then shown all of the relevant information pertaining to the building, architect designs, alterations if any, official certificates and so on and so forth.

When dealing with important issues, such as planning permission, local searches are vital. It is also necessary to ensure that the contractor makes available the project’s description, specifications pertaining to completion, stage payments on the progression of construction, and guarantees. These should all be attached to the contract.

An application is made for a license of use, i.e. a legal operation license, as otherwise the prop erty is deemed to have ‘no use’. When acquiring rural land, more commonly known as rustic land, an approval document from the city council is required if the property is to be purchased in more than one name.

Documentation, Taxes & Costs… Q.

From a taxation standpoint, what do foreign investors need to know when buying and selling property in Portugal? Of course, a prospective purchaser should be aware of the tax implications involved. For this reason, it is advisable to involve a lawyer and or tax adviser from the outset.

It is worth noting that whereas IMT tax is levied at scale rates for urban property, rustic land attracts a fixed rate of only 5%. New Legislation Q. A.

There are various taxes which are levied on the purchase, ownership and sale of real estate. These include: IMT (Real Estate Transfer Tax), up to a maximum of 6.5%, subject to price and type of property, Stamp duty at 0.8% and IMI (Municipal Property Tax), which varies depending on the property and its location. Capital Gains Tax of 25% for non-residents, based on the difference between purchase price, adjusted by currency devaluation rate, and sales price, is applicable when selling property. Capital Gains Tax may also be applicable to residents but at different rates.

What impact has the new lease law had on Portugal's commercial property sector? It is too soon to comment at length about the new lease law. This law came into force on the 28th of June and other connected laws were published on the 8th of August 2006. Having said that, the new law allows for an increase of the rents, up to a maximum of 4%, payable on commercial contracts celebrated before the 30th September 1995. This increase of rents in older contracts may eventually lead to the termination of said contracts. The new law gives greater freedom to the parties to negotiate the terms of the contract, including the celebration of short term contracts. This can only benefit the commercial property sector. It is however essential that the contract be carefully prepared to safeguard both parties interest.

Commercial & Industrial Property Q. Q (a). Aside from a utilization license, and a certified insertion at the Land Conservatory, what other documentation must a buyer investing in a commercial or industrial property obtain? Q (b). Is Additional documentation required when purchasing a rural property? A. These questions cannot be answered in isolation, as cases differ widely. Generally speaking, however, if buyer and seller agree

In terms of rent, under the new law, landlords are permitted to charge up to 4% of the property's estimated value. The government believes that you should now be able to recoup your investment within 20 years. Do you believe that this is feasible? The new law establishes the method for increasing rents of residential property up to 4% of the property’s value, but this valuation cannot be an estimate. The valuation must be carried out by the Tax Office and must have

REAL ESTATE INVESTMENT

taken place within 3 years of the proposed rental increase and is subject to the status and maintenance of the building. As the annual taxes on property (IMI) are based on the valuation of properties, and old properties are in general those with lower rents and poorer maintenance, the question is raised is it wise to pursue an increase in the rent? Only time will tell how effective this law will beâ&#x20AC;Ś Looking Ahead Q. A.

What does the future hold for the Alexandra Pereira Law Office? My expectations for the future are big, very big indeed! As the property market experiences a huge resurgence, I anticipate a number of large projects coming to fruition. I am looking beyond the local environs to new markets in

other countries, and I have now opened offices in Cape Verde and Brazil. With the bulk of my clientele coming from Britain, I am also contemplating opening offices in London and Dublin. A natural progression would be to expand into other Portuguese speaking countries like Mozambique, for example, where I feel we can make a significant contribution. I am excited about the future, with its vista of new projects and challenges.

Dr. Alexandra Pereira has been inscribed with the Portuguese Order of Lawyers since 1985. The Alexandra Pereira Law Office has been established in the Algarve since 1991. The Head Office is located in Almancil, a town which serves as the service centre for the renowned developments of Quinta do Lago and Vale do Lobo.

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30 | Money Markets

0103_MoneyMarkets_210x297.indd 1

17.12.2007 18:02:25 Uhr

REAL ESTATE INVESTMENT

The UK’s Real Estate Investment Hotspots Seamus Nugent talks to Money Markets

formula that people wanting to invest in property should stick to. You need to stand back and look at the bigger picture, look at where the job growth is and where the country is going. People will always want to live close to where they work, and as more and more people now work in the city, the simple solution is to live there too. This is especially true for the younger generation who are drawn to the restaurants, gyms and clubs that the city centers offer.

Introduction Q.

Kindly define Dandara’s current development strategy and the supply pipeline moving forward. Our philosophy has been to work within the major cities in the UK, focusing on the areas that are experiencing re-generation, e.g. Glasgow, Manchester, Leeds and Birmingham. The big advantage of these cities is that they already have a very good infrastructure in place; this is because they’ve been around for a long time. They all boast major airports and international train stations, so getting in and out of the city centers is very easy.

Obviously London is another prime area, although it is extremely difficult to find sites there. We have a team who are dedicated to finding these sites and are now making successful inroads into the London market. We have a new development in Hemel Hempstead coming to the market in the next few weeks, and next year we will have a prime development in Harrow on the Hill. We will be following on with more and more developments in and around the London area.

The aforementioned cities have come a long way from their industrial past, Glasgow with its ship building and Manchester’s manufacturing and linen mills. All of these industries have now been replaced by financial services, higher education, media, research and development and leisure industries. These institutions tend to employ people in the city centers.

Real Estate Hot Button Issues The major universities have had an impact as well. If you take Manchester for example, its university is the largest in Europe with one hundred-thousand students and sixteenthousand full-time staff. Consequently, a large number of graduates now stay in Manchester to take advantage of the growing number of jobs in the aforesaid industries. The same is true for Glasgow, Birmingham and Leeds; these cities are growing at a phenomenal rate. Ten years ago there were only five or six thousand people living in Manchester’s city center; that number has now increased to thirty thousand, tremendous growth for a ten year period. Our philosophy is to find the best sites within the city centers and develop high quality accommodation. This is our recipe for success, and this is the

In terms of growth prospects, what can we expect from the UK rental market over the next six to twelve months? You just have to look at what is happening at the moment with interest rates. People think that because interest rates are going up there’s a problem, but of course there are two sides to every story. As interest rates go up people are finding it increasingly harder to buy. Consequently, they are being driven into the rental market. It is a known fact that as interest rates go up the cost of renting also goes up. The more people looking to rent, the less stock there is available, thus rents go up –it is simple supply and demand. The long-term outlook for the rental market in the UK is extremely good. There are a lot of

REAL ESTATE INVESTMENT

young people in well paid jobs, but there isn’t the same attitude to saving as there used to be. People now tend to spend what they earn rather than saving. In order to buy a property you have to be able to put down a deposit and we are finding now that less and less people have the available funds in order to do this. Therefore, the property market moves further away from them and they become lifetime renters. Eventually I believe the UK property market will be split into two divisions, those that will rent for the rest of their lives and the landlords who own the properties that they rent. This is the case with the rest of Europe. When compared to the UK, Germany, France and Italy have three to four times more people living in private rental accommodation. Currently, the UK has only 8 or 9% of the population in rented accommodation and this percentage is expected to grow by at least 40% over the next ten years. Therefore, there’s huge capacity for growth. Q. A.

Are there any dangers attached to buying abroad? An increasing number of people are now investing in emerging markets. Although this may seem exciting, most people do not understand what’s involved. They may not be familiar with the language, the laws, and perhaps may not understand the culture or economic trends attached to the region, and this can create certain challenges. For example, people believe that Bulgaria and Poland offer fantastic investment opportunities based upon the fact that they are about to enter the EEC. Therefore, the assumption is that their respective economies will expand exponentially and property prices will go through the roof. In my experience this is not always the case. Ireland entered the EEC in 1972. When I was building houses there thirteen years later (1985) we could not sell them. Around the same time people were leaving to find jobs elsewhere. So, there is certainly no guarantee that entering the EEC will bring instant riches. It will help them to become trading partners and

money will flow in for infrastructure, but it will be a long term process. There are a lot of speculators who are currently buying up land and property, but the prices are not backed up by the local market. You cannot buy something in an Eastern block country for €100,000 and sell it to someone that lives there, because the annual wage does not exceed €7,000. So it’s a false market, prices have been inflated significantly (ten years growth). To see any kind of return on your investment you have to hang in there for a considerable amount of time. Portugal and Spain are very different in that they are far more advanced countries. Spain has around the same population as the UK, yet, not that long ago they were building eight-hundred-thousand properties a year to the UK’s one-hundred and seventy-thousand. A lot of these -Spanish- properties were purchased by investors from the UK, Ireland and Scandinavia, who were buying holiday homes or just speculating. The speculation was good for four or five years and property prices went up by around 20% a year. If you are going to speculate you must have the funds to complete. You don’t know when the market is going to slow down, and this has happened recently. Accordingly, you have a lot of people holding property that they aren’t in a position to complete on. They can’t sell at the moment because the market is completely flat. Again, if you stood back and looked at the bigger picture, if you looked at the build rate and compared it to the natural market capacity, it would be obvious that there was a great deal of risk involved. On the other hand, if you want to buy a holiday home at the moment there are probably lots of bargains out there. Speculating is dangerous, investment is very wise. Seamus Nugent is the Managing Director for Dandara in the Isle of Man region. In addition, Seamus has oververall responsibility for group investment sales at Dandara.

The island of Delos. Treasurer and Custodian of the Athenian Alliance.

REAL ESTATE INVESTMENT

Where to Find the Best Real Estate Opportunities in Europe Ken Wilson

Europe is a fascinating continent filled with culture, history and breathtaking natural landscapes. No matter what you’ve pictured for your ideal home location, you’re bound to find it in one of Europe’s many fascinating countries. Buying real estate in Europe can also be a very good investment if you know where to look for the best property deals. If you are committed to finding a good deal on a European property sale, at properties-eu.com you can browse through thousands of featured properties in Europe in all of the popular locations. Europe has always been one of the busiest and most dynamic property markets in the world. The reasons why people from all over the globe choose to purchase properties in Europe are very diverse. First of all, the continent has a unique and unparalleled appeal. The European history and culture are unlike any other and every European city is profoundly marked by thousands of years of traditions. Furthermore, Europe is a continent well-known for its prosperity and economical opportunities. Living standards are among the highest in the world, especially in the western part of the continent. Europe provides one of the most competitive business environments anywhere and many international companies choose to relocate to European countries. Real estate in Europe is on high demand nowadays because of the many advantages that come with living on the old continent. If you are looking for a reliable real estate source in Europe, you’ll find a wide variety of offers at properties-eu.com. The fact that Europe offers some of the most wonderful places to live anywhere in the world is a given. However, what most people don’t know is that purchasing properties in Europe can also be a very good investment. With the many opportunities the continent has to offer, people from all over the world are becoming extremely drawn to the prospect of relocating in Europe. The European real estate market is currently facing constantly increasing levels of property demands. In Europe you can

find anything from well established urban based residential markets to recently emerging market economies with very high potential. A fact that not many people are familiar with is that the best real estate opportunities in Europe available today are to be found in the eastern European countries. Most of these countries have recently joined the European Union and are just beginning to develop the potential of their market economies. Countries such as Bulgaria or Romania offer incredible real estate investment opportunities and are currently receiving massive foreign assistance for their economical development. Investors who purchase property in these countries have a short to medium term plan and are especially interested in the Black Sea coastal property and Carpathian Mountain resorts. Hungary is another European country where investors benefited from up to 15% growth on their underlying property prices and are currently considering long term investment plans due to recent market developments. Turkey is the most oriental European country and is likely to become part of the European Union in 2010. Just like the other ascending markets, Turkey has great potential and offers some of the most beautiful costal properties in Europe. Many other European countries currently represent incredible real estate investment opportunities; the key is to know where to look for the best offers. Nowadays, there’s no real estate market quite like Europe. The reasons for its skyrocketing popularity are diverse, including the natural beauty of the landscapes and the flourishing economy. Purchasing properties in Europe is considered to be a very good investment according to the latest global real estate trends. The eastern European countries provide emerging market economies packed with incredible opportunities. At properties-eu.com you will find a wide variety of real estate in Europe in the country of your choice.

REAL ESTATE INVESTMENT

Invest in Dubai Property Market Sim Whatley

Located on the southern coast of Persian or Arabian Gulf, Dubai is the 2nd largest of the seven emirates that constitute United Arab Emirates. Dubai has a population of 1.35 million inhabitants of which majority consist of expatriates. Dubai has the biggest population among other cities of UAE. Major parts of Dubai consist of rolling sand dunes. During the last few decades, Dubai has experienced a hasty development in every field of life. Twenty years back and you would find Dubai, a city inhabited by itinerant Bedouin roving across with their flocks and herds. Today, Dubai has become one of the most modern cities in the world. With the continued boom in industry sectors such as tourism industry and Dubai Property industry, Dubai has fast become the center of attraction for millions of people and businessman around the globe. To some extent, Dubai is little different from rest of six Emirates of UAE. Unlike other Emirates, revenues from oil products contribute only 6% of the Gross Domestic Products of Dubai. The major contributors in its GDP are the tourism sector and the Dubai property sector. Later has gain a significant importance in the economical growth of Dubai. Today Dubai proudly holds some of the tallest skyscrapers in the world. With nonpareil facilities and lifestyle on offer in Dubai, many people are planning to make Dubai as their second home. Some are even planning to relocate their. This has resulted in an increase in the property demand in Dubai. The increase in the demand of property for sale in Dubai has forced the hike in price for properties in Dubai. With the announcement of new laws for property in Dubai, Dubai has able to magnetize many property investors around the globe. According to AME Info (leading press release website about Middle East), a massive investment of USD 4 billion has been committed in the Dubai property market since the passing of new laws for property in Dubai.

Dubai Investment Fund has planned to broaden the horizons of property investment across the following three branches of Dubai property market. • Commercial Property in Dubai • Industrial Property in Dubai • Residential Property in Dubai DIF has aimed about 15 to 20% annual growth in the investment funds for Dubai property sector. One of the major developments in Dubai real estate market has been the announcement of new Dubai Freehold Property Zones. Expatriates can own property in Dubai in these zones either on permanent basis or on the basis of 99 years lease. This factor has significantly intensified the Dubai property market. All of a sudden, Dubai property market converted from an average local market into a full of activity international market. With matchless lifestyle Dubai has now become the heaven for millions of people in quest of a trendy and out of this world lifestyle. The Dubai property prices have shown a significant upward trend during the last few years. Dubai property market has seen a 40% increase in the rental price against the Dubai rental properties during the first six months of 2005. The price of property for sale in Dubai has also seen an increase between 20 to 50% during 2006. According to many real estate experts, this is the best time to invest in Dubai property market as prices are set to see more heights during the upcoming ears with ever increasing property demands. Many investors are turning to invest in Dubai property market to take home their share of benefits that Dubai property market has on offer for its investors. There is a lot of profit on offer in Dubai property market if you can play your cards well. All one needs is the careful survey of Dubai property market.

REAL ESTATE INVESTMENT

Las Vegas: The Premier Real Estate Investment Destination Phil Laboon

The most populous city of Nevada, Las Vegas is a name synonymous with the good life. It is one of the world’s popular entertainments, vacation, shopping, and gambling hubs. It comes as no surprise that Las Vegas has emerged as one of the prominent real estate investment destinations of the United States of America. Las Vegas is termed the ‘Entertainment Capital of the World’ and is easily amongst the most glamorous cities of the world. Apart from being the center of gambling in America, it also has superior infrastructure facilities and professional services

fact, the downtown area has seen massive revitalization. Las Vegas was always a hot real estate investment hub, but it has metamorphosed into the definitive city where all real estate investment dreams come true. It now gives you a myriad choice of some very interesting opportunities with reference to preconstruction. As mentioned before, for ages it has been known throughout the world for its happening nightlife, luxurious resorts, and other tourist attraction, but

“Though the real estate investment market has seen a marked cooling in many parts of America, the market in Las Vegas has continued its upward swing.”

that make it an ideal location, for those who want to buy a home. Though the real estate investment market has seen a marked cooling in many parts of America, the market in Las Vegas has continued its upward swing. The confluence of tourism, conventions and gaming has kept the economy in good shape through the numerous downturns it has faced throughout the U.S. periodically. Retail and dining are the two factors

now the efforts are on to regain some of its ‘old glory’. The efforts have become successful and it is now projected as a family destination. Furthermore, an array of premium space available in Las Vegas means that investors are making a beeline for this prime location. An attraction of buying real estate here is that if you go for preconstruction property, then you get it for much lower than the market value.

“Las Vegas was always a hot real estate investment hub, but it has metamorphosed into the definitive city where all real estate investment dreams come true.” that have made a significant contribution to the upsurge in the economic index of Las Vegas. If you make a real investment in Las Vegas, then you can be a part of this continuous economic boom. It can mean a better life for you and your kids. Moreover, Las Vegas is fast redeveloping its image from a ‘Sin City’ to one of a ‘Diversified City’. The local administration is taking pains to diversify the local economy largely dependent on tourism and the returns on gambling. In accordance with this

The major concern of people who want to buy a home in any city, are facilities like health care, education, and affordable living expenses amongst others. Las Vegas gives you the best of medical facilities and it has a host of excellent hospitals, doctors, and clinics within its precincts. As far as education is concerned, numerous colleges, and schools cater to the needs of its residents. It also offers an array of recreational activities for the family. In Las Vegas, you will be spoilt for choice in this regard.

Corporate Perspectives on the Executive MBA

Jason A. Price

The Executive MBA - Where Education Complements Career and Job Search Strategy

Jason A. Price

2007 Executive Education Review

The MBA Selection Process

John Richards & Sue Tempest

Your MBA on the Move

103

Dr Donald Zahn

MBA Trends and Insights

107

EXECUTIVE EDUCATION

Corporate Perspectives on the Executive MBA Jason A. Price, EMBA World

Corporate recruiters, hiring managers, and career professionals are beginning to recognize the Executive MBA as one of the best and fastest growing options in professional development. In the past five years, an average of five new programs have launched from prestigious schools such as Cornell University, Columbia University, and the London School of Economics. Enrollment continues to rise and now it is possible to continue working and growing professionally while earning an MBA in just two years. People who are hiring or supporting staff growth should learn how this type of training can groom middle managers, boost recruitment and retention, and enhance company competitiveness. A recent survey indicates that some employers are not familiar with the potential benefits of support an Executive MBA program for their most promising employees.

or operate on misinformation about the education, its value and benefits to the company. Many firms incorrectly believed that employees must be fully funded to attend an EMBA program. As corporations have withdrawn financial support graduate students have picked up the balance. Now approximately eighty-percent of EMBA graduates self-financed part or all of the education. Many employers did not understand that EMBA programs are designed to accommodate the working professional and are generally weekend or evening programs. Many enterprising employers report they view and use the EMBA in a variety of ways. Top 25 banks, media companies, and pharmaceutical companies surveyed report: • Corporate sponsorship can be used to recognize and reward exceptional performance

“Many employers are confused or operate on misinformation about the education, its value and benefits to the company. Many firms incorrectly believed that employees must be fully funded to attend an EMBA program.” According to the Executive MBA Council, approximately 6,000 full time working professionals including business managers, doctors, lawyers, men and women, and people in non profits graduate each year through any of the 200 EMBA programs throughout the world. However, according to the Department of Labor these graduates represent only 5% of the total 101,000 MBAs conferred annually in any given year. Despite the apparent wide appeal to various disciplines and the practical hands on training for many business professionals, it remains relatively unnoticed. In a recent survey by EMBA World, an organization that provides employees and employers an understanding of business school options, many employers agree more information is needed concerning the Executive MBA. Many employers are confused

and serve as a potent recruitment and retention tool. • Using EMBA sponsorship as a reward, senior managers can create competition to motivate employees. • The EMBA can be used as a tiebreaker when evaluating key employees and determining the appropriate career path. • The Executive MBA is the most rigorous MBA an individual can earn. A senior level corporate officer must ask, “How is the competition grooming mid managers for the senior level? Are competitors sponsoring candidates for Executive MBAs and if so, am I being left behind?”

EXECUTIVE EDUCATION

• The education creates networking opportunities that the savvy employer can treat as a recruitment pool for access to the best and brightest. • The education creates new perspectives and draws from the experiences of other managers which can lead to new concepts and business practices at the company According to James Cecere, a graduate of Duke University Global Executive MBA, “JP Morgan Chase offers a tuition sponsorship program and the application process was incredibly rigorous. I was so impressed by the organized sponsorship application and selection process, I told myself that if I can accomplish this then I can accomplish anything. I went into the EMBA with the backing of my colleagues, my boss, and president of JP Morgan Chase. It became such an honor to represent my company in class and to this day, I continue to value JP Morgan Chase for sponsoring me.” The Executive MBA is a fully accredited two year program that allows employees to work and attend

school on a full time schedule. In addition, the practical, hands on training, compared to a theoretical education geared for a much younger, less experienced group of students, represents a significant benefit for the employee and employer’s investment. Synthia Molina, CEO of Alternative Link, a healthcare intelligence company in California says, “I think the EMBA is an incredibly valuable degree. It means that the candidate is someone with tremendous practical experience, the kind of experience I desire in those I hire. I also think the EMBA offers the company, along with the individual, a richer and more thorough perspective on the issues facing an organization in the internal and external environments and, in particular, in the competitive environment. The EMBA attracts better candidates, retains better employees and results in better performance.” Jason A. Price, MS, MBA, is Director of EMBA World and author of The Executive MBA: An Insider’s Guide for Working Professionals in Pursuit of Graduate Business Education.

CUSTODY

Are Online MBA Programs Worth It? Ajay Singh

An MBA degree has become the most sought after and widely acclaimed degree in the past few years. An MBA degree is an important tool for advancing a career in business. An online MBA degree or program offers the different career opportunities for aspirants who are looking for diversified opportunities in management, marketing, finance and so on. Best online MBA program enable working professionals to stay competitive in present scenario. An online MBA program is a great option for the student whose schedule does not allow for regular and frequent visits to a university or college campus. It saves a lot of time and energy because students need not to go to traditional classrooms and stay there for long classes. You can peruse the following MBA degrees to find the MBA program that fits your professional goals and interests.

structured to give students the advanced knowledge, skills, and practical, experience-based education necessary to accelerate their careers in senior positions in business or management.

MBA - Finance A Finance MBA equips a student with the ability to successfully tangle with corporate finance and related disciplines. You can learn how to apply theories, concepts, analytic methods and problem solving techniques in financial management. You have to involve in many discussions, presentations, and other activities requiring active student participation to get across the fundamentals of advanced financial management.

MBA in International Business This MBA program is tailored to provide students with a broad-based understanding of the economics of international and global business operations and it helps students to manage human and material resources effectively and efficiently within international cultural, legal, and political contexts. In recent past globalization of the economy has created a demand for MBA graduates with a specialization in international management and problem solving. An International MBA can be very helpful for professionals in organizations with international operations. The Master of Business Administration program is developed to provide those individuals the opportunity to study in a program specifically designed for their needs as current or future managers. In this program, emphasis is laid on fundamental curriculum, critical thinking, and decision-making.

Major emphasizes is laid on fundamental accounting and finance concepts, theories, and practices to promote well-informed financial decision-making. Apart from this, students are required to concentrate on managerial finance, investment fundamentals and portfolio management, and global finance. Students are equipped with advanced topics in financial management through real-world business application. MBA - Management This program provides a comprehensive understanding of the craft of marketing and details the working of the modern marketing world. This MBA program includes courses in International Business Operations Management and Legal Aspects of Business Decisions. Online Management MBA program is designed to help students handle the demanding management challenges facing businesses today. The curriculum is 96

MBA-Marketing This program is prepared to meet the needs of working manager or supervisor who could benefit from a graduate business education. Because the tools of the marketing science are applicable to the problems of the public sector as well as the private sector, students whose career interests involve non-profit project are also encouraged to seek admission. Such program requires a practical background in business, and the successful candidates are required to have at least three years of relevant experience.

Many universities are providing above-mentioned MBA degree programs through distance learning or online. You just have to pick up an online MBA program that is best for you.

Ajay Singh is a renowned education author and consultation and providing important information about different aspects of Online MBA diploma and degree programs.

The Leading MBA Providers of 2007 International Review Executive MBA Providers Institution

Full-Time MBA Providers Location

Ashridge Ceibs Chinese University of Hong Kong City University: Cass Columbia Business School Duke University: Fuqua Emory University: Goizueta Henley Management College Hong Kong UST Business School IMD Instituto de Empresa London Business School New York University: Stern Northwestern University: Kellogg Nottingham University Business School Purdue/Tias/CEU/Gisma

U.K. China China U.K. U.S.A. U.S.A. U.S.A. U.K. China Switzerland Spain U.K. U.S.A. U.S.A. U.K. U.S.A. Netherlands Hungary Germany Saint Maryâ&#x20AC;&#x2122;s College of California U.S.A. U.K. Singapore Warwick Business School U.K. University of Baltimore U.S.A. University of California at Irvine U.S.A. University of Chicago GSB U.S.A. Netherlands Hungary Germany University of Pennsylvania: Wharton U.S.A. University of Southern California: Marshall U.S.A. University of Toronto: Rotman Canada

Online MBA Providers Institution

Location

Babson College Cardean University Drexel University Edinburgh Business School Indiana University: Kelly Manchester Business School Marylhurst University University of Baltimore University of Phoenix University of Wisconsin Whitewater

U.S.A. U.S.A. U.S.A U.K. U.S.A. U.K. U.S.A. U.S.A. U.S.A. U.S.A.

Institution

Location

Ceibs Columbia Business School Cornell University: Johnson Dartmouth College: Tuck Duke University: Fuqua Harvard Business School IMD Insead

China U.S.A. U.S.A. U.S.A. U.S.A. U.S.A. Switzerland France Singapore Instituto de Empresa Spain Iese Business School Spain London Business School U.K. MIT: Sloan U.S.A. New York University: Stern U.S.A. Northwestern University: Kellogg U.S.A. Nottingham University Business School U.K. Stanford University GSB U.S.A. UC Berkeley: Haas U.S.A. University of Chicago GSB U.S.A. University of Michigan: Ross U.S.A. University of N. Carolina: Kenan-Flagler U.S.A. University of Oxford: Said U.K. University of Pennsylvania: Wharton U.S.A. University of Toronto: Rotman Canada University of Virginia: Darden U.S.A. Yale School of Management U.S.A. York University: Schulich Canada

Value For Money (MBA) Providers Institution

Location

Ceibs City University: Cass Cornell University: Johnson Cranfield School of Management Dartmouth College: Tuck Esade Business School Iese Business School Insead

China U.K. U.S.A. U.K. U.S.A. Spain Spain France Singapore U.K. Singapore U.S.A. U.K. U.S.A. U.S.A. Netherlands Italy U.S.A. U.S.A. U.S.A. U.S.A.

Leeds University Business School National University of Singapore Northwestern University: Kellogg Nottingham University Business School Purdue University: Krannert Rice University: Jones RSM Erasmus University SDA Bocconi University Stanford University GSB University of Baltimore University of Minnesota: Carlson University of Wisconsin Whitewater

â&#x20AC;&#x153; I thought I was ready for the future. But this experience was a revelation.â&#x20AC;?

McColl Executive MBA Student

â&#x20AC;&#x153; My confidence. Thatâ&#x20AC;&#x2122;s what changed.â&#x20AC;?

McColl Professional MBA Student

â&#x20AC;&#x153; The difference was they clearly focused on what we needed.â&#x20AC;?

McColl Executive Leadership Institute Client

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www.McColl.Queens.edu Accredited by AACSB International

CEO | 9

EXECUTIVE EDUCATION

The MBA Selection Process John Richards & Sue Tempest talk to Money Markets

We encourage and assist students with their programme of study. Highlighting the job they do and the organisation and industry in which they work is very important. There are a number of ways we can facilitate this. Management projects which tackle real business issues, specific to the student’ organisation, help the student and the business tremendously.

Introduction Q.. A.

Kindly tell us a little about your MBA offering? Well, in total, we offer nine AMBA (Association of MBAs) accredited MBA programmes which service over three-hundred participants. Furthermore, we offer some of the best MBA facilities in the UK. All of our full-time MBA programmes (12 months) consist of a set of core modules, a wide choice of elective modules, and an individual or group management project. The core subjects ensure that all participants study essential areas of management. Our semester based part-time MBA is designed to fit around the student’s working life and day-to-day commitments. Therefore, it has been designed with flexibility in mind. For this reason, work can be spread out over a two to four year period. Core modules are usually offered twice during an academic year, once during the day and once in the evening. In order to facilitate part-time work commitments, most elective modules are offered in the evening every two to three years.

Moving forward we will be developing an integrated module that will enable students to incorporate into their management projects what they have been studying based upon a number of different disciplines. The challenge for part-time students, which are employed, will be to integrate as much of the working dynamic into the aforementioned module. Online vs. Full-Time Q.

A number of institutions are considering blended learning, which is a mixture of online and more traditional classroom-based teaching. I think it’s difficult to say that one is better or worse, they all do slightly different things and deliver in slightly different ways. It really depends on what the applicant is looking for and, from a teaching standpoint, the school’s level of competency.

The Executive MBA is made up of twelve, oneweek block modules -seven core modules, five elective modules and a management project. The number of modules taken each year can be varied in order to suit the commitments of the student. Q. A.

What makes Nottingham’s Executive MBA so unique? As I mentioned earlier, our Executive MBA programme is accredited by AMBA. Second, we ask for slightly more work experience than a student enrolled in full time MBA study would be asked for.

Some say that online MBA degrees provide an incomplete experience/ education. Do you agree with this? If you’re talking about distance learning purely, I would say, yes.

Q. A.

Does online education pose a threat to traditional classroom-based teaching? I don’t believe so, I think that people fall into a number of different categories. Some feel that unless they take a year off and commit to full-time MBA study they will never get the

EXECUTIVE EDUCATION

work done. For those that cannot afford to give up work, the modular framework is a far better option. For those that wish to study independently, online delivery methods offer yet another possibility. So, it really depends on the individual, their learning style and the job that they’re doing. Enrolment and the Full Time MBA Q.

Increasingly, students want to obtain an MBA in the shortest possible time. Some consider the opportunity-cost of taking two-years-plus out of the workplace too high. Will interest, and enrollment, in full-time MBA programmes therefore continue to wane? I’m not sure there’s an abundance of evidence to support that theory. To start with, there are only a limited number of institutions that still offer the two year full-time programme; most schools tend to favour the one-year programme. One of the things that our Executive MBA programme offers is flexibility (two-four years), which people find very beneficial. Having up to four years to complete your MBA means that if your circumstances change, you get promoted or change companies, you can slow down things. Conversely, if you have the time, you can speed things up. Again, I think flexibility is one of the most important ingredients students look for, you simply do not know what the future holds, personally and professionally.

As Executive MBA enrollment figures continue to climb, what steps have you taken to support this growth? We are well equipped to deal with any fluctuation in numbers. The challenge for any university is staffing. Do they have the depth necessary to be able to maintain teaching standards? This is why we’ve managed the growth of our classes very carefully. In times of significant demand we split our teaching and divide our classes into workable sizes.

Recruitment Q.

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Recruiters are offering graduates higher salaries for the first time since 1996. Will this trend continue? Whilst there is evidence to suggest that an MBA

can add, and in some cases substantially, to your salary, I don’t think that there has been a sudden change in graduate salaries. Obviously this varies depending on the individual and their pre-MBA experience. Q (a). Business schools typically welcome recruiters with open arms. However, some campuses are starting to resist the early marketing push in order to limit the number of distractions students face. How do you address this issue? Q (b). How important is on-campus recruitment to Nottingham University Business School? A. As a school we are very proactive when it comes to career guidance and have a dedicated team in place for this precise reason. Career support starts at the very beginning of full-time MBA study. The same service is also available to our Executive MBA students. The Future Q.

In terms of programme enhancements, what can existing and prospective students expect from Nottingham University Business School over the next 12-18 months? We believe in steady progress. Over the years we’ve added new modules and improved student support, which we will continue to do. Modules are also offered on a one-off basis. It’s about gradual improvement and maintaining standards. Our new lakeside building on the University's modern Jubilee Campus offers well-equipped computer labs, video conferencing, AV provision, wireless networking, a complete business library, dedicated electronic journals, large lecture theatres with state of the art equipment, MBA break-out rooms and much, much more. This kind of reinvestment will continue. We understand how important it is to provide dedicated, state-of-the-art facilities for our MBA participants.

John Richards is a Special Professor (Strategy Division) with Nottingham University Business School and CoDirector of the Executive MBA Programme. Sue Tempest is an Associate Professor in Strategic Management with Nottingham University Business School and Co-Director of the Executive MBA Programme.

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NSU-HSBE-3651 Senior Manag. Today LO1

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Your MBA on the Move Dr Donald Zahn, University of Wisconsin-Whitewater

In 1998, the University of Wisconsin-Whitewater became the first AACSB accredited school to offer an Online MBA Program. Over the years, the technology and methodology has continued to evolve. At present you can earn an MBA entirely online with an emphasis in Marketing, Finance, Human Resource Management, International Business, Management, Operations & Supply Chain Management, or Technology and Training. Students can choose to combine traditional classes with online classes to complete an emphasis in Accounting, Decision Support Systems, or IT Management. The program’s success has been built upon the pillars of constant training and advanced technology. Faculty Training All Online Faculty at the University of WisconsinWhitewater must complete a new online teacher training workshop. Faculty learn how to apply the latest online teaching tools and methodology. After completing the workshop, faculty develop their first online course. The course is submitted to the Director of Online Education for review. The Quality Matters Assessment Model (www.qualitymatters.org) for online courses is applied for the review. After any required changes or corrections are made, the course is submitted to Quality Matters to be reviewed by three independent reviewers certified as experts in the Quality Matters Assessment Model. According to Kay Kane, former Director of Quality Matters, the underlying principles of Quality Matters Assessment are: The QM toolset and process are: • Based in national standards of best practice, the research literature and instructional design principles • Designed to promote student learning

• Integral to continuous quality improvement • Part of a faculty-driven, collegial peer review process To meet QM expectations, a course does not have to be “perfect” but must be better than just “good enough.” Reviewers decide whether a review standard is met at about an 85% level or better. Institutions best suited to successfully adopting the QM process are ones that: • Strive to improve student learning outcomes and retention • Commit to a systematic and comprehensive continuous quality assurance process that includes faculty training, course development, course revision, and accreditation • Meet current national standards and incorporate new technologies and research findings • Engage in benchmarking activities with peer institutions • Promote ongoing faculty professional development • Encourage flexibility, creativity, and divergent thinking • Efficiently use institutional resources After developing and teaching their first course, faculty continue the learning process throughout their online teaching career. Online newsletters are sent to faculty including technology and training updates. Annual meetings are held to discuss the future path of online education. Faculty attend online education seminars in person and on the web. Perhaps the best training takes place informally as faculty talk with each other and share their online teaching tips. Finally, faculty can always learn more by stopping by the Online Education and Technology Center in the College of Business & Economics at the University of Wisconsin-Whitewater.

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Technology One reason for the constant need for training is the advancements in technology. In 2006, the Online MBA Program switched from a Lotus Notes platform to the Desire2Learn course management system as the primary distance education tool used for online courses. The Desire2Learn course management system provides a complete web-based suite of user-friendly tools. Students enjoy the self-contained learning communities that allow for easy communication, collaboration and assessment According to the Desire2Learn website, some of the most beneficial function of this course management system include: My Home A centralized location for all of the learner's courses. My Home can display relevant updates that include news postings, upcoming events, course links, and much more. Gradebook The Learning Environment gradebook enables novice users to get started quickly, while offering the powerful feature set required to support the demands of the most advanced users. The setup wizard streamlines the process of configuring the gradebook and provides flexible setup options that empower instructors to implement the grading system that best works for their individual course. To save time, instructors can enter grades in a simple spread sheet-style interface or import grades from Microsoft Excel. The gradebook is also integrated with the competency framework, consolidating the two assessment mechanisms and expanding the range of course activities that can be tied to learner competencies. Classlist The classlist tool enables instructors to manually register learners in their course or quickly import multiple users from a text file. This tool also provides a valuable means of tracking learner progress through the course: instructors can identify students who are falling behind and intervene early to ensure learner success. Moreover, the classlist assists in the formation of an online learning community by enabling learners to view a listing of their peers

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and links to peer profiles, homepages, shared files, and other resources. Email The Learning Environment includes a fully-featured email system that your institutions can configure for internal-only or internal and external messaging, or integrate with any existing IMAP system including Microsoft Exchange, Groupwise, and Sun iPlanet. The email tool automatically associates messages and contacts with course offerings, and facilitates continuous communication with the rest of a learner's experience. Discussions Course discussion areas offer a valuable forum for learner and instructor interaction. The discussion tool enables learners to rate one another's message postings, enabling instructors to offer participation incentives and empowering learners to call out key contributions. Instructors can also grade discussions or use the Learning Environment's industry-leading competencies tool to assess discussions using rubrics. In addition, instructors can lock individual topics to end a discussion without taking away a valuable learner resource, and moderate discussions to ensure a positive learning atmosphere. Locker The locker tool provides storage space for learners inside the Learning Environment, enabling them to access their files from any computer, from any location. Group lockers enable learners to easily share files with group members and collaborate on projects. Dropbox The dropbox provides a convenient way for students to submit individual and group assignments from their computer or directly from their locker. Instructors can manage submissions, give feedback and grade assignments, or assess assignments using rubrics, all from a single location. Setting assignment due dates, providing extensions when needed, and evaluating group assignments is made easy through the dropbox.

EXECUTIVE EDUCATION

Quizzes Instructors can assess learners using the quizzing tool, which includes a complete tool it of question styles that can be adapted to any pedagogy. Instructors can create questions of varying difficulty and randomize questions within a quiz. The consolidated question library empowers instructors to store questions in a common location where they can easily be shared across quizzes or reused in self assessments and surveys. To ensure quality, instructors can preview quizzes before releasing them to students. Share quizzes across multiple courses and compare outcomes between classes by leveraging your organizational structure. Self-Assessment The self-assessment tool enables learners to test their comprehension of course material and receive immediate feedback. Self assessments support the full range of questions available in quizzes and can be quickly assembled by reusing questions from the consolidated question library shared with the quizzing tool. Survey Capture valuable course or organization-wide feedback from your user community with the survey tool. The survey tool supports anonymous responses to ensure accurate and honest feedback, integration with course content, and a comprehensive range of standard question types, combined with the ability to email custom invitations and specify the number of responses. Use the tool's convenient built-in reports and statistics to analyze results, or export data to an external system for advanced analysis. In addition to the Desire2Learn Course Management System, the University of Wisconsin-Whitewater began with the vision that multiple learning styles must be accommodated by the technology. While some schools developed text-based online courses, Whitewater believes that students benefit by viewing a myriad of multi-media instructional activities. These activities range from an instructor introduction including a video of the college campus, to an interview with an expert in a specified business area, or a video tour of an international business. When the Online MBA Program began in 1998, faculty often used standard video cameras or

PowerPoint with audio technology to deliver common lecture material. Since that time, the technology has advanced to the point where faculty can now produce multi-media materials including video, audio, and screen capture material. As technology has advanced, the online faculty lectures have also grown to incorporate more complex multi-media which enables better student learning. While technology has enabled faculty to produce higher quality multi-media, textbook authors are making advances in their supplemental textbook offerings. Textbook publishers are slowly realizing that by packaging multi-media including expert interviews and demonstrations with the textbook, faculty are more likely to purchase their material. The textbook publisher’s development of multi-media has lowered the burden on faculty to develop new multi-media material and improved the quality of the multi-media for students. Overall University Standing UW-Whitewater, founded in 1868, is the fourth largest campus in the 26-campus UW System. The university enrolls 10,600 students, employs a staff of 1,200 and has an annual operating budget of $120 million. UW-Whitewater provides 42 undergraduate and 16 graduate degree programs. The campus is also a regional center for cultural and athletic activities. “After some additional research, I found my pot of gold – the University of Wisconsin-Whitewater. From the beginning, the link between UW-Whitewater and myself was a perfect fit,” said Charles Neal. “Here, I could obtain my MBA completely online from an accredited university that was well known, at a comparable cost, fitting my schedule, and without having to travel and put my career on hold.” Most full-time students can complete the program in two years. Part-time students can complete the program in three to four years. Approximately 12 courses are offered each semester. Course tuition is $550 per credit.

Dr Donald Zahn is an Associate Dean at the University of Wisconsin-Whitewater.

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EXECUTIVE EDUCATION

MBA Trends and Insights Dr. Darlene Smith talks to Money Markets

Q Introduction

Q (a). What sets the UB/Towson MBA apart from other programs? A. The UB/Towson MBA is a unique, collaborative partnership between two AACSB International accredited public universities in the state of Maryland. Due to our combined strength, the UB/Towson MBA offers more -more faculty, more specializations, more locations and more choices. Between the two business schools, we have almost 100 faculty members and offer 11 specializations. To our knowledge, we offer more than any school. The University of Baltimore (UB) is based in central downtown Baltimore; Towson University (TU) is approximately 12 miles away in the suburbs of Baltimore. This means is that our students have choices. If students live in the suburbs, they can attend classes in the county. Alternatively, if students live or work in the city, we make it convenient to take classes after work. When you add online learning, there is something for everyone. Our webMBA program was one of the first AACSB accredited online programs. Thus, we offer a quality MBA program to busy working professionals worldwide.

Q (b). Why did you decide to team up with Towson University? A. The University of Baltimore’s Merrick School of Business has been delivering a quality MBA program since 1971; we’ve been in the MBA marketplace for a very long time. Our sister university, Towson University, has the largest undergraduate business school program in the state of Maryland. Given Towson’s size and business acumen and UB’s expertise and experience in delivering graduate programs, we decided to work in partnership rather than compete against each another. Our pooled assets make us undeniably stronger.

Q (c). Organizations have corporate cultures, how would you define UB/Towson’s culture? A. It’s student-centric. We believe that our students are our customers, as are their employers. All of our students, once they have been accepted into the program, meet with an advisor, either in person or online. We talk to our students about their career goals; we look at their previous education, and map out a customized program of study. The Basics Q. A.

When is the best time to enroll in an MBA program? We have a rolling admissions process, we admit students as they apply. Students are admitted into our programs in the fall, spring and summer. Some say it's a good hedge to get an MBA during an economic slowdown. Do you concur with this? Obtaining an MBA is always a smart thing to do whether the economy is booming or not. To succeed in today’s business world, professional business credentials -- knowledge, skills and experience -- are absolutely essential. Unfortunately, in times of recession, the natural tendency is to think about where your next job is coming from. Fear is certainly a motivator. Consequently, the number of applications increases. However, we encourage students to be proactive in the development of their careers, rather than making the decision based on the economy. Today, a master’s degree is essential in terms of career development. In the past, high school graduation was the baseline and a baccalaureate degree was the competitive 107

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advantage. Now the baseline is a baccalaureate degree and the competitive advantage is a graduate business degree.

that can benefit most from an MBA program are often the busiest. Structure

Q. A.

Does having an MBA guarantee a lucrative job offer? The UB/Towson MBA is primarily a part-time program. Our students are already working professionals. The average age of our MBA students is 31. They’ve been working for several years and are looking for career advancement, promotion; they’re not necessarily looking for a new job. It would be appropriate to say that the MBA guarantees consideration for the next career opportunity.

As a part-time program, do your students spend any time in residence? The residential format tends to be more prevalent in executive and full-time MBA programs. Our program is comprised primarily of working adults. To give you a little bit of background, 75% of our students are part-time, 25% are full-time. What that means is that all of our classes are offered in the evenings, on weekends and online. Our full-time students take more classes. The average part-time student takes two courses a semester and the full-time student will take three or four. There is no specific in-residence requirement.

Last year, we added two new specializations. One of them, business security, looks at how organizations protect their assets from a variety of risks, terrorism being one of them. This year we’re exploring environmental sustainability. In fact, last January, our colleagues at Towson University conducted a number of focus groups with corporate business leaders. Our objective is to become a greener MBA program. As part of this process, we need to consider how to integrate environmental sustainability into all of our courses. We are examining whether environmental sustainability should be offered as a specialization. We don’t have all the answers yet, but we’re giving it serious thought.

Signs of Growth Q.

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According to the US-based Graduate Management Admission Council, business school application volumes have increased significantly over the last eighteen months. What do you attribute this to? The economy is certainly one of the drivers. Job security and career advancement, which the MBA helps to facilitate, are also factors. We’re also seeing a rise in the number of female applicants, which we’re really excited about. I think the flexibility of our programs — online and face-to-face— has given us significant traction. We offer that level of flexibility that’s so important today. For example, for working parents, time is limited. Therefore, having the ability to log-on to our site and begin study after the children have gone to bed is a big plus. That’s why we’re so focused on making education accessible. The reality is that those

Given the competitive demands placed upon corporations today, and increasing globalization — both of which require tomorrow's business leaders to be flexible and manage workforces and internal structures that cross cultural and political lines — have you redefined the UB/Towson MBA? We look at our MBA program every year. We actually re-developed the program two years ago and added a course on leading with integrity, a combination of leadership and ethics. We decided that every student should understand what it means to be a leader, in terms of personal, community, and organizational leadership.

Changes to the curriculum are par for the course. In order to meet the needs of the market we expect businesses to continually update their products; we expect them to continue learning and growing. We feel that our MBA program must do the same. We have to practice what we teach in the classroom. Q. A.

How do you address the issue of problem solving with students? Problem-solving is a critical skill set for today’s business professional. While it is integrated into all of our courses, we do have specific courses

EXECUTIVE EDUCATION

that are particularly applied in their orientation. Our capstone course is a practicum-based course where students engage in consulting assignments with organizations. They review and define an organizational problem or opportunity, investigate it and suggest appropriate courses of action. Q.

Part of the globalization of graduate-level business studies includes the propagation of strategic alliances among institutions in different countries. Aside from your domestic partnership with Towson, do you have any plans to join forces with an international partner? We already have strategic alliances with universities in Germany, Portugal, Mexico, Peru, China, Chile, and Argentina. About 20% of our students are international, which is great. We encourage our students to study abroad. We offer international field studies and global practicums. Much of this is made possible thanks to the partnerships we have in place today.

It’s not unusual for prospective students to ask us about AACSB accreditation, or how long we’ve had it. Accreditation adds to our competitive advantage. We are able to attract more students, and better students, particularly online, as a result. There are a lot of online programs out there; unfortunately, many of them are not accredited. However, the UB/Towson MBA program was one of the first AACSB accredited online programs in the world. We need to educate individuals shopping for an online program that they don’t have to sacrifice quality to get an online education. Potential applicants should look for AACSB accreditation as a stamp of quality while looking for a program of study. The Future Q.

A. Accreditation Q. A.

Q. A.

In your opinion, have accreditation standards dropped and if so why? I don’t think that standards have dropped at all, in fact, I think they’re tougher. The AACSB International standards of accreditation could not be more focused; they continue to raise the bar, whether that’s measuring the diversity in our programs, examining the globalization of our curriculum, or exploring the issue of environmental sustainability. Do you feel accreditation is an indicator of quality and do employers use it as a benchmark? AACSB International accreditation assures students and employers that we deliver a quality program that meets their needs. There are a lot of choices out there; consequently, quality varies considerably. As a corollary, employers want to make sure that when they invest in the professional development of one of their employees that the employee’s skill-base, knowledge and level of competency have developed appropriately. This is precisely why employers are beginning to shy away from programs that are not accredited, specifically for business.

What can existing and prospective students expect from the UB/Towson MBA over the next twelve months? As I mentioned, the concept of environmental sustainability and how we introduce it into the program over the next few years will be very exciting. We have advisory boards for key program areas which include business professionals from key industries and disciplines. These partners review course content and program plans, and contribute significantly to the relevance of what is taught in our program. Ongoing assessment and continuous improvement will enable the UB/Towson MBA to remain on the cutting-edge of best practices and contemporary thought.

Darlene Smith, Ph.D. is Associate Dean and Professor of Marketing at the University of Baltimore’s Merrick School of Business. She has extensive experience in delivering management and executive development programs in the United States, Europe, Asia and Latin America. Dr. Smith is a past member of the Board of Directors of the Executive MBA Council.

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Products & Services Covered Bonds Banco Espirito Santo Tel: +351213501157 Web: www.bes.pt Citigroup Tel: +44 (0) 20 7500 2304 Web: www.transactionservices.citigroup.com TXSuite Tel: +49 (0) 4106 7777 219 Web: www2.agens.com

Custody Arion Custody Services Tel: +354 528 2800 Web: www.arion.is Australia and New Zealand Banking Group Ltd Tel: +61 3 9273 1907 Web: www.anz.com Bank of Ireland Tel: +353 1 670 0300 Web: www.boiss.ie

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FirstRand Banking Group Tel: +27 11 371 3451 Web: www.firstrand.co.za National Bank of Greece Tel: +30 210 - 3340283 Web: www.nbg.gr Nordea Tel: +47 22 48 50 00 Web: www.nordea.com Standard Chartered Bank Tel: + 44 207 280 7398 Web: www.standardchartered.com Thomas Murray Tel: +44 (0)20 7830 8300 Web: www.thomasmurray.com Union Bank of California Tel: +1 800 490 8262 Web: www.unionbank.com Wells Fargo Tel: +1-800-368-1225 Web: www.wellsfargo.com

Enterprise Solutions

BHF-Bank Tel: +49 69 718 3738 Web: www.bhf-bank.com

Acrys Consult Tel: +49 (69) 244506-0 Web: www.acrys.com

Citigroup Tel: +44 (0) 20 7500 2304 Web: www.transactionservices.citigroup.com

DBS Bank Ltd Tel: +65 6533 9688 Web: www.dbs.com

Hypoport Capital Market AG Tel: +49 30 420 860 Web: www.hypoport.com

Enterprise Solutions (contâ&#x20AC;&#x2122;d.) Lewtan Technologies Tel: +44 (0) 20 7621 2000 Web: www.lewtan.com TX Suite Tel: +49 (0) 4106 7777 219 Web: www2.agens.com

Executive Education EMBA World Tel: +1 212 996-5784 Web: www.embaworld.com Nottingham University Business School Tel: +44 (0)115 951 5500 Web: www.nottingham.ac.uk/business Trinity College Tel: +353 1 869 1000 Web: www.tcd.ie University of Baltimore Tel: +1 410 837 4200 Web: www.ubalt.edu University of Wisconsin Whitewater Tel: +1 262 472 1945 Web: www.uww.edu

Legal Firms Alexandra Pereira Law Offices Tel: +351 289 399 963 Web: www.alexandrapereira.com Delchev & Partners Tel: +359 2 933 09 79 Web: www.delchev-lawfirm.com

Real Estate Investment Acrys Consult Tel: +49 (69) 244506-0 Web: www.acrys.com Banco Espirito Santo Tel: +351213501157 Web: www.bes.pt Capita Trust Tel: +44 (0) 20 7648 7488 Web: www. capitafiduciary.co.uk Citigroup Tel: +44 (0) 20 7500 2304 Web: www.transactionservices.citigroup.com Dillon Eustace Tel: +353 1 667 0022 Web: www.dilloneustace.ie DTZ Bank Tel: +49 (0) 69 92 100-102 Web: www.dtz.com European Securitisation Forum Tel: +44 207 743 9311 Web: www.europeansecuritisation.com Hypoport Capital Market AG Tel: +49 30 420 860 Web: www.hypoport.com Lewtan Technologies Tel: +44 (0) 20 7621 2000 Web: www.lewtan.com TXSuite Tel: +49 (0) 4106 7777 219 Web: www2.agens.com

Dillon Eustace Tel: +353 1 667 0022 Web: www.dilloneustace.ie 111

List of Contributors A Acrys Consult AIPP Alexandra Pereira Law Offices Arion Custody Services Australia and New Zealand Banking Group Ltd

B Banco Espirito Santo Bank of Ireland BHF Bank

L Lewtan Technologies

N National Bank of Greece Nordea Bank Nottingham University Business School

P Phil Laboon

C Capita Trust Citigroup

S Sim Whatley Standard Chartered Bank

D Dandara Ltd DBS Bank Ltd DTZ Corporate Finance Ltd

T Thomas Murray Trinity College T X Suite

E European Central Bank EMBA World European Securitisation Forum

U Union Bank of California University of Baltimore University of Wisconsin Whitewater

F FirstRand Banking Group

K Ken Wilson

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W Wells Fargo

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