Operations Workshop

Hong Kong, 11th November 2010

Sophisticated infrastructure to support globally distributed funds Moderator: Josée – Lynda Denis, BNY Mellon

Steve Bernat, Citibank Gert Rautenberg, Brown Brothers Harriman Philippe Seyll, Clearstream

Agenda

Introduction 1. Luxembourg’s evolving global infrastructure 2. Global Distribution Support – a unique evolution 3. Building bridges with Hong Kong and Asia

3

Servicing Challenge – The Cross Border Business Model

From manufacturing to cross-border distribution Asset Management Asset UK

Domicile & Fund Servicing Centre

AsiaAsia Fund Services Centres Service Centres

Asia AsiaDistribution Distribution Channels Channels Singapore

(Central administration)

US Hong Kong Singapore

EU

China

Luxembourg Singapore

Hong Kong

Hong Kong

Hong Kong

Taiwan

Taiwan China China Taiwan

China Japan

Investors & Distributors

South Japan

Korea

South Korea

Vietnam 4

The Day of a UCITS Fund has more than 24 Hours Depending on the cut-off time, valuation point and the promoter’s distribution strategy, certain functions and processes may have to be performed in other regions CET Timing

CET Timing

Day 1

Subscription/Redemption Cut-off Valuation Point

Day 2

NAV Release 1

1 2 2 2 2 2 3 4 5 6 7 8 9 10 11 12 13 14 5 16 17 18 19 0 21 2 3 4

1

2 2 2 2 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 0 21 2 3 4

Europe

Europe Americas

Americas

Japan

Japan Asia

Asia Middle East

Account Opening Order Booking Client Servicing In/Out Cash Flow Estimation

Source: ALFI TA Forum – Global TA WG 2009-2011

Middle East

Order Processing Batch Processing

In/Out Cash Flow Confirmation Correspondence Processing

Making Fund Global Distribution Support Happen Cross-Border Fund Servicing Luxembourg – A Global Fund Services Center 6 am EST

12 pm CET

6 pm HKT

Luxembourg Domicile & Central Administration Fund Services Hub

tes e Upda Real Tim

Rea l Tim e

s

m Ti al e R

Fund Services Hub

e

te da p U

Upd at

es

RT U

Fund Services Hub

Fund Services Hub

• Global Operating models, but local servicing • Access to local market expertise within timezone and local language • Superior service taking into account local market practices • Sophisticated technology infrastructure to ensure Asian clients have access to up-to-date information

The evolution of the Luxembourg IM business model Global fund services and global distribution support Sub-advisors

Investment Fund

Management Company /Promoter

Fund/Investment Mgr GLOBAL FUND SERVICES Trustee / Depositary

Paying Agent / Clearing

Lawyers

Custodian/ Depository Bank

Communication Agent

Regulatory Authorities

Fund Admin./Fund Accounting

Transfer Agent

Broker

Auditors

GLOBAL DISTRIBUTION SUPPORT SERVICES

Investors

Distributors Distributors Distributors

Distributors

Authorities Authorities Regulatory Authorities

8

Source: ALFI TA Forum – Global TA WG 2009-2011

Mission Statement The ALFI TA & Distribution Forum liaises with the Luxembourg TA & Distribution Forum community and other related communities and associations in the world bringing together industry peers to share experiences and discuss issues related to global fund distribution operations, specifically those topics affecting Global Transfer Agency and Global Distribution Support Services. It aims to build a bridge between the asset managers & their fund distributors and Luxembourg’s Asset Servicing practitioners community, focusing on the Transfer Agent (TA) and/or Distribution Operations as key partners to support and enhance the global fund distribution of Luxembourg-domiciled funds. Its main intent being to enhance the ease of doing business in Luxembourg domiciled investment products

from a global cross-border fund distribution support perspective.

9

ALFI TA Forum today

TA Forum SOUNDING BOARD Chairwoman (BNY Mellon) ALFI Coordinator BBH BGL BNP Paribas BNP Paribas Securities Services CACEIS Investor Services Citigroup Clearstream HSBC Securities Services KNEIP Communication PricewaterhouseCoopers Schroders Investment Management S.W.I.F.T. Victor Buck Services

Josée-Lynda Denis François Drazdik Gert Rautenberg Thierry Detz Pierre Mottion Caroline Prosperi Etienne Carmon Steve Bernat Brenda Bol Roberto Ricci Mario Mantrisi François Génaux Gary Janaway Michèle de Boe Nicolas Buck

The Luxembourg TA & Distribution Forum (launched in 1999) 145 participants 92 organisations 24 nationalities Across 14 countries/regions

10

The Luxembourg TA & Distribution Forum 145 participants, 92 organisations, 24 nationalities across 14 countries/regions in the world HKIFA/Hong Kong Investment Funds Association

RBC Dexia Investor Services Bank Luxembourg

HSBC Securities Services

RBC Dexia Investor Services Belgium

i-flex solutions ltd

RIVA Financial Systems

ICI IOAC/International Operations Advisory Committee

Robeco Asset Management Rotterdam

IFBL/Institut de Formation Bancaire Luxembourg

Schroders Investment Management Luxembourg

IKANO Luxembourg

Silica Fund Administration Systems, South Africa

Information Mosaic

Standard Life Investments (Scotland)

ING Luxembourg S.A.

State Street Bank (Luxembourg) S.A./IFDS

ICI/Investment Company Institute, US

Sungard Germany

ISSA /International Securities Services Association

Superfund Luxembourg S.A.

KNEIP Communication S.A.

S.W.I.F.T.

Kredietbank Luxembourg

Swiss Risk Ag Frankfurt

Lettershop S.A. Luxembourg

TALK Finance

MFS International Limited, UK

Threadneedle

MFS International Limited, US

UBS Fund Services Luxembourg S.A.

Morgan Stanley Investment Management Ltd

Unicredit Group, Austria

Moventum S.A.

Unico Investment

M&G Investments London

Victor Buck Services

Nordea Bank S.A. - Investment Funds Luxembourg

Vistra Fund Services

Northern Trust Luxembourg Management Company

William Blair

PFPC International Inc. Ireland Pioneer Investment Management Ltd, Ireland PricewaterhouseCoopers PRISMA Sàrl 11

The Luxembourg TA & Distribution Forum 145 participants, 92 organisations, 24 nationalities across 14 countries/regions in the world HKIFA/Hong Kong Investment Funds Association

RBC Dexia Investor Services Bank Luxembourg

HSBC Securities Services

RBC Dexia Investor Services Belgium

i-flex solutions ltd

RIVA Financial Systems

ICI IOAC/International Operations Advisory Committee

Robeco Asset Management Rotterdam

IFBL/Institut de Formation Bancaire Luxembourg

Schroders Investment Management Luxembourg

IKANO Luxembourg

Silica Fund Administration Systems, South Africa

Information Mosaic

Standard Life Investments (Scotland)

ING Luxembourg S.A.

State Street Bank (Luxembourg) S.A./IFDS

ICI/Investment Company Institute, US

Sungard Germany

ISSA /International Securities Services Association

Superfund Luxembourg S.A.

KNEIP Communication S.A.

S.W.I.F.T.

Kredietbank Luxembourg

Swiss Risk Ag Frankfurt

Lettershop S.A. Luxembourg

TALK Finance

MFS International Limited, UK

Threadneedle

MFS International Limited, US

UBS Fund Services Luxembourg S.A.

Morgan Stanley Investment Management Ltd

Unicredit Group, Austria

Moventum S.A.

Unico Investment

M&G Investments London

Victor Buck Services

Nordea Bank S.A. - Investment Funds Luxembourg

Vistra Fund Services

Northern Trust Luxembourg Management Company

William Blair

PFPC International Inc. Ireland Pioneer Investment Management Ltd, Ireland PricewaterhouseCoopers PRISMA Sàrl 12

TA Forum structure TA Forum TA Forum Steering Committee

TA Operations WG 1. Standardisation

Communication WG 1. Communication WG

2. Global Distribution Support/Global TA

Luxembourg TA & Distribution Forum

3. Alternative Investments Operations

TA Forum website

4. Best Practices

TA Newsflash

5. TA Training Programme

Articles

6. TA Regulatory

2. Events

7. TA Reporting

3. Industry Associations: Building Bridges

8. Industry Issues & Developments

13

Operations WG ALFI TA Forum TA Forum Steering Committee

TA Operations WG

Cooperation with other industry associations

1. Standardisation

EFAMA FPSG, ALMUS, Findel Group, AFAC, …

2. Global Distribution Support/Global TA

As applicable

3. Alternative Investments Operations

SWIFT Hedge Fund Automation WG

4. Best Practices

ALFI/ABBL Depository Forum, ABBL Securities WG

5. TA Training Programme

ALFI Human Resources & Training Committee

6. TA Regulatory

IFBL Cercle de Qualité - Transfer Agency

7. TA Reporting

EFAMA FPSG – FPP, DMFSA,…

8. Industry Issues & Developments

As applicable: ECB, ABBL, ALCO, NUG, Building Bridges, Industry task forces, etc.

14

Drivers of change in the Operating Model of the Luxembourg fund industry Supervisory Convergence 2014 More Industry Devs.

MFiD Review

Investor Focus

AIFM

T2S

AI Convergence

Depositaries

FPP DMFSA … PSD

European Retail Distribution

UK Retail Distribution

UCITS IV

Global Distribution

2013

2012

LuxCSD

2011

Regulatory Convergence Source: PricewaterhouseCoopers, Regulatory Update - ALFI TA Forum 2009

15

Current priorities and road map 2010-2011 1.

Luxembourg Funds Operating Model: i. LuxCSD (2010) and Target 2 Securities (2014) i. ECB T2S For Funds Workshops: April and June 2010 ii. T2S For Funds Luxembourg: T2S NUG iii. ALFI TA Forum: Lux CSD/T2S WG ii. Fund services delivery: Global Distribution Support versus Global TA iii. Products: Alternative Investments versus long-only iv. Regulatory requirements and developments v. Marketing and communication: ALFI roadshows, brochure

2.

TA Reporting i. FATCA ii. KID TA iii. DMFSA iv. Investor Compensation Scheme

Current priorities and road map 2010-2011 3.

Standardisation and automation – what next? i. Joint EFAMA-SWIFT Fund Processing Standardization Report Mid-year 2010 status: Luxembourg and Ireland ii. EFAMA FPSG: FPP, Corporate Actions, Single leg transfers, T2S For Funds WG, FPP

4.

Building Bridges - Asia i. ALFI TA & Distribution Forum Asia: launch 1st quarter 2011 ii. ALFI/HKIFA Cooperation Agreement: launch November 2010 iii. Singapore and Taiwan: 2011

5.

Regulatory i. AML EU Directive and AML Luxembourg Law: GTA/GDS impact analysis and guidance ii. UCITS IV iii. AIFMD iv. Other countries’ regulatory developments: USA: FATCA UK: Retail Distribution Review

1. Luxembourg’s Listening totoinvestors Listening investors Evolving Global Infrastructure

Local Servicing using a Common Service Provider (Model 1) 6 am EST

12 pm CET

6 pm HKT

Central Transfer Agent

Model: The official Transfer Agent has delegated certain tasks to a regulated entity within its organisation or to a third party, but responsibility remains with the official Transfer Agent.

Tasks of Sub-transfer Agent (1)  Point of Contact for local customers

Sub Transfer Agent Sub Transfer Agent

Sub Transfer Agent

Sub Transfer Agent

 Collection of client documents and orders  Follow-up with the investor/distributor on NIGO orders  Processing of client instructions (i.e. system input)  Collection of subscription monies and payment of redemption proceeds for local customers

Responsibility of Official Transfer Agent:  Ultimate AML / KYC responsibility (possible to delegate to a regulated entity in a country with equivalent identification requirements and with appropriate contract that governs the mandate)  Oversight responsibility on work performed by the support center (regular due-diligence required)  Data/Transaction processing (i.e. issuance/destruction of units)  Processes such as dividend processing, trailer fee calculation are usually centralised with the Transfer Agent Source: ALFI TA Steering Committee  Cap stock reporting to Fund Accounting

 Reconciliation of local collection accounts  Cash flow forecast/significant fund movement reports  Local client reporting (1) The tasks of the sub-TA depend on the tasks the official Transfer Agent has delegated to its support centre and as such can vary by Transfer Agent and client.

19

Local Servicing using Financial Intermediaries (Model 2) 6 am EST

12 pm CET

6 pm HKT

Model: A financial intermediary (FI) has been appointed by the fund. The FI keeps a separate register and appears on the main register of the fund as a nominee.

Tasks of Financial Intermediaries:  Point of contact for local customers UCITS Financial Intermediary

 Collection of client documents and orders

Funds Financial Intermediary

Financial Intermediary

Financial Intermediary

 AML / KYC responsibility  Validation and processing of client instructions  Collection of subscription monies and payment of redemption proceeds for local customers  Reconciliation of local collection accounts  Local client reporting

Responsibility of Official Transfer Agent:  No oversight responsibility on the FI, as the FI has been formally appointed by the fund  Maintenance of a nominee account for the FI

 Processes such as dividend processing or trailer fee calculation that would usually be centralised are performed locally

 Processing of consolidated orders received from the FI  Data consolidation to provide consolidated reporting to fund promoter

Source: ALFI TA Steering Committee

20

Shared Usage of One TA System (Option 1) 6 am EST

12 pm CET

6 pm HKT

 Sub Transfer Agent’s are more commonly appointed in countries East of Luxembourg  The Central Transfer Agent may delegate the pricing process to a Sub Transfer Agent in the America’s

Central Transfer Agent Sub Transfer Agent

Typical Features

 Common to hold one database with full client records, with segregated/restricted access for sub Transfer Agents

Real Time Updates

Support Sub Transfer Centre Agent

Sub Transfer Agent

Sub Transfer Agent

 STP orders are normally sent directly to the Central Transfer Agent  In Europe and the America’s Sub Transfer Agent’s are appointed to access domestic fund trading systems/to comply with local regulation  Common batch updates are typically run by the central Transfer Agents (daily pricing, dividends, end of day processes)  Generally easier to upgrade systems and maintain them, though less tolerant of systems down time

Central Transfer Agent (Holds Shareholder Register) Local Service Centre with Systems Access Support Centre Provides IT Support and Developments Software Sub Transfer Agent’s\Service Centre Utilise the Same Systems Instance Support Centre Performs Non Client Facing Services (Reconciliations and Controls)

Source: ALFI TA Steering Committee

 Necessary steps should be taken to ensure that data protection is provided for in all jurisdictions  Data centres hosted outside Luxembourg are subject to CSSF approval, rigorous security and access controls  Data extracts generated centrally are transferred to Sub Transfer Agents for printing and despatch locally 21

Independent TA Systems Processing in Parallel (Option 2) 6 am EST

12 pm CET

6 pm HKT

Typical Features  The Central Transfer Agent IT and non client facing support might be in Luxembourg or in an offshore site  Financial Intermediary (FI) often has a dual role as Sub Transfer Agent and Distributor

Central Transfer Agent

 FI updates their system using prices and dividend rates provide by the Central Transfer Agent in parallel OR  FI receives files with priced trades and updated positions post pricing and dividend processing from Central Transfer Agent loads data into their system

Financial Intermediary Separate Systems Financial

Support

Intermediary

Centre

Separate Systems

Financial Intermediary Separate Systems

Financial Intermediary

Separate Systems

 FI produces and dispatch contract notes and Statements and Valuations locally  Central Transfer Agent can upgrade their own system without the need for parallel changes to the FI’s systems  Attention required to any changes to file formats or data content sent by the Central Transfer Agent to FI  Where parallel pricing and dividend updates run in parallel there is a risk of rounding differences  The FI is highly dependant on the Central Transfer Agent providing essential processing data on a timely basis  Data protection is less of an issue as the initiation of data is generated by the FI and this should be reflected in contractual agreements

Central Transfer Agent (Holds Shareholder Register) Local Service Centre (FI) Operating Separate Systems The FI Might also be Appointed as a sub Transfer Agent or/and a Distributor Support Centre may Perform Non Client Facing Services (Reconciliations and Controls) Support Centre Provides IT Support and Acts as a Software Developer Source: ALFI TA Steering Committee

 Central Transfer Agent must have sufficient access to the FI’s Sub Register to assume business operations should the FI fail for any reason  Each FI should have sufficient DR capabilities and plans established and maintained

22

Global Banking and Clearing Network Systems 6 am EST

12 pm CET

6 pm HKT

Typical Features  Luxembourg funds are denominated in all major currencies  The Transfer Agent will need to appoint a bank who can offer services in each currency

Transfer Agent

 Banks provide coverage via bilateral agreements with other banks operating in countries where they have no presence

 Local USD Settlement TA vs Custody



 

 Local USD Settlement FI vs. TA



Local HKD Settlement

FX instruction HKD/USD

 USD wire instruction

 Institutional and sophisticated investors typically have the capability to handle cross border payments  Retail investors require local access to accounts in different currencies for settlement purposes  For example, Promoters who distribute to retail clients in Hong Kong will need to set-up accounts in €, £,$ etc. in Hong Kong to avoid FX processing by the FI

Example of Same Day Connectivity  Investor in Hong Kong buys a Luxembourg based USD denominated fund with local settlement in HKD where the FI is responsible for the FX  FX and Wire instruction by FI

 It is common for sub transfer agents or financial intermediaries to operate local accounts on behalf of the Transfer Agent  Where the relevant Central Bank is closed for holidays, settlement delays may be experienced

 USD settlements locally

Source: ALFI TA Steering Committee

23

2. Global Distribution Support - A Unique Evolution

FROM PAST TO PRESENT FOCUS 1. What does GDS mean for your organisation? 2. What is GDS really all about? 3. How has GDS evolved over the last 2-5 years? 4. What are the typical Asset Managers’ requirements for GDS today? 5. What are the main differentiators between servicing AI versus long-only products in the GDS space?

GDS Mission Statements Prime TA® is designed to assist fund promoters in achieving their international distribution objectives. It groups several services for the asset manager and distributor including legal support, order routing, distribution network management, commission calculation & payment, and online reporting. Our group transfer agency platform, with multi-channel interfaces and on-line trading and reporting facilities, provides consolidated data which allows the asset manager to monitor more accurately the distribution activity of the entire fund range. And with a network of offices across Europe, North America, Bermuda and Asia, we have the local knowledge and cultural understanding to provide adapted services to local distributors and investors.

Global Distribution Service is designed to provide the right solution in the right market to our alternative and traditional Fund clients across the globe. With a global transfer agency platform operating in all of the main regions we can provide solutions to the key challenges of global distribution; fund registration, distributor linkage, regulatory/tax reporting, trail commissions, local time zone and language support. Leveraging flexible technology, automation, local expertise and global management our distribution service is designed to free up our clients to concentrate on what they do best.

26

GDS Mission Statements “The provision of centralised Global Distribution Support Services, thereby extending the reach of our clients into new markets, removing the constraints of multiple time zones, distribution channels and systems, available anywhere and anytime in the world.” As part of our understanding of the requirements for Global Distribution Support in parallel to our Global Transfer Agency service offering across six key global fund servicing hubs in the world in the Americas, Europe and Asia, we have identified a value chain that helps to deliver to Fund Promoters’ concept of entering into new markets through to actually supporting the Distributors’ and their end investors servicing in any jurisdiction in the world.

Our Global Distribution Support Services are deployed through 3 key components and corresponding services which extends our overall global fund services delivery and reach to our Asset Manager clients and their Distributors businesses from facilitating the distribution strategy, providing and maintaining the distribution infrastructure to ongoing Distribution network Management.

The Global Distribution Service is designed to be a "distribution enabler" providing full service solutions to fund promoters and fund buyers.

We help the fund promoter address the challenges in establishing worldwide distribution of their products. Our globally deployed service includes market entry and regulatory assistance, distributor connectivity, trailer fee servicing, and support to the fund promoter and their sales offices in their region and language. For the fund buyer our single platform provides automated order routing, trailer fee support and includes a variety of stock selection and asset allocation tools. Utilising our local expertise and global footprint the global distribution service goal is to bring the fund promoter and the fund buyer closer together and improving the bottom line revenue for both. 27

GDS Mission Statements We understand that distribution drives our client’s business. As asset managers seek to expand into new markets, our Distribution Support Service leverages our global infrastructure and local market expertise in over 100 countries to help our clients achieve their business growth objectives. Based around dedicated Distribution Support centres in Europe, The Americas, and Asia, providing local language, market expertise and time-zone support, with scalable technology including online trading and reporting facilities, our Distribution Support teams manage relationships with over 2,000 distributors in over 60 countries, providing the following core services: Assistance with market entry strategy, Fund registration Introduction to new distribution channels, Order routing, Distribution network management, Regulatory/Tax reporting, Commission calculation and payment, Flexible reporting for Distributors and Investors.

28

Transfer Agency Services – Today’s Global Giant!  In the past, TA’s were pure processing agents, considered as the back-office of the fund administration back-office. Now, the TA function it is considered the most front office of back office  With the UCITS “success story”, funds are now distributed across Asia, the Middle East, the Americas with further expansion within Central and Eastern Europe  As a result TA’s nowadays are actively supporting distribution, which has created a number of challenges for them – Servicing investors locally in the major time zones – Often moving from a single site to multiple site servicing model – Creation of new processes and operating models including IT

29

Global Fund Distribution – Impact on Service Offering A number of challenges have to be addressed to successfully service a global customer base  TA’s are moving up the value chain and are expanding their service offering – TA’s have evolved from being a pure processing agent to an enabler for asset managers to expand their business by growing assets, which positions them closer to the distribution space – Asset Managers enter new markets, where distributors lack the required infrastructure (e.g. MENA) – TA’s are forced to take on more distributor back-office processes and functions and also have to support the technology infrastructure – TA’s are taking over a increasing number of distributor back-office processes and functions (e.g. negotiation of distribution agreements, technology infrastructure) – The crisis has kicked-off another outsourcing wave and this trend will continue  The emergence of Specialised Service Providers – TA’s focus has shifted, which is why they are outsourcing processes they have previously managed in-house (e.g. trailer fees, middleware)  The evolution of STP rates for third party fund distribution – Low increase in STP rates – STP rates will increase in mature markets, but are offset by lack of automation in new markets, where cross-border funds are distributed – On the other hand, platforms within countries will most likely be a lot more prominent going forward, consolidating orders prior to sending to the TA’s (e.g. Hong Kong – HKMA) and as such the transaction volume should decrease

30

Who is the Investor? Fund

Transfer Agent Americas

Europe

Asia

Sub TA

Sub TA

Sub TA

Platform

Platforms

Platforms

Banks

Banks

Banks

Investor

Investor

Investor

• Major challenge today is identifying the investor, as they are moving further away from the fund and TA • Promoters are required to place even greater emphasis on their relationship management process • Service is required where distribution and sales occur • Need for data/information has never been greater in order to best service the investor

Source: ALFI Spring conference March 2010 – Around the world in 24 hours, presented by Geoff Cook, BBH

31

The Expanding Transfer Agency Value Chain The TA’s have changed focus! Expanding Services Distributor Back-Office

• • • • •

Negotiation of distribution agreements Sales Reporting Commission schemes Collection of orders Technology Infrastructure

Core Services Distribution Support

• • • • • •

Tomorrow’s Focus

Distributor relationship management Distributor on boarding Sales and marketing support Commission and trailer fee processing In-region servicing support (Europe, Asia, Americas) Registration assistance

Today’s Focus

Expanding Services

Investor Servicing

Trade Processing

Cash Management

Information Delivery

Asset Mgmt Support

•

•

•

•

•

• • • •

KYC / AML review Account opening Shareholder account maintenance Ongoing review of client files Compliance checks e.g. transaction trend monitoring

• • • •

Transaction processing and account maintenance Dividend distribution/ re-investment Shareholder and Distributor reporting Cash flow projections Asset manager cash flow reporting

Yesterday’s Focus

• • •

Fund cash movements Shareholder and Distributor payments Reconciliation of collection accounts Foreign exchange handling

• • •

•

On-line data access and reporting Customized reporting Customized data feeds Consolidated data warehouse (e.g. consolidated data across jurisdictions) Executive MIS

Today’s Focus

• •

Product design (e.g. side pockets) Liquidity / Cash Solutions Distribution network mgmt.

Tomorrow’s Focus

32

Global Fund Distribution – Impact on Operating Models A number of challenges have to be addressed to successfully service a global customer base Major Impacts of the Increasing Volume of Cross-border Trades

Increased Exposure to Operational Risk due to Increasing Pressure on Daily Operations

Increased Difficulty to Recruit and Retain Adequate Resources in Terms of Quantity and Quality (Experience and Competencies)

76%

59%

 TA’s have started to offshore processes and functions for efficiency gains and cost savings – UCITS IV may speed up this process  Distribution has an impact on future operating models, however, they are just an evolution of today’s global distribution support models (i.e. additional client support centres will have to be added)  The difference in culture and client mentality is an education process that is not to be underestimated

Increased Pressure on the IT Architecture to Sustain the Volume of Trade Generated and to Efficiently Handle the New Investment Products

53%

Increased Exposure to Compliance Risk

53%

 Operational procedures and controls have to be adapted to reduce the increased risk  Staff needs to be trained to understand different market requirements, but also has to change mentality to support shared operating models  Significant Technology enhancements may be required to support crossborder fund distribution 33

CURRENT FOCUS 1. What are the new/emerging frontiers for cross-border distribution? 2. Do you anticipate major changes in the GDS service offering in line with the two emerging roles of the “official TA” and “regional TA”?

UCITS - The Journey 2003

Source: ALFI Spring conference March 2010 – Around the world in 24 hours, presented by Geoff Cook, BBH Source: Global Fund Distribution Poster 2003 - PwC

UCITS - The Journey 2010

Source: ALFI Spring conference March 2010 – Around the world in 24 hours, presented by Geoff Cook, BBH Source: Global Fund Distribution Poster 2003 - PwC

36

UCITS - The Journey 2015?

Source: ALFI Spring conference March 2010 – Around the world in 24 hours, presented by Geoff Cook, BBH Source: Global Fund Distribution Poster 2003 - PwC

37

Growth in Distribution of Off-shore Funds – Predictions 2015 China and Brazil are the two major high growth prospects

Eastern Europe

Asia Pacific

Middle East

LATAM

High

– Brazil and China.

Medium

– Turkey, Jordan, Kuwait, Saudi Arabia, Bahrain, U.A.E., South Korea and Taiwan.

Emerging – Mexico, Egypt, Malta, Bulgaria, Slovenia, Hungary, Czech Republic, Poland, Lithuania, Estonia, Latvia, Slovak Republic, Romania, India, Indonesia and Australia.

38

Local Servicing – Expansion to growth markets 6 am EST

12 pm CET

6 pm HKT

Central Transfer Agent

Sub Transfer Agent

Sub Transfer Agent

Sub Transfer Agent Sub Transfer Agent

Sub Transfer Agent

Sub Transfer Agent Sub Transfer Agent

Sub Transfer Agent

Sub Transfer Agent

Sub Transfer Agent

39

Regional Servicing – Follow the sun model 6 am EST

12 pm CET

6 pm HKT

Central Transfer Agent Regional Sub Transfer ClientsupportAgent

Sub Transfer Agent Sub Transfer Agent Sub Transfer Agent

Sub Transfer Agent

Regional ClientSub Transfer support Agent

Operational support

Sub Transfer Agent Sub Transfer Agent

Sub Transfer Agent

Sub Transfer Agent

Central Transfer Agent (Holds Master Shareholder Register) Local Sub TA with remote access to Central TA system or local purpose fit system Regional Support Centre provides Client and Operational/IT Support for region Sub TA’s could connect remotely to master register or connect the local system with real time messaging Internal work- and data flows enabling the regional support centre

40

TOMORROW’S FOCUS 1. How will UCITS IV change and/or enhance the GDS value chain in future? 2. Any other regulatory and industry developments on the horizon that will impact GDS in the near future?

3. Building Bridges

Listening Listeningtotoinvestors investors with Hong Kong and Asia

Luxembourg funds’ Servicing and Administration in Asia Luxembourg service providers based in Asia



BNP Paribas Securities Services



BNY Mellon Asset Management and BNY Mellon Asset Servicing



BBH



Citi



CACEIS



European Fund Administration



HSBC Securities Services



KNEIP



RBC Dexia Investor Services



State Street Bank/IFDS



Société Générale



Victor Buck Services, etc. 43

Why a TA Forum Asia? To build bridges with the key markets that are promoting, distributing and servicing Luxembourg-domiciled funds Background History  Market intelligence gathering since 2007 by ALFI TASC members during various Asia tours (ALFI, EFAMA, LFF, Fund industry conferences, etc.) and individual ALFI TASC member organisations’ business development endeavours across Asia:  Target « mature » markets and key participants in the growth of Luxembourgdomiciled funds over the last 15-20 years: Hong Kong, Taiwan, Singapore, Japan  Local requirement for fostering knowledge sharing of common subjects affecting local/regional business development for Luxembourg UCITS in Asia  Luxembourg ALFI TASC member organisations and their Asia counterparts committed to support a dedicated ALFI TA Forum Asia  The ALFI TA Forum Asia concept positively received by key participants in Hong Kong and Singapore through meetings held by practitioners during the LFF Asia Tour 2009

44

Why a TA Forum Asia? To build bridges with the key markets that are promoting, distributing and servicing Luxembourg-domiciled funds in Asia Background History  ALFI TA Forum Asia proposal instigated by Josée Denis in February 2009 following discussions with HKIFA, IMAS and local organisations (e.g. Blackrock, Allianz, Invesco, SWIFT, etc.) during various Asia tours since 2007  Meetings held with IMAS and HKIFA since 2007 on the topic  HKIFA now part of the Luxembourg TA & Distribution Forum community  Ongoing discussions with Investment Management Association Singapore (IMAS)

45

Why a TA Forum Asia? Objective & goals To establish an alliance in order to instil a process of cooperative exchange. The main goals on this alliance being:  To foster common understanding of our respective investment funds markets and the service delivery requirements  To advance mutual education on hot topics affecting the fund industry  To address industry issues of mutual interest and/or benefit  To disseminate relevant information to the membership of our respective fund industry associations

46

Why a TA Forum Asia? Proposed approach  Proposal to ALFI Board 8 February 2010: Obtained acceptance and approval to go ahead with Hong Kong, Singapore and Taiwan by 4Q2010-4Q2011  Formalise a cooperation agreement between associations – initiate with HKIFA

 DRAFT ALFI/HKIFA Agreement, Sept. 2010  Formalisation during ALFI Asia Roadshow November 2010  Establish an ALFI TA Forum Asia framework – see next  ALFI TASC Luxembourg ownership and coordination  Yearly ALFI TA Forum Asia – same as ALFI TA Forum in Luxembourg  Ongoing dissemination of relevant information via the ALFI TA Forum website and TA News Flash  Hot Topics conferences, webinars, etc. - as applicable

47

ALFI TA Forum Asia – Hong Kong

TA Forum

SOUNDING BOARD

TA Forum Asia ALFI TA Forum Chairwoman (BNY Mellon)

Josée-Lynda Denis

ALFI Coordinator BBH BNP Paribas Securities Services CACEIS Investor Services Citigroup Clearstream Banking HSBC Securities Services KNEIP Communication PricewaterhouseCoopers Schroders Investment Management State Street Bank / IFDS S.W.I.F.T. Victor Buck Services

François Drazdik Local – Hong Kong Local - Singapore Local – Hong Kong Local – Hong Kong Stanley Poon/Hong Kong Philippe Bonval/Hong Kong Local – Hong Kong Local – Hong Kong Local – Hong Kong Local - Singapore Lisa O’Connor/Hong Kong Patrick Seil/Singapore

The Luxembourg TA & Distribution Forum

Asia Participants List

48

Thank you for your participation.

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Hong Kong, 11th November 2010

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