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INEUM Kurt Salmon                           QUADRICHROMIE
                                               INE_06_0409_Logo_CMYK
                                               14/12/2010
                                24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
                                Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
                                Web : www.carrenoir.com
                                                                                           M65 Y100
                                        Ce fichier est un document d’exécution créé sur
                                         Illustrator version CS3.
                                                                                           K100




                             Kurt Salmon
            Investment Servicing Business
                Confidence Index - Survey
             Building and maintaining sustainable business
            in the asset servicing and management industry




July 2011
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                     INEUM Kurt Salmon                           QUADRICHROMIE
                     INE_06_0409_Logo_CMYK
                     14/12/2010
      24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
      Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
      Web : www.carrenoir.com
                                                                 M65 Y100
              Ce fichier est un document d’exécution créé sur
               Illustrator version CS3.
                                                                 K100




     About Us

    Kurt Salmon is a global management consultancy of more than 1,600 consultants in 15 countries across five
    continents. Our clients are industry leaders who benefit from our deep industry and functional expertise. As trusted
    advisor, Kurt Salmon partners with clients to design, and then drive strategies and solutions that make lasting and
    meaningful impact. We are committed to deliver measurable results for our clients through executional excellence.
    Kurt Salmon is part of Management Consulting Group Plc, listed on the London Stock Exchange.




2
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                                                                                                             INEUM Kurt Salmon                           QUADRICHROMIE
                                                                                                             INE_06_0409_Logo_CMYK
                                                                                                             14/12/2010
                                                                                              24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
                                                                                              Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
                                                                                              Web : www.carrenoir.com
                                                                                                                                                         M65 Y100
                                                                                                      Ce fichier est un document d’exécution créé sur
                                                                                                       Illustrator version CS3.
                                                                                                                                                         K100




Contents
Research Background	                                                                                                                                                     4

Executive Summary	                                                                                                                                                       5

A snapshot of industry attitudes and key concerns	                                                                                                                       7
  Optimism to creep through from a current low	                                                                                                                           7
  Market is split as asset servicers identify opportunities	                                                                                                              8
  National optimism differs whilst caution remains a general trend	                                                                                                       9
  Key concerns are consistent throughout the industry	                                                                                                                   10


Navigating in turbulent times - actions taken by the industry	                                                                                                           12
  Earnings growth will be limited with some players expecting more	                                                                                                      12
  Transfer concerns into harmonized strategies – the industry approach	                                                                                                  13
  Enhancing the existing value proposition as an effective approach to sustainable growth	                                                                               14
  Regulatory changes pose a challenge and opportunity	                                                                                                                   15
  Operational efficiency is a key to cost reduction	                                                                                                                     16
  Take care of the customers	                                                                                                                                            17


An industry approach to building and maintaining sustainable business	 19
  Case study - Brown Brothers Harriman: partner in the pursuit of business sustainability	                                                                               19
  Kurt Salmon, the business sustainability process	                                                                                                                      22




                                                                                                                                                                              3
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                     INEUM Kurt Salmon                           QUADRICHROMIE
                     INE_06_0409_Logo_CMYK
                     14/12/2010
      24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
      Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
      Web : www.carrenoir.com
                                                                 M65 Y100
              Ce fichier est un document d’exécution créé sur
               Illustrator version CS3.
                                                                 K100




                 Research Background
    The investment servicing industry has been under considerable pressure in recent times. During May and June of
    2011, Kurt Salmon conducted a survey in an effort to gauge current sentiment and expectations over the coming
    6 months.

    Senior Executives representing both Asset Managers, Asset Management Companies and the providers of Asset
    Servicing were questioned on topics such as business environment and earning expectations, areas of concern and
    the strategies that have been put in place.

    The report provides a barometer of views on the current situation and plans for the near future with an aim to
    identify key strategies that will endure beyond the coming six to nine months.




    Figure 1

                                                                                                                                    Number of financial institutions polled
    28 participants

    Senior Executives were                                                                •
                                                                                           CEO
    polled 	                                                                              •
                                                                                           COO
                                                                                                                                                                      Asset Manager
                                                                                          •
                                                                                           Country Head
                                                                                                                                                         36%
                                                                                          •
                                                                                           Head of strategy and products               64%
                                                                                                                                                                      Asset Servicing
                                                                                          •
                                                                                           Head of regulatory affairs
                                                                                          •
                                                                                           Head of sales and distribution

    Assets size

    Asset under Management (USD                                                           • 1.6
    Trillion)

    Asset under Custody                                                                  • 107.3
    Administration (USD Trillion)

    9 countries                                                                                                                                  Countries coverage

    Countries coverage                                                                    Australia, Belgium, France, Ireland,                     4%                 UK/Ireland
                                                                                                                                              4%
                                                                                          Japan, Luxembourg, Portugal,                                                Luxembourg
                                                                                                                                        11%             21%
                                                                                          Switzerland, UK
                                                                                                                                      3%                              France
                                                                                                                                      7%                              Belgium
                                                                                                                                                                      Portugal
                                                                                                                                           14%          36%
                                                                                                                                                                      Switzerland
                                                                                                                                                                      Japan
                                                                                                                                                                      Australia




4
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                                                                                                                 INEUM Kurt Salmon                           QUADRICHROMIE
                                                                                                                 INE_06_0409_Logo_CMYK
                                                                                                                 14/12/2010
                                                                                                  24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
                                                                                                  Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
                                                                                                  Web : www.carrenoir.com
                                                                                                                                                             M65 Y100
                                                                                                          Ce fichier est un document d’exécution créé sur
                                                                                                           Illustrator version CS3.
                                                                                                                                                             K100




   Executive Summary
Asset Mangers and Asset Servicers alike, find the current business climate difficult with neither expecting a
significant improvement for the second half of 2011. On the other hand, the level of skepticism differs with Asset
Service providers registering as marginally cautions rather than full out pessimistic. Asset Managers are clearly
expecting the doldrums to persist well into 2012.

For a good part, low interest rates, general market instability (in particular the European financial situation) and
regulatory burden are responsible for poor expectations across Europe, Australia and Japan. A closer look reveals
a somewhat polarized landscape - clearly some countries are dealing with particular issues; Japan and Portugal for
example, whilst other regions and in particular Benelux expect a better than average improvement.

In addition to agreeing on industry concerns that appear less than positive the market also appears to be in agreement
regarding earnings growth expectations which remain mostly cautions. With fewer external opportunities the
asset management industry will turn to its core services and infrastructure with an aim to maximize the potential
of existing products through enhanced distribution - BRIC and CIVETS markets are key - and focused pricing. In
parallel to the expected revenue increase, cost reduction, which means streamlining operations, will result in a net
gain.

One sign of an industry trying to draw competitive advantage from wherever it might arrive appears in the form of
FATCA, AiFMD and UCITS IV/V. More industry participants will find ways to have regulatory reform work for them
than not.

At the end of the day the customer matters. Every player in the investment servicing business will make sure that
the customer experience is close and quantifiable.



                                                                                       Michel Kabanga KAYEMBE
                                                               Investment Funds Advisory Services, Practice Leader




                                                                                                                                                                             5
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                   INEUM Kurt Salmon                           QUADRICHROMIE
                   INE_06_0409_Logo_CMYK
                   14/12/2010
    24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
    Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
    Web : www.carrenoir.com
                                                               M65 Y100
            Ce fichier est un document d’exécution créé sur
             Illustrator version CS3.
                                                               K100




6
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                                                                                                                           INEUM Kurt Salmon                           QUADRICHROMIE
                                                                                                                           INE_06_0409_Logo_CMYK
                                                                                                                           14/12/2010
                                                                                                            24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
                                                                                                            Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
                                                                                                            Web : www.carrenoir.com
                                                                                                                                                                       M65 Y100
                                                                                                                    Ce fichier est un document d’exécution créé sur
                                                                                                                     Illustrator version CS3.
                                                                                                                                                                       K100




   A snapshot of industry attitudes and key concerns

Optimism to creep through from a current low
Tough market conditions have almost become the norm with ongoing economic crises raging through Europe.
The investment servicing industry as a whole is contending with one regulatory reform after another which adds
change on top of an already unstable base. Emerging markets continue to grow but not without a few faltering
steps, adding to an air of nervousness, further compounded by unprecedented natural disasters, such as Japan.

In the face of adverse conditions industry confidence is not surprisingly low and should remain that way though
there does seem to be a glimmer of hope from some industry contenders over the next six to nine months.




Figure 2

      Perceptions about the current business conditions                             Over the next 6 months




                        33.0                                                                         52.7




Key findings from our research

•  arket pressure and few opportunities are putting a squeeze on the investment servicing industry as reflected
  M
  by a negative perception of the current business conditions.
•  ver the next 6 months conditions are expected to improve with an increase of 19.6 points.
  O
•  arket pressure pushes industry players to pursue their effort in containing cost while looking for new sources of
  M
  revenue with a focus on the value proposition in light of limited opportunities.




                                                                                                                                                                                       7
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                     INEUM Kurt Salmon                           QUADRICHROMIE
                     INE_06_0409_Logo_CMYK
                     14/12/2010
      24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
      Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
      Web : www.carrenoir.com
                                                                 M65 Y100
              Ce fichier est un document d’exécution créé sur
               Illustrator version CS3.
                                                                 K100




    Market is split as asset servicers identify opportunities
    Asset Servicers have converted changes, whether directly positive or negative, into opportunities whilst Asset
    Managers have not. As a result Asset Servicers expect some improvement in business conditions, a factor that
    creates a clear distinction within the investment servicing industry.



    Figure 3

                                                                                 Over the next 6 months – Asset Managers                      Over the next 6 months – Asset Servicers




                                                                                                                                                              38.4

                                                                                        14.3




    Key findings from our research

    • Asset servicing providers and asset managers are separated by a difference of 24.1 points.
    •  sset managers are considerably more pessimistic as they don’t see any future structural changes over the next
      A
      6 months. The asset management industry will have to demonstrate its capability to cope with the uncertainty
      through new sources of revenue with a clear approach for survival. Their confidence is to improve with an increase
      of over 4.5 points.
    •  sset servicers expect an increase of middle office outsourcing and plan to extend their global service offerings
      A
      capabilities despite great regulatory burden. Their confidence is to improve with an increase of over 15.2 points.




8
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                                                                                                                           INEUM Kurt Salmon                           QUADRICHROMIE
                                                                                                                           INE_06_0409_Logo_CMYK
                                                                                                                           14/12/2010
                                                                                                            24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
                                                                                                            Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
                                                                                                            Web : www.carrenoir.com
                                                                                                                                                                       M65 Y100
                                                                                                                    Ce fichier est un document d’exécution créé sur
                                                                                                                     Illustrator version CS3.
                                                                                                                                                                       K100




National optimism differs whilst caution remains a general trend
A common trend of low interest rates, general market instability and regulatory burden ties regions – caution
prevails. However, different regions are facing different challenges a fact reflected by varying levels of optimism.



 Figure 4

                        Confidence Level Frontier



                            25%                          33%                           42%                                    Benelux




                                    17%                   50%              33%                                                UK / Ireland




                                  25%              50%              25%                                                       France




                                   0%       50%           50%       *                                                         Australia / Japan



                                  33%     33%      33%                                                                        Switzerland




              *          100%                                                                                                 Portugal



   * Limited sample set of 1 or 2 participant(s)
                                                               Pessimist    Cautious           Optimistic




Key findings from our research

•  ocal market conditions are considered favorable by 42% of organizations surveyed - Luxembourg, as the largest
  L
  fund administration platform in Europe remains optimistic.
• In Luxembourg, Asset servicers are expecting:
    • Asset funds to return to pre-crisis levels and to win new mandates (small, medium and large size).
    • Demand for Specialised Investment Funds (SiF), private equity structures to increase.
    • Modest increases in interest rates are expected to have a positive impact on net interest income revenue.
• All other regions remain cautious.




                                                                                                                                                                                       9
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                      INEUM Kurt Salmon                           QUADRICHROMIE
                      INE_06_0409_Logo_CMYK
                      14/12/2010
       24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
       Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
       Web : www.carrenoir.com
                                                                  M65 Y100
               Ce fichier est un document d’exécution créé sur
                Illustrator version CS3.
                                                                  K100




     Key concerns are consistent throughout the industry
     Regardless of the industry sector or region the core concerns are evident. Asset managers and service providers
     are harmonious about the root cause of negative sentiment in the prevailing business environment.



       Figure 5
                                                                                                                        Industry main concerns                               Asset mgt   Asset servicing




                                                                                  Regulatory burden  cost related       50        50         N=2



                                                                                                Client nervousness            67              33       N=3



                                                                                       General market uncertainty                  43                                   57     N=7



                                                                                           Stock market downturn                   100             0    N=3



                                                                                                 EU financial crisis                                         62                              38            N=13



                                                                                      Japan tsunami, nuclear crisis                75                   25        N=4



                                                                                    Middle east political instability         50                   50             N=4



                                                                                                  Low interest rate                      36                                     64                N=11




     Key findings from our research

     •  6% of the participants are concerned about the EU financial crisis, the low level of interest rates and general
       6
       market uncertainty.
     •  he industry is clearly sensitive to the market conditions. This means it is imperative that asset managers and
       T
       asset servicers be able to assess the sensitivity of earnings whatever the business conditions in which they
       operate.
     •  egulatory burden and related cost have been accepted as embedded to the financial sector.
       R




10
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                                                                                     INEUM Kurt Salmon                           QUADRICHROMIE
                                                                                     INE_06_0409_Logo_CMYK
                                                                                     14/12/2010
                                                                      24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
                                                                      Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
                                                                      Web : www.carrenoir.com
                                                                                                                                 M65 Y100
                                                                              Ce fichier est un document d’exécution créé sur
                                                                               Illustrator version CS3.
                                                                                                                                 K100




                                                                                                                                                 11
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                      INEUM Kurt Salmon                           QUADRICHROMIE
                      INE_06_0409_Logo_CMYK
                      14/12/2010
       24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
       Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
       Web : www.carrenoir.com
                                                                  M65 Y100
               Ce fichier est un document d’exécution créé sur
                Illustrator version CS3.
                                                                  K100




                    Navigating in turbulent times - actions taken by the
                    industry
     Earnings growth will be limited with some players expecting more
     Most participants expect little change in the top line however some have clearly identified viable areas for growth.
     With tough external factors the asset industry will have to turn inwards and innovate with what it already has.



                Figure 6
                                                                                                           Earning growth expected over                  Asset servicing               Asset mgt
                                                                                                           the next 12 months


                                                                                                                                                                     14.0
                                                                              Extremely optimistic
                                                                                                                                                                                                   20




                                                                                                                                                              13.2
                                                                                       Optimistic
                                                                                                                                                      11.5




                                                                                                                                         8.5                                A cautious outlook prevails
                                                                                         Cautious
                                                                                                                      4.1




                                                                                                               2.5
                                                                                       Pessimistic
                                                                                                               2.5




                                                                                                     0.0
                                                                  Extremely pessimistic
                                                                                                     0.0




     Key findings from our research

     •  onsidering that a cautious outlook prevails, the average earnings expected range from 4.1% to 8.5%.
       C
     •  onfidence in structural changes remains low however, the industry expects an optimistic 14% to 20% growth.
       C
     •  ey Metrics effecting the positive upswing include:
       K
         • ncrease in revenue per AuM
           I
         • ncrease in average revenue per client
           I
         • Increase in net sales per product (fund)




12
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                                                                                                                                   INEUM Kurt Salmon                           QUADRICHROMIE
                                                                                                                                   INE_06_0409_Logo_CMYK
                                                                                                                                   14/12/2010
                                                                                                                    24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
                                                                                                                    Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
                                                                                                                    Web : www.carrenoir.com
                                                                                                                                                                               M65 Y100
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Transfer concerns into harmonized strategies – the industry approach
The asset industry will continue to operate in a restrictive environment one which is driving managers and service
providers alike to focus on factors within their control. Strategies to reduce cost (synergy, outsourcing and
improved efficiency) and increase revenue with customers, more evolution rather than revolution, is the recipe for
continued and sustainable growth, growth against which the industry has marked double figures.



  Figure 7
                                                Key source of earnings                            Asset mgt   Asset servicing




       Internal factors

                          Internal factor - value proposition
                                                                                 57                           43                                                                               N=23
                                                adjustement
         Revenue




                          Internal factor - pricing discipline   17     83            N=6
         Cost




                          Internal factor - cost containment
                                                                 13         88              N=8
                                            based approach




                   External factor - normalization / of net
                                                                 0    100         N=6
                                             interest income
                                                                                                                    External factors




Key findings from our research

•  trategy will focus on the value proposition as attested by 53% of the participants who are already working on
  S
  adjustments to secure their source of earnings over the coming months coupled with a pricing discipline in an
  effort to increase their margin.
•  ighter filter on deal acceptance with an aim to reject the unprofitable. Whatever the size of the deal, asset
  T
  servicing providers who want to stay in the industry have recognized the importance of identifying non profitable
  clients.
•  iFMD and UCITS V bring with them the necessity to align risk against reward with the liability of a depositary
  A
  or custodian bank.




                                                                                                                                                                                                      13
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                      INEUM Kurt Salmon                           QUADRICHROMIE
                      INE_06_0409_Logo_CMYK
                      14/12/2010
       24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
       Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
       Web : www.carrenoir.com
                                                                  M65 Y100
               Ce fichier est un document d’exécution créé sur
                Illustrator version CS3.
                                                                  K100




     Enhancing the existing value proposition as an effective approach to sustainable
     growth
     Most organizations will follow a common trend and capitalize on existing products distributed through new and/or
     extended channels. In parallel, cost will be driven down with externalization of middle-office functions. In general
     confidence is high that these two measures will promote stable growth over and beyond the next six to nine
     months.



                Figure 8



                 Components of an adjusted value proposition
                                                                                                                                           Slice #1   Extending distribution
                                                                                                                                                      capabilities, reporting services
                                                                                             7%
                                                                                             Slice                                        Slice #2    Middle-office outsourcing
                                                                                              #5
                                                                                                                                                      capabilities (OTC, collat mgt)
                                                                                                         29%
                                                                                    18%
                                                                                                       Slice #1                           Slice #3    Expending business to new markets
                                                                                  Slice #4
                                                                                                                                                      / extending geographical coverage
                                                                                                                                                      (mainy Emerging Markets : BRICS,
                                                                                                                                                      CIVETS)
                                                                                    21%
                                                                                  Slice #3                                                Slice #4    Fund governance, directors ships,
                                                                                                      25%                                             oversight and risk management
                                                                                                     Slice #2
                                                                                                                                          Slice #5    New asset class / investment solutions
                                                                                                                                                       capital protection (e.g asset
                                                                                                                                                      allocation)




     Key findings from our research

     •  nvesting in distribution services, reporting and middle–office services are the priorities for the next 6 months and
       I
       should provide continued growth.
     •  he enhancement of distribution capabilities will require organizations to establish and develop relationships
       T
       with 3rd party distributors in the perspective of an open architecture for example; reaching beyond an asset
       manager’s traditional network.
     •  any organizations also expect to expand their business into the emerging markets, such as BRIC and CIVETS
       M
       regions (Brazil, Russia, India, China, Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa respectively).




14
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                                                                                                                                              INEUM Kurt Salmon                           QUADRICHROMIE
                                                                                                                                              INE_06_0409_Logo_CMYK
                                                                                                                                              14/12/2010
                                                                                                                               24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
                                                                                                                               Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
                                                                                                                               Web : www.carrenoir.com
                                                                                                                                                                                          M65 Y100
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                                                                                                                                        Illustrator version CS3.
                                                                                                                                                                                          K100




Regulatory changes pose a challenge and opportunity
A number of regulatory changes are either on the horizon or already in motion and although not identified as
a particular cause of concern their strategic relevance becomes interesting when turned into a competitive
advantage. Over two thirds of interviewees are approaching regulation as such.



  Figure 9



   Is regulation a constraint or does                             Main regulation being implemented over the next 6/9
     it create some opportunities?                                                      months

                                                                                          Asset mgt             Asset servicing

                            15%
                          Slice #1

          33%
        Slice #2                                        Other / general regulation   40         60        N=5

                                                                              T2S 100 N=1

                         52%
                       Slice #3                                          Solvency    67     33 N=3

                                                                             CAD     100    0 N=2


                                                                  DODD - Franck      29              71             N=7

                                                                             RDR     100 0 N=2
    Slice #1       A pure constraint
                                                                           FATCA                 44                             56                                                                         N=16

    Slice #2       Offersome opportunities                                 AIFMD           29                             71                                                                              N=14

                                                                         UCITS V       38                 63          N=18
    Slice #3       Each constraint can create an
                   opportunity
                                                                         UCITS IV     30                       70              N=10




Key findings from our research

•  nly 15% of those polled identify regulatory change as a pure constraint with an overwhelming 85% that identify
  O
  some kind of opportunity.
•  hanges in regulation are identified as an opportunity even though they are considered a constraint by some
  C
  52% of those polled.
•  he top 3 regulatory changes in sight for the next 6 to 9 months: FATCA, AiFMD and UCITS IV.
  T




                                                                                                                                                                                                                  15
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                      INEUM Kurt Salmon                           QUADRICHROMIE
                      INE_06_0409_Logo_CMYK
                      14/12/2010
       24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
       Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
       Web : www.carrenoir.com
                                                                  M65 Y100
               Ce fichier est un document d’exécution créé sur
                Illustrator version CS3.
                                                                  K100




     Operational efficiency is a key to cost reduction
     Organizations will (if not already doing so) break down their different functions in order to harmonize processes,
     find synergies and indentify tasks that can be handled elsewhere. At the same time centers of excellence will
     further improve economies of scale and efficiency leading to lower costs.



                Figure 10



                                                                                                                    Operational efficiency constituents



                                                                                  Enhance / Rationalize platforms
                                                                                                                                                               Shared services refer to: HR,
                                                                                                                              18%                              compliance, legal or IT functions
                                                                                                                                                 Shared
                                                                                                                                                 services
                                                                                   Offshoring / nearshoring                                       33%

                                                                                                                       11%



                                                                                                                       7%              31%
                                                                                                                                    Centre of
                                                                                                Outsourcing                                                    Centre of excellence refers to a
                                                                                                                                    excellence                 functional expertise located whether
                                                                                                                                                               in one country or in a specific region




     Key findings from our research

     •  reater operations efficiency is a key to future growth with shared services (such as HR, compliance and
       G
       legal), centers of excellence (with functional expertise being located in one country or region) and platform
       rationalization as key proponents.
     •  trong organization is required with well managed procedures to ensure that improvements are effectively
       S
       implemented throughout the operational model, resulting in a lower risk of failure.




16
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                                                                                                                                      INEUM Kurt Salmon                           QUADRICHROMIE
                                                                                                                                      INE_06_0409_Logo_CMYK
                                                                                                                                      14/12/2010
                                                                                                                       24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
                                                                                                                       Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
                                                                                                                       Web : www.carrenoir.com
                                                                                                                                                                                  M65 Y100
                                                                                                                               Ce fichier est un document d’exécution créé sur
                                                                                                                                Illustrator version CS3.
                                                                                                                                                                                  K100




Take care of the customers
All in all, the industry understands that their clients expect a regular and informative relationship. The ability to
establish and maintain such a relationship will over time increase share of wallet and drive sustainable earnings.



  Figure 11



                           Asset manager –                                                  Asset servicing –
                    the customer intimacy journey                                    the customer intimacy journey



                                    14%
      Communicating                                                            Communicating                     22%
         directly with                                    43%                     directly with
  clients (Roadshow,                                                       clients (Roadshow,
              survey)                                                                  survey)                                                                                                    67%
                                                          43%


                                                                                                                                                                  42%
                                                               45%
    Improving client                                                         Improving client                                 37%
                                                   36%
         experience /                                                             experience /
  Ensuring reliability                                                     Ensuring reliability                  21%
                                      18%
     of the promised                                                          of the promised
             services                                                                 services




                              10%                                                                     9%
                                                                                                           14%

       Leveraging /                                      40%                    Leveraging /                                                                                 45%
  expanding existing                                                       expanding existing
                                                         40%                                                     23%
       services and                                                             services and
          expertise           10%                                                  expertise          9%




                              Weekly / daily   Monthly         Quarterly       Half a year        Yearly




Key findings from our research

• Regular customer interaction will play a key role in an effort to expand growth.
•  0% of asset managers and 45% of asset service providers polled mentioned that they only meet their clients in
  4
  a formal manner two or four times per year for a strategic review.
•  oughly 40% of relationship managers (asset managers and asset service providers equally) ensure satisfaction
  R
  of services on a weekly basis.




                                                                                                                                                                                                        17
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                    INEUM Kurt Salmon                           QUADRICHROMIE
                    INE_06_0409_Logo_CMYK
                    14/12/2010
     24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
     Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
     Web : www.carrenoir.com
                                                                M65 Y100
             Ce fichier est un document d’exécution créé sur
              Illustrator version CS3.
                                                                K100




18
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                                                                                                                   INEUM Kurt Salmon                           QUADRICHROMIE
                                                                                                                   INE_06_0409_Logo_CMYK
                                                                                                                   14/12/2010
                                                                                                    24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
                                                                                                    Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
                                                                                                    Web : www.carrenoir.com
                                                                                                                                                               M65 Y100
                                                                                                            Ce fichier est un document d’exécution créé sur
                                                                                                             Illustrator version CS3.
                                                                                                                                                               K100




   An industry approach to building and maintaining
   sustainable business
Case study - Brown Brothers Harriman: partner in the pursuit of business
sustainability

                                  Geoffrey M. Cook,          there is no real return on those investments - interest
                                  Partner,                   rates are needed to give long-term meaningful return.
                                  Brown Brothers             Liquidity has, therefore, been temporarily restored but,
                                  Harriman                   in the low-interest-rate environment, this may not be
                                                             sustainable.
                                  Geoffrey was made a
                                  Partner of the Firm in     Until there is a greater agreement, on a multi-country
                                  January 2009, is res-      basis, on public finance that is in balance with what
                                  ponsible for the Firm’s    the public is willing to accept, there will continue to
                                  Luxembourg       office,   be uncertainty. We are in an unusual economic cycle,
                                  its Global Relationship    the likes of which we have never really seen before. We
                                  Management and Bu-         are all doing okay, people continue to invest in funds,
                                  siness Development         BBH is doing very well, our own capital investments
                                  disciplines as well as     are increasing, and however, we are not yet back in a
                                  its Fund Solutions and     normal economic cycle.
                                  Distribution Support
                                  offering.                  Therefore, we would say that the outlook for the market
                                                             seems to be stable for the immediate future. We expect
                                  Mr. Cook is a member       it to only start to trend more positively when some of
of the Institute of Chartered Accountants of Scotland.       these other structural factors become clearer.

1. WHAT IS YOUR VIEW OF MARKET CONDITIONS IN                 2. WHAT ARE THE PRIORITIES FOR BBH TO MAKE
THE NEXT 6 MONTHS?                                           YOU SUCCESSFUL?

Despite the positive rebound in the economy towards          The foundation for all our work at BBH is the relationship
the end of 2010 following the 2008-2009 financial            we have with our clients. Therefore, our priorities are
crisis, we at BBH are taking a fairly neutral view of the    primarily dictated by those of our clients. This factor
short-term market conditions – in other words, it is         has been core to our strategy for many years and will
neither positive nor negative, rather, we feel that we are   continue to remain so. This is also what we believe
in a ‘holding pattern’ at the moment.                        makes our business truly sustainable – our structure
                                                             and our business model is uniquely client-centric. Ours
There is a feeling of uncertainty in the marketplace         is a privately held partnership, and our success is fully
largely due to the European government debt                  dependent on the success of our clients.
problems. Uncertainty impacts currencies, the ability to
invest, market stability in both debt and equity markets.    How do you align with clients and how often do you
Markets thrive on clarity and direction and, until there     contact them?
is a clearer path forward in terms of when and how
European debt restructuring is to take place, we will        We work with our clients to create a framework that
continue to live in a slightly surreal world.                is aligned around their strategic objectives. In order to
                                                             attain this alignment, we need to know what our clients
How do you view bank liquidity at the moment?                want to achieve. We also advocate regular contact with
                                                             clients on all levels. One of the benefits of a partnership
Banks have done a good job of restoring liquidity by         structure is that clients can easily access the business
moving assets out of other financial vehicles into bank      owners, and the flat hierarchy promotes collaboration
deposits. However, in a low-interest-rate environment        and flexibility.



                                                                                                                                                                               19
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                      INEUM Kurt Salmon                           QUADRICHROMIE
                      INE_06_0409_Logo_CMYK
                      14/12/2010
       24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
       Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
       Web : www.carrenoir.com
                                                                  M65 Y100
               Ce fichier est un document d’exécution créé sur
                Illustrator version CS3.
                                                                  K100




     Our service delivery and strategic approach is local-                                                          the business. This approach produces ownership and
     to-local with a global overlay to ensure a consistent                                                          alignment – and ultimately promotes the sustainability
     approach. For example, one of our main areas of focus                                                          of our organisation’s business.
     in recent years has been on creating a global service
     model for many UCITS funds which are registered in                                                             To ensure consistency of approach globally and to
     one domicile (for example, in Dublin or Luxembourg)                                                            monitor our progress, we have set up, what we call,
     but sold and invested globally. Those clients need                                                             “Disciplines” – for both Relationship Management
     an operating model that will cover the entire globe –                                                          and Sales – in order to provide a framework for our
     starting in Japan through to the end of the U.S. day                                                           employees in the RM and Sales areas. We give them
     – the end points of delivery are local, in Hong Kong,                                                          a toolbox, consisting of a light geographical overlay
     Tokyo, Luxembourg, New York, and so on. The most                                                               of tools and best practices, which the Discipline
     noteworthy feature of this model is that it is commanded                                                       management monitors to make sure that we are
     and controlled globally to ensure smooth and consistent                                                        providing a consistent experience to our clients. The
     service delivery.                                                                                              Discipline reports back centrally and educate us as to
                                                                                                                    how we are performing. It also delivers sales reporting,
     In a partnership, the partners are directly liable for                                                         which helps us understand where we need to adjust, the
     the firm’s obligations; therefore, risk management is a                                                        types of business we sell, the types of clients, etc.
     high priority for us. In short, for us, risk is personal. We
     focus on risk management at the local and global levels.                                                       What type of clients do you have and what type are
     Globally, our focus is at an enterprise risk level which                                                       you looking for?
     covers not only the firm itself, but also every element
     from credit to operational risk for our whole Investor                                                         We subscribe to the philosophy of maintaining a
     Services organization. Our product risk managers                                                               balanced portfolio of clients. We choose to serve a
     oversee the implications of executing certain functions                                                        smaller number of clients than our peers – more in the
     with certain products. We also have local, geographical                                                        hundreds, than the thousands – so that we can build
     risk functions. Finally, we instill personal responsibility                                                    better and longer lasting relationships with each of
     for risk management in all our employees at every level                                                        them. We service the large international blue chip asset
     across our firm.                                                                                               managers, as well as maturing middle-sized clients, and
                                                                                                                    we also work with some start ups, taking some bets on
     How selective are you in terms of choosing your                                                                new companies that will grow to be successful. A great
     clients?                                                                                                       example - we engaged with an asset manager in 2001
                                                                                                                    that had zero assets when we started to work with them.
     To run a sustainable organization we need to be very                                                           Today they manage over $40 billion, and we service the
     selective and focused in terms of our client base,                                                             majority of those assets.
     especially in the current environment. We have very
     rigorous upfront and ongoing selection criteria for                                                            How do you choose a good start up?
     clients to make sure they are aligned with the type of
     organization we are and would want to be. We need                                                              We look at a start-up’s plans, its products, its area
     to understand the owners of the organization, their                                                            of focus, and get answers to questions such as: Who
     business philosophy, resources, capitalisation, and                                                            are the people that are involved with it? How serious
     sometimes there are also country /political issues to                                                          are they? Do they have the right resources, sufficient
     take into account.                                                                                             capitalization and backing to get up and running? What
                                                                                                                    are their distribution plans? This can give us a fairly
     We view top-line growth in two parts in order to be                                                            good idea straight away about how realistic and viable
     sustainable. The first is growth with existing clients,                                                        they are. It’s important to have a balanced portfolio to
     and the second is growth through new clients. We                                                               be sustainable – the bigger complex clients will push
     take a focused approach to both. We have made it our                                                           you into new areas, the others medium-sized ones
     mantra to have very limited stand-alone sales efforts.                                                         provide the volume, and the smaller start-ups are a way
     Whilst relationship management and sales are different                                                         of incubating ideas and an exciting source of potential
     disciplines, we encourage our relationship managers                                                            growth. They become collectively a group of clients that
     to own the whole process and be responsible for the                                                            works well together in terms of how we move forward
     client relationship, both before and after BBH wins                                                            as an organization.




20
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                                                                                                                   INEUM Kurt Salmon                           QUADRICHROMIE
                                                                                                                   INE_06_0409_Logo_CMYK
                                                                                                                   14/12/2010
                                                                                                    24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
                                                                                                    Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
                                                                                                    Web : www.carrenoir.com
                                                                                                                                                               M65 Y100
                                                                                                            Ce fichier est un document d’exécution créé sur
                                                                                                             Illustrator version CS3.
                                                                                                                                                               K100




3. WHAT DIFFERENTIATES YOU AND MAKES YOU                     The proof that our strategy works is really shown
THE SERVICE PROVIDER OF CHOICE?                              in how we are doing – our clients are expanding, our
                                                             business is expanding – we service more than $3 trillion
1.  ur client -centric and consistent approach has
   O                                                         in assets globally, we are expanding geographically and
   probably been the most important reason why we            in terms of products – for example, we are expanding
   have built a consistent and increasing group of clients   our Transfer Agency business for cross-border fund
   on a global basis.                                        managers – we have trebled our Transfer Agency book
                                                             of business in the last 18 months and doubled staff in
2.  ur people – we don’t have an enormous balance
   O                                                         that area, which is key to building out of global funds
   sheet of assets, which makes our people even more         and asset managers’ services. Our clients also continue
   valuable to us. They are our best assets. For us it is    to rate us very highly in industry surveys as well as in our
   critical to get the people right, which is shown in all   own internal client satisfaction surveys which of course,
   our client feedback, surveys report cards etc.            to us, is the most critical measure of our success.

3.  ur partnership structure – we can consistently, year-
   O
   on-year, pursue our focused strategic direction. In
   2009-2010 we did not lay off any staff by design in
   order to proactively maintaining our workforce for
   the time when we would come out of the crisis and
   be ready to supporting our clients when they needed
   us the most. We can adapt our response to market
   conditions in a measured thoughtful way which can
   smooth out economic peaks and troughs. We made
   some modest cost adjustments, but there was no front
   line impact. The partners accepted a lower return in
   2009 and, in 2010, our performance rebounded.




                                                                                                                                                                               21
KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY


                      INEUM Kurt Salmon                           QUADRICHROMIE
                      INE_06_0409_Logo_CMYK
                      14/12/2010
       24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE    M100 Y100
       Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87
       Web : www.carrenoir.com
                                                                  M65 Y100
               Ce fichier est un document d’exécution créé sur
                Illustrator version CS3.
                                                                  K100




     Kurt Salmon, the business sustainability process
     From the analysis performed we can trace an almost sequential flow of questions to answers and issues to
     solutions. Participants representing key areas of the business have made clear their concerns and understanding
     of where the risks and challenges come from today and forward into the medium term. In doing so and as part of
     the exercise areas in which the industry is taking initiative to ensure a prosperous and sustainable future becomes
     apparent.



                                                                                                  1                                2                               3                          4

                                                                                  Immersion                      Set direction              Prepare road map                Take action
                                                                                  What does “business            To what extent             How should we                   What feedback do
                                                                                  sustainability”                the business               develop and                     clients and industry
                                                                                  means for your                 sustainability adds        communicate our                 influencers provide
                                                                                  organization?                  unique value and           vision to foster the            on this concept?
                                                                                                                 creates lasting            broadest possible
                                                                                                                 impact?                    alignment?


                                                                                                                                                                                         Iterate

     In order to steer a clear path to sustained growth an organized and rigorous approach is necessary. Kurt Salmon has
     identified four key steps based around a set of Business Sustainability Criteria (the value of any individual criterion
     is important to the global process) with at the end of each step a value oriented deliverable. The organization
     in question is measured and referenced against the criteria alongside comparable rivals in order to identify key
     indicators. With recommendations in hand indicators are built into the organization’s business and importantly,
     communication mediums. As part of the process implementation value verses implementation cost are clearly
     evaluated.

     As is necessary in a constantly evolving and complex environment a periodic (at this time annual) calibration of
     the Business Sustainability Criteria is performed through an equivalent survey process.




22
Contributors
We would like to thank the financial institutions who
contributed to our research and their participation in this
survey:

• Aberdeen (UK)
• Apex (Ireland)
• Brown Brothers Harriman (UK, Luxembourg, US)
• BNY Mellon (Belgium, Luxembourg)
• BNP Paribas Securities Services (Luxembourg)
• CACEIS (France)
• CITI (Luxembourg)
• Credit Suisse Fund Services (Luxembourg)
• Dexia Asset Management (France)
• Fidelity (UK)
• HSBC (UK)
• Invesco (Belgium)
• JP Morgan WSS (Luxembourg)
• KBL (Luxembourg)
• Millenium (Portugal)
• Natixis (Luxembourg)
• Northern Trust (UK)
• Pictet (Switzerland)
• RBS (Luxembourg)
• Schroders (Luxembourg)
• Societe Generale Securities Services (France)
• State Street Bank (France)
• Swiss  Global Asset Management (Luxembourg)
• Tokio Marine Asset Management (Japan)
Our offices

GERMANY - DÜSSELDORF              USA - SAN BRUNO                     JAPAN - TOKYO
Königsallee 11                    1250 Bayhill Drive, Suite 315       Akasaka Nakagawa Bldg.
40212 Düsseldorf                  San Bruno, CA 94066                 3-11-3 Akasaka, Minato-ku
T +49 (0)211 7595 0               T +1 650 616 7200                   107-0052 Tokyo
                                                                      T +81 3 3586 6840

BELGIUM - BRUSSELS                USA - SAN FRANCISCO
Bd la Woluwelaan 2 box 4          345 California Street, Suite 2500   LUXEMBOURG - LEUDELANGE
1150 Brussels                     San Francisco, CA 94104             41, Zone d’activité Am Bann
T +32 (0)2 663 79 20              T +1 415 296 9200                   L-3372 Leudelange
                                                                      T +352 26 37 74 1

CHINA - HONG KONG                 FRANCE - LYON
99 Queen’s Road                   Immeuble Le Front de Parc           MOROCCO - CASABLANCA
66/F, The Center                  109, boulevard de Stalingrad        Twin Center, Tour Ouest
Central Hong Kong                 BP 11259                            Angle des bds Zerktouni  Al Massira
T +1 852 3960 6448                69608 Villeurbanne cedex            20100 Casablanca
                                  T +33 4 72 82 52 00                 T +212 (0)5 22 95 83 21
CHINA - SHANGHAI
#1702 Evergo Tower
1325 Central Huaihai Rd           FRANCE - MARSEILLE                  UNITED KINGDOM - LONDON
200031 Shanghai                   5, place de la Joliette             10 Fleet Place
T +86 21 6121 3668                13002 Marseille                     London, EC4M 7RB
                                  T +33 4 26 84 58 50                 T +44 20 7710 5200

USA - ATLANTA
1355 Peachtree Street, N.E.,      FRANCE - NANTES                     UNITED KINGDOM - MANCHESTER
Suite 900                         Impasse Augustin-Fresnel            25 Hale Road
Atlanta, GA 30309                 BP 80363                            Altrincham WA14 2EY
T +1 404 892 0321                 44816 Saint-Herblain cedex          T + 44 0161 925 2727
                                  T +33 2 51 80 14 06

USA - CALIFORNIA                                                      SWITZERLAND - GENEVA
100 Pacifica, Suite 470           FRANCE - PARIS                      105, rue de Lyon
Irvine, CA 92618                  159, avenue Charles de Gaulle       1203 – Genève
T +1 949 609 0123                 92521 Neuilly-sur-Seine cedex       T +41 2 23 89 42 00
                                  T +33 1 55 24 30 00

USA - MINNEAPOLIS                                                     TUNISIA - TUNIS
120 S. 6th Street, Suite 1600     FRANCE - TOULOUSE                   Immeuble Carthage centre
Minneapolis, MN 55402             9, rue de Sébastopol - BP 867       Rue du Lac de Constance
T +1 612 378 1700                 31015 Toulouse cedex 6              Bloc A 2e étage
                                  T +33 5 67 31 45 55                 1053 Les Berges du Lac – Tunis
                                                                      T +216 71 96 50 57
USA - NEW YORK
650 Fifth Avenue, 30th Floor      ITALY - ROME
New York, NY 10019                Via Attilio Regolo, 19
T +1 212 319 9450                 I-00192 Roma
                                  T +39 06 3280 3235




                                www.kurtsalmon.com

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2011 study invest servicing

  • 1. INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Kurt Salmon Investment Servicing Business Confidence Index - Survey Building and maintaining sustainable business in the asset servicing and management industry July 2011
  • 2. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 About Us Kurt Salmon is a global management consultancy of more than 1,600 consultants in 15 countries across five continents. Our clients are industry leaders who benefit from our deep industry and functional expertise. As trusted advisor, Kurt Salmon partners with clients to design, and then drive strategies and solutions that make lasting and meaningful impact. We are committed to deliver measurable results for our clients through executional excellence. Kurt Salmon is part of Management Consulting Group Plc, listed on the London Stock Exchange. 2
  • 3. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Contents Research Background 4 Executive Summary 5 A snapshot of industry attitudes and key concerns 7 Optimism to creep through from a current low 7 Market is split as asset servicers identify opportunities 8 National optimism differs whilst caution remains a general trend 9 Key concerns are consistent throughout the industry 10 Navigating in turbulent times - actions taken by the industry 12 Earnings growth will be limited with some players expecting more 12 Transfer concerns into harmonized strategies – the industry approach 13 Enhancing the existing value proposition as an effective approach to sustainable growth 14 Regulatory changes pose a challenge and opportunity 15 Operational efficiency is a key to cost reduction 16 Take care of the customers 17 An industry approach to building and maintaining sustainable business 19 Case study - Brown Brothers Harriman: partner in the pursuit of business sustainability 19 Kurt Salmon, the business sustainability process 22 3
  • 4. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Research Background The investment servicing industry has been under considerable pressure in recent times. During May and June of 2011, Kurt Salmon conducted a survey in an effort to gauge current sentiment and expectations over the coming 6 months. Senior Executives representing both Asset Managers, Asset Management Companies and the providers of Asset Servicing were questioned on topics such as business environment and earning expectations, areas of concern and the strategies that have been put in place. The report provides a barometer of views on the current situation and plans for the near future with an aim to identify key strategies that will endure beyond the coming six to nine months. Figure 1 Number of financial institutions polled 28 participants Senior Executives were • CEO polled • COO Asset Manager • Country Head 36% • Head of strategy and products 64% Asset Servicing • Head of regulatory affairs • Head of sales and distribution Assets size Asset under Management (USD • 1.6 Trillion) Asset under Custody • 107.3 Administration (USD Trillion) 9 countries Countries coverage Countries coverage Australia, Belgium, France, Ireland, 4% UK/Ireland 4% Japan, Luxembourg, Portugal, Luxembourg 11% 21% Switzerland, UK 3% France 7% Belgium Portugal 14% 36% Switzerland Japan Australia 4
  • 5. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Executive Summary Asset Mangers and Asset Servicers alike, find the current business climate difficult with neither expecting a significant improvement for the second half of 2011. On the other hand, the level of skepticism differs with Asset Service providers registering as marginally cautions rather than full out pessimistic. Asset Managers are clearly expecting the doldrums to persist well into 2012. For a good part, low interest rates, general market instability (in particular the European financial situation) and regulatory burden are responsible for poor expectations across Europe, Australia and Japan. A closer look reveals a somewhat polarized landscape - clearly some countries are dealing with particular issues; Japan and Portugal for example, whilst other regions and in particular Benelux expect a better than average improvement. In addition to agreeing on industry concerns that appear less than positive the market also appears to be in agreement regarding earnings growth expectations which remain mostly cautions. With fewer external opportunities the asset management industry will turn to its core services and infrastructure with an aim to maximize the potential of existing products through enhanced distribution - BRIC and CIVETS markets are key - and focused pricing. In parallel to the expected revenue increase, cost reduction, which means streamlining operations, will result in a net gain. One sign of an industry trying to draw competitive advantage from wherever it might arrive appears in the form of FATCA, AiFMD and UCITS IV/V. More industry participants will find ways to have regulatory reform work for them than not. At the end of the day the customer matters. Every player in the investment servicing business will make sure that the customer experience is close and quantifiable. Michel Kabanga KAYEMBE Investment Funds Advisory Services, Practice Leader 5
  • 6. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 6
  • 7. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 A snapshot of industry attitudes and key concerns Optimism to creep through from a current low Tough market conditions have almost become the norm with ongoing economic crises raging through Europe. The investment servicing industry as a whole is contending with one regulatory reform after another which adds change on top of an already unstable base. Emerging markets continue to grow but not without a few faltering steps, adding to an air of nervousness, further compounded by unprecedented natural disasters, such as Japan. In the face of adverse conditions industry confidence is not surprisingly low and should remain that way though there does seem to be a glimmer of hope from some industry contenders over the next six to nine months. Figure 2 Perceptions about the current business conditions Over the next 6 months 33.0 52.7 Key findings from our research • arket pressure and few opportunities are putting a squeeze on the investment servicing industry as reflected M by a negative perception of the current business conditions. • ver the next 6 months conditions are expected to improve with an increase of 19.6 points. O • arket pressure pushes industry players to pursue their effort in containing cost while looking for new sources of M revenue with a focus on the value proposition in light of limited opportunities. 7
  • 8. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Market is split as asset servicers identify opportunities Asset Servicers have converted changes, whether directly positive or negative, into opportunities whilst Asset Managers have not. As a result Asset Servicers expect some improvement in business conditions, a factor that creates a clear distinction within the investment servicing industry. Figure 3 Over the next 6 months – Asset Managers Over the next 6 months – Asset Servicers 38.4 14.3 Key findings from our research • Asset servicing providers and asset managers are separated by a difference of 24.1 points. • sset managers are considerably more pessimistic as they don’t see any future structural changes over the next A 6 months. The asset management industry will have to demonstrate its capability to cope with the uncertainty through new sources of revenue with a clear approach for survival. Their confidence is to improve with an increase of over 4.5 points. • sset servicers expect an increase of middle office outsourcing and plan to extend their global service offerings A capabilities despite great regulatory burden. Their confidence is to improve with an increase of over 15.2 points. 8
  • 9. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 National optimism differs whilst caution remains a general trend A common trend of low interest rates, general market instability and regulatory burden ties regions – caution prevails. However, different regions are facing different challenges a fact reflected by varying levels of optimism. Figure 4 Confidence Level Frontier 25% 33% 42% Benelux 17% 50% 33% UK / Ireland 25% 50% 25% France 0% 50% 50% * Australia / Japan 33% 33% 33% Switzerland * 100% Portugal * Limited sample set of 1 or 2 participant(s) Pessimist Cautious Optimistic Key findings from our research • ocal market conditions are considered favorable by 42% of organizations surveyed - Luxembourg, as the largest L fund administration platform in Europe remains optimistic. • In Luxembourg, Asset servicers are expecting: • Asset funds to return to pre-crisis levels and to win new mandates (small, medium and large size). • Demand for Specialised Investment Funds (SiF), private equity structures to increase. • Modest increases in interest rates are expected to have a positive impact on net interest income revenue. • All other regions remain cautious. 9
  • 10. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Key concerns are consistent throughout the industry Regardless of the industry sector or region the core concerns are evident. Asset managers and service providers are harmonious about the root cause of negative sentiment in the prevailing business environment. Figure 5 Industry main concerns Asset mgt Asset servicing Regulatory burden cost related 50 50 N=2 Client nervousness 67 33 N=3 General market uncertainty 43 57 N=7 Stock market downturn 100 0 N=3 EU financial crisis 62 38 N=13 Japan tsunami, nuclear crisis 75 25 N=4 Middle east political instability 50 50 N=4 Low interest rate 36 64 N=11 Key findings from our research • 6% of the participants are concerned about the EU financial crisis, the low level of interest rates and general 6 market uncertainty. • he industry is clearly sensitive to the market conditions. This means it is imperative that asset managers and T asset servicers be able to assess the sensitivity of earnings whatever the business conditions in which they operate. • egulatory burden and related cost have been accepted as embedded to the financial sector. R 10
  • 11. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 11
  • 12. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Navigating in turbulent times - actions taken by the industry Earnings growth will be limited with some players expecting more Most participants expect little change in the top line however some have clearly identified viable areas for growth. With tough external factors the asset industry will have to turn inwards and innovate with what it already has. Figure 6 Earning growth expected over Asset servicing Asset mgt the next 12 months 14.0 Extremely optimistic 20 13.2 Optimistic 11.5 8.5 A cautious outlook prevails Cautious 4.1 2.5 Pessimistic 2.5 0.0 Extremely pessimistic 0.0 Key findings from our research • onsidering that a cautious outlook prevails, the average earnings expected range from 4.1% to 8.5%. C • onfidence in structural changes remains low however, the industry expects an optimistic 14% to 20% growth. C • ey Metrics effecting the positive upswing include: K • ncrease in revenue per AuM I • ncrease in average revenue per client I • Increase in net sales per product (fund) 12
  • 13. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Transfer concerns into harmonized strategies – the industry approach The asset industry will continue to operate in a restrictive environment one which is driving managers and service providers alike to focus on factors within their control. Strategies to reduce cost (synergy, outsourcing and improved efficiency) and increase revenue with customers, more evolution rather than revolution, is the recipe for continued and sustainable growth, growth against which the industry has marked double figures. Figure 7 Key source of earnings Asset mgt Asset servicing Internal factors Internal factor - value proposition 57 43 N=23 adjustement Revenue Internal factor - pricing discipline 17 83 N=6 Cost Internal factor - cost containment 13 88 N=8 based approach External factor - normalization / of net 0 100 N=6 interest income External factors Key findings from our research • trategy will focus on the value proposition as attested by 53% of the participants who are already working on S adjustments to secure their source of earnings over the coming months coupled with a pricing discipline in an effort to increase their margin. • ighter filter on deal acceptance with an aim to reject the unprofitable. Whatever the size of the deal, asset T servicing providers who want to stay in the industry have recognized the importance of identifying non profitable clients. • iFMD and UCITS V bring with them the necessity to align risk against reward with the liability of a depositary A or custodian bank. 13
  • 14. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Enhancing the existing value proposition as an effective approach to sustainable growth Most organizations will follow a common trend and capitalize on existing products distributed through new and/or extended channels. In parallel, cost will be driven down with externalization of middle-office functions. In general confidence is high that these two measures will promote stable growth over and beyond the next six to nine months. Figure 8 Components of an adjusted value proposition Slice #1 Extending distribution capabilities, reporting services 7% Slice Slice #2 Middle-office outsourcing #5 capabilities (OTC, collat mgt) 29% 18% Slice #1 Slice #3 Expending business to new markets Slice #4 / extending geographical coverage (mainy Emerging Markets : BRICS, CIVETS) 21% Slice #3 Slice #4 Fund governance, directors ships, 25% oversight and risk management Slice #2 Slice #5 New asset class / investment solutions capital protection (e.g asset allocation) Key findings from our research • nvesting in distribution services, reporting and middle–office services are the priorities for the next 6 months and I should provide continued growth. • he enhancement of distribution capabilities will require organizations to establish and develop relationships T with 3rd party distributors in the perspective of an open architecture for example; reaching beyond an asset manager’s traditional network. • any organizations also expect to expand their business into the emerging markets, such as BRIC and CIVETS M regions (Brazil, Russia, India, China, Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa respectively). 14
  • 15. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Regulatory changes pose a challenge and opportunity A number of regulatory changes are either on the horizon or already in motion and although not identified as a particular cause of concern their strategic relevance becomes interesting when turned into a competitive advantage. Over two thirds of interviewees are approaching regulation as such. Figure 9 Is regulation a constraint or does Main regulation being implemented over the next 6/9 it create some opportunities? months Asset mgt Asset servicing 15% Slice #1 33% Slice #2 Other / general regulation 40 60 N=5 T2S 100 N=1 52% Slice #3 Solvency 67 33 N=3 CAD 100 0 N=2 DODD - Franck 29 71 N=7 RDR 100 0 N=2 Slice #1 A pure constraint FATCA 44 56 N=16 Slice #2 Offersome opportunities AIFMD 29 71 N=14 UCITS V 38 63 N=18 Slice #3 Each constraint can create an opportunity UCITS IV 30 70 N=10 Key findings from our research • nly 15% of those polled identify regulatory change as a pure constraint with an overwhelming 85% that identify O some kind of opportunity. • hanges in regulation are identified as an opportunity even though they are considered a constraint by some C 52% of those polled. • he top 3 regulatory changes in sight for the next 6 to 9 months: FATCA, AiFMD and UCITS IV. T 15
  • 16. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Operational efficiency is a key to cost reduction Organizations will (if not already doing so) break down their different functions in order to harmonize processes, find synergies and indentify tasks that can be handled elsewhere. At the same time centers of excellence will further improve economies of scale and efficiency leading to lower costs. Figure 10 Operational efficiency constituents Enhance / Rationalize platforms Shared services refer to: HR, 18% compliance, legal or IT functions Shared services Offshoring / nearshoring 33% 11% 7% 31% Centre of Outsourcing Centre of excellence refers to a excellence functional expertise located whether in one country or in a specific region Key findings from our research • reater operations efficiency is a key to future growth with shared services (such as HR, compliance and G legal), centers of excellence (with functional expertise being located in one country or region) and platform rationalization as key proponents. • trong organization is required with well managed procedures to ensure that improvements are effectively S implemented throughout the operational model, resulting in a lower risk of failure. 16
  • 17. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Take care of the customers All in all, the industry understands that their clients expect a regular and informative relationship. The ability to establish and maintain such a relationship will over time increase share of wallet and drive sustainable earnings. Figure 11 Asset manager – Asset servicing – the customer intimacy journey the customer intimacy journey 14% Communicating Communicating 22% directly with 43% directly with clients (Roadshow, clients (Roadshow, survey) survey) 67% 43% 42% 45% Improving client Improving client 37% 36% experience / experience / Ensuring reliability Ensuring reliability 21% 18% of the promised of the promised services services 10% 9% 14% Leveraging / 40% Leveraging / 45% expanding existing expanding existing 40% 23% services and services and expertise 10% expertise 9% Weekly / daily Monthly Quarterly Half a year Yearly Key findings from our research • Regular customer interaction will play a key role in an effort to expand growth. • 0% of asset managers and 45% of asset service providers polled mentioned that they only meet their clients in 4 a formal manner two or four times per year for a strategic review. • oughly 40% of relationship managers (asset managers and asset service providers equally) ensure satisfaction R of services on a weekly basis. 17
  • 18. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 18
  • 19. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 An industry approach to building and maintaining sustainable business Case study - Brown Brothers Harriman: partner in the pursuit of business sustainability Geoffrey M. Cook, there is no real return on those investments - interest Partner, rates are needed to give long-term meaningful return. Brown Brothers Liquidity has, therefore, been temporarily restored but, Harriman in the low-interest-rate environment, this may not be sustainable. Geoffrey was made a Partner of the Firm in Until there is a greater agreement, on a multi-country January 2009, is res- basis, on public finance that is in balance with what ponsible for the Firm’s the public is willing to accept, there will continue to Luxembourg office, be uncertainty. We are in an unusual economic cycle, its Global Relationship the likes of which we have never really seen before. We Management and Bu- are all doing okay, people continue to invest in funds, siness Development BBH is doing very well, our own capital investments disciplines as well as are increasing, and however, we are not yet back in a its Fund Solutions and normal economic cycle. Distribution Support offering. Therefore, we would say that the outlook for the market seems to be stable for the immediate future. We expect Mr. Cook is a member it to only start to trend more positively when some of of the Institute of Chartered Accountants of Scotland. these other structural factors become clearer. 1. WHAT IS YOUR VIEW OF MARKET CONDITIONS IN 2. WHAT ARE THE PRIORITIES FOR BBH TO MAKE THE NEXT 6 MONTHS? YOU SUCCESSFUL? Despite the positive rebound in the economy towards The foundation for all our work at BBH is the relationship the end of 2010 following the 2008-2009 financial we have with our clients. Therefore, our priorities are crisis, we at BBH are taking a fairly neutral view of the primarily dictated by those of our clients. This factor short-term market conditions – in other words, it is has been core to our strategy for many years and will neither positive nor negative, rather, we feel that we are continue to remain so. This is also what we believe in a ‘holding pattern’ at the moment. makes our business truly sustainable – our structure and our business model is uniquely client-centric. Ours There is a feeling of uncertainty in the marketplace is a privately held partnership, and our success is fully largely due to the European government debt dependent on the success of our clients. problems. Uncertainty impacts currencies, the ability to invest, market stability in both debt and equity markets. How do you align with clients and how often do you Markets thrive on clarity and direction and, until there contact them? is a clearer path forward in terms of when and how European debt restructuring is to take place, we will We work with our clients to create a framework that continue to live in a slightly surreal world. is aligned around their strategic objectives. In order to attain this alignment, we need to know what our clients How do you view bank liquidity at the moment? want to achieve. We also advocate regular contact with clients on all levels. One of the benefits of a partnership Banks have done a good job of restoring liquidity by structure is that clients can easily access the business moving assets out of other financial vehicles into bank owners, and the flat hierarchy promotes collaboration deposits. However, in a low-interest-rate environment and flexibility. 19
  • 20. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Our service delivery and strategic approach is local- the business. This approach produces ownership and to-local with a global overlay to ensure a consistent alignment – and ultimately promotes the sustainability approach. For example, one of our main areas of focus of our organisation’s business. in recent years has been on creating a global service model for many UCITS funds which are registered in To ensure consistency of approach globally and to one domicile (for example, in Dublin or Luxembourg) monitor our progress, we have set up, what we call, but sold and invested globally. Those clients need “Disciplines” – for both Relationship Management an operating model that will cover the entire globe – and Sales – in order to provide a framework for our starting in Japan through to the end of the U.S. day employees in the RM and Sales areas. We give them – the end points of delivery are local, in Hong Kong, a toolbox, consisting of a light geographical overlay Tokyo, Luxembourg, New York, and so on. The most of tools and best practices, which the Discipline noteworthy feature of this model is that it is commanded management monitors to make sure that we are and controlled globally to ensure smooth and consistent providing a consistent experience to our clients. The service delivery. Discipline reports back centrally and educate us as to how we are performing. It also delivers sales reporting, In a partnership, the partners are directly liable for which helps us understand where we need to adjust, the the firm’s obligations; therefore, risk management is a types of business we sell, the types of clients, etc. high priority for us. In short, for us, risk is personal. We focus on risk management at the local and global levels. What type of clients do you have and what type are Globally, our focus is at an enterprise risk level which you looking for? covers not only the firm itself, but also every element from credit to operational risk for our whole Investor We subscribe to the philosophy of maintaining a Services organization. Our product risk managers balanced portfolio of clients. We choose to serve a oversee the implications of executing certain functions smaller number of clients than our peers – more in the with certain products. We also have local, geographical hundreds, than the thousands – so that we can build risk functions. Finally, we instill personal responsibility better and longer lasting relationships with each of for risk management in all our employees at every level them. We service the large international blue chip asset across our firm. managers, as well as maturing middle-sized clients, and we also work with some start ups, taking some bets on How selective are you in terms of choosing your new companies that will grow to be successful. A great clients? example - we engaged with an asset manager in 2001 that had zero assets when we started to work with them. To run a sustainable organization we need to be very Today they manage over $40 billion, and we service the selective and focused in terms of our client base, majority of those assets. especially in the current environment. We have very rigorous upfront and ongoing selection criteria for How do you choose a good start up? clients to make sure they are aligned with the type of organization we are and would want to be. We need We look at a start-up’s plans, its products, its area to understand the owners of the organization, their of focus, and get answers to questions such as: Who business philosophy, resources, capitalisation, and are the people that are involved with it? How serious sometimes there are also country /political issues to are they? Do they have the right resources, sufficient take into account. capitalization and backing to get up and running? What are their distribution plans? This can give us a fairly We view top-line growth in two parts in order to be good idea straight away about how realistic and viable sustainable. The first is growth with existing clients, they are. It’s important to have a balanced portfolio to and the second is growth through new clients. We be sustainable – the bigger complex clients will push take a focused approach to both. We have made it our you into new areas, the others medium-sized ones mantra to have very limited stand-alone sales efforts. provide the volume, and the smaller start-ups are a way Whilst relationship management and sales are different of incubating ideas and an exciting source of potential disciplines, we encourage our relationship managers growth. They become collectively a group of clients that to own the whole process and be responsible for the works well together in terms of how we move forward client relationship, both before and after BBH wins as an organization. 20
  • 21. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 3. WHAT DIFFERENTIATES YOU AND MAKES YOU The proof that our strategy works is really shown THE SERVICE PROVIDER OF CHOICE? in how we are doing – our clients are expanding, our business is expanding – we service more than $3 trillion 1. ur client -centric and consistent approach has O in assets globally, we are expanding geographically and probably been the most important reason why we in terms of products – for example, we are expanding have built a consistent and increasing group of clients our Transfer Agency business for cross-border fund on a global basis. managers – we have trebled our Transfer Agency book of business in the last 18 months and doubled staff in 2. ur people – we don’t have an enormous balance O that area, which is key to building out of global funds sheet of assets, which makes our people even more and asset managers’ services. Our clients also continue valuable to us. They are our best assets. For us it is to rate us very highly in industry surveys as well as in our critical to get the people right, which is shown in all own internal client satisfaction surveys which of course, our client feedback, surveys report cards etc. to us, is the most critical measure of our success. 3. ur partnership structure – we can consistently, year- O on-year, pursue our focused strategic direction. In 2009-2010 we did not lay off any staff by design in order to proactively maintaining our workforce for the time when we would come out of the crisis and be ready to supporting our clients when they needed us the most. We can adapt our response to market conditions in a measured thoughtful way which can smooth out economic peaks and troughs. We made some modest cost adjustments, but there was no front line impact. The partners accepted a lower return in 2009 and, in 2010, our performance rebounded. 21
  • 22. KURT SALMON INVESTMENT SERVICING BUSINESS CONFIDENCE INDEX - SURVEY INEUM Kurt Salmon QUADRICHROMIE INE_06_0409_Logo_CMYK 14/12/2010 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE M100 Y100 Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com M65 Y100 Ce fichier est un document d’exécution créé sur Illustrator version CS3. K100 Kurt Salmon, the business sustainability process From the analysis performed we can trace an almost sequential flow of questions to answers and issues to solutions. Participants representing key areas of the business have made clear their concerns and understanding of where the risks and challenges come from today and forward into the medium term. In doing so and as part of the exercise areas in which the industry is taking initiative to ensure a prosperous and sustainable future becomes apparent. 1 2 3 4 Immersion Set direction Prepare road map Take action What does “business To what extent How should we What feedback do sustainability” the business develop and clients and industry means for your sustainability adds communicate our influencers provide organization? unique value and vision to foster the on this concept? creates lasting broadest possible impact? alignment? Iterate In order to steer a clear path to sustained growth an organized and rigorous approach is necessary. Kurt Salmon has identified four key steps based around a set of Business Sustainability Criteria (the value of any individual criterion is important to the global process) with at the end of each step a value oriented deliverable. The organization in question is measured and referenced against the criteria alongside comparable rivals in order to identify key indicators. With recommendations in hand indicators are built into the organization’s business and importantly, communication mediums. As part of the process implementation value verses implementation cost are clearly evaluated. As is necessary in a constantly evolving and complex environment a periodic (at this time annual) calibration of the Business Sustainability Criteria is performed through an equivalent survey process. 22
  • 23. Contributors We would like to thank the financial institutions who contributed to our research and their participation in this survey: • Aberdeen (UK) • Apex (Ireland) • Brown Brothers Harriman (UK, Luxembourg, US) • BNY Mellon (Belgium, Luxembourg) • BNP Paribas Securities Services (Luxembourg) • CACEIS (France) • CITI (Luxembourg) • Credit Suisse Fund Services (Luxembourg) • Dexia Asset Management (France) • Fidelity (UK) • HSBC (UK) • Invesco (Belgium) • JP Morgan WSS (Luxembourg) • KBL (Luxembourg) • Millenium (Portugal) • Natixis (Luxembourg) • Northern Trust (UK) • Pictet (Switzerland) • RBS (Luxembourg) • Schroders (Luxembourg) • Societe Generale Securities Services (France) • State Street Bank (France) • Swiss Global Asset Management (Luxembourg) • Tokio Marine Asset Management (Japan)
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