Howden, Chubb and HSBC slides

1. Thursday 17th November 2011

2. 2
Programme
4:30pm Registration
5:00pm Welcome address from Andrea Sorani, Deputy Chairman of AIMA Singapore
5:10pm Liability trends affecting the fund management industry- lessons learnt.
Speaker – Arati Varma, Underwriting Manager for South East Asia, India and Middle East, Chubb Specialty Insurance
5:30pm Selection, appointment, monitoring and risk management of local custodians around the globe.
Speaker - Paul Hedges, APAC Head of Network Management and Market Intelligence, HSBC Securities Services
5:50pm Break for Tea and Coffee
6:05pm International regulatory and litigation risk in the alternative asset management sector
Speaker - Lorraine Adlam, Group Chairman and Financial Institutions Practice Lead, Howden Insurance Brokers
6:25pm Challenges you may face as a fund manager in Singapore
Speaker - Ho Han Ming, Partner, Clifford Chance and Chairman of AIMA Singapore
6:45pm Wrap up and Q&A
7pm Networking drinks

3. 3
Speaker Profiles
Arati Varma, BA (Econs), MBA (Banking and finance)
Regional Manager, Southeast Asia
Chubb Specialty Insurance
Arati is the Underwriting Manager for South East Asia, India and Middle East for Chubb’s Specialty Insurance
(CSI), a division within Federal Insurance Company, Singapore (part of the Chubb Corporation – a Fortune 500
Company listed on the NYSE).
The division is responsible for structuring specialty financial and liability insurance solutions such as Directors
and Officers Liability Insurance, Professional Liability, Fidelity risks, Bankers Blanket Bonds for financial
institutions, Non Profit Organisation Management Liability, Commercial Crime and Kidnap and Ransom in the
South East Asia region, India, Middle East and Mauritius.
She specialises in the asset management class of business, which includes venture capital, private equity, unit
trusts, hedge funds, real estate funds and investment companies’ asset protection.
Arati joined Chubb in 2004. In her previous role in Strategic Marketing, she has worked on a host of strategic
issues across Chubb’s markets in the Asia Pacific region including China, India, Japan and Australia.
Her experience prior to joining Chubb has been in auditing, consulting and banking in India and Malaysia.

4. 4
Speaker Profiles
Paul D. Hedges. Chartered FCSI
Head of APAC Network Management & Market Intelligence
HSBC
CISI Regional President, ASEAN, CISI (UK) Main Board Director
An experienced securities industry professional, Paul is a regular conference speaker, panelist and frequent
contributor to the industry media. Based in Singapore since 2005, Paul is currently responsible for HSBC’s
APAC Securities & Cash Network Management & Market Intelligence function, covering Group businesses for
Global Banking & Markets, Global Transaction Bank, Global Private Bank and Global Asset Management.
Prior to this, Paul was the Asia Regional President of the Chartered Institute for Securities & Investment (CISI).
Paul also has experience as COO of a boutique alternative investment firm after having been Regional Sub-
Custody Product Head for JPMorgan Chase Bank N.A. where he was developing an Asia Pacific business from
Singapore. Paul moved to Asia in 2003 as the Global Head, Securities Services with Standard Chartered Bank,
where he was responsible for the end to end product and business segment, overall strategic direction,
leadership and development of Asian Regional Securities Services, with its customer base extending to North
America, Europe, Middle East and Asia.
Paul spent his early career in a number of roles including Director, Worldwide Agent Network with Royal Trust /
Royal Bank of Canada, Associate Director with Continental Bank N.A and a full range of international banking
roles with Lloyds Bank PLC, London.
Paul is a Chartered Fellow of the Chartered Institute for Securities & Investment, a main Board Director, he sits
on the Membership and International Committees and was a Director of the Hong Kong Securities Institute in
years 2003 and 2004. His personal interests include travel, languages, DIY, gardening, and music.

5. 5
Speaker Profiles
Lorraine Adlam
Chairman and Head of Financial Institutions
Practice
Howden Insurance Brokers Ltd
Lorraine has over 30 years' experience in the London insurance market as both a broker and underwriter,
specialising in professional/management liability and crime insurance for financial institutions.
She started her career on the Sedgwick (now Marsh) graduate training scheme and has held senior positions
within Aon, the Corporation of Lloyd’s, and Novae PLC.
Lorraine is Chairman of Howden Insurance Brokers Limited and Financial Lines Practice Leader for their global
operations, working closely with their specialist asset management team. She is a recognised market authority
on financial institution policy wordings and a frequent speaker on Directors’ and Officers’ Liability insurance for
investment funds.
More recently Lorraine provided advice on asset manager professional indemnity insurance to the BVCA,
EVCA and AIMA as part of their response to “ESMA’s draft technical advice to the European Commission on
possible implementing measures of the Alternative Investment Fund Managers Directive in relation to
supervision and third countries”. The Consultation is part of the European Securities and Markets Authority’s
(ESMA) work on providing technical advice to the European Commission on the detailed implementing
measures (Level 2) that should form part of the AIFMD framework

6. 6
Speaker Profiles
Han Ming Ho
Partner
Clifford Chance
• Han Ming Ho has experience in fund formation matters. He regularly advises fund managers on the
establishment of companies in Singapore as well as the establishment, structuring and registration of their
funds in Singapore and various offshore jurisdictions.
In addition, Han Ming's on regulatory expertise includes advising compliance and licensing issues relating to
Singapore securities and financial advisory law as well as, liaising regularly with the Singapore regulators.
Chairman of AIMA (Alternative Investment Management Association), Singapore National Group
Member of the Regulatory Committee of IMAS (Investment Management Association of Singapore)
Director of RICE (Returns Invested in Children and Education), a charity that provides financial assistance to
grassroots level, cause-oriented groups that otherwise have difficulty finding funding

7. Alternative Asset Management
Forum
Liability Trends in Today’s Market
… Lessons Learned
Arati Varma
17 November 2011

8. Today’s Objective
• Impact of the Global Financial Crisis
• Key Litigation Trends
What events lead to lawsuits
Who is getting sued
Who is suing & why
• Exposures and Claims
8

9. Alternative Asset Management
Forum
The views, information and content expressed
herein are those of the author and do not
necessarily represent the views of any of the
insurers of The Chubb Group of Insurance
Companies. Chubb did not participate in and
takes no position on the nature, quality or
accuracy of such content. The information
provided should not be relied on as legal
advice or a definitive statement of the law in
any jurisdiction. For such advice, an applicant,
insured, listener or reader should consult their
own legal counsel.
9

10. Impact of the Global Financial Crisis
• Increased regulation
• Pressure on fees
• Smaller funds struggling, while larger
funds are attracting more capital
• Increased demands and scrutiny by
investors
• Flight to Quality / Survival of the Fittest
10

11. What events Lead to Law Suits
Everyday activities, such as…
• Back-office support functions
• Communications with third parties
• Spending your time wisely
11

12. Trends: Who is Getting Sued?
Everyone / Everything
• Fund
• Firm individuals as PC directors
• Firm individuals
• Management company
• Fund management entity
12

13. Trends: Who is Suing & Why?
• Clients and fund
investors/shareholders
• Employees and former employees
• Companies invested in and their other
stakeholders
• Management
• Shareholders
• Creditors
• Other: Competitors, Service Providers
• Regulators
13

14. Trends: Who is Suing & Why?
Typical Allegations
• Breach of fiduciary duties
• Fraud
• Breach of contract
• Misrepresentation
14

15. Ripped from the Headlines
15

16. Investor Claims
• Most investor claims follow poor investment
results.
• Investor actions don’t just occur when a fund has a
major blow up. Other potential scenarios include
misrepresentations, disputes over redemptions,
valuation and pricing, fees, and undisclosed
conflicts of interest.
• Typical claims are individual written demands,
arbitrations and sometimes, lawsuits.
• Operational errors are a common claim trigger.
• Most frequent claimants are individual investors
and public pension funds, along with fund of funds
or family offices in the hedge funds sector.
• Most investor claims are settled.
16

17. Regulatory Claims
• Most policies cover formal investigations by
regulators against both entities and persons.
• Its not just the domestic regulator, but also any
securities exchange, self regulatory
organizations, and foreign regulators.
• Insider trading witch hunt.
• You don’t have to do anything wrong to be
investigated.
• Legal expenses for investigations are very
costly.
17

18. Key Issues to Consider
• Market externalities
• Allegations are free to make
• Defense costs
• Knock-on effects by other stakeholders
• Consequences of wrongful acts, negligence, or
even fraud by a third party
• Growing pressure from regulators and a rapidly
changing regulatory environment
• Personal assets of the leadership team at risk
• Insurance as a risk management tool
18

19. Thank You!

20. 20
Sub-custody
Network
Paul D. Hedges
Head of Asia Pacific Network
Management & Market Intelligence

21. 21
Structure: Network Management & Market Intelligence (N2MI)
Global Head of Network Management
a Market Intelligence (N2MI)
Market Intelligence & Network Network Network Market
Strategy Management Management Management Information and
Asia Pacific Americas EMEA Support
 Market Infrastructure Core network management functions
Market Information Support
analysis Analysis (MIA)
 Due diligence and RFP management
 Industry Initiative Analysis
 Agent risk & performance management  Agent Fees Management  Project
 Risk Analysis – Management
Sub-custodians, Futures brokers, Collateral managers,  MIS & Reporting
Precious metals vaults
Co-ordination
 External Relations  Operational Efficiency
 Office
 Infrastructure Risk Management
 A/C Opening and Closure Management
– Depositories, Clearing Houses, Central Counterparties
 Due Diligence Support  Financial
 Legal documentation facilitation Management
 Market summaries, profiles
 Troubleshooting and escalation and news

22. 22
Sub-Custodian Selection
1. Identify suitable providers: Main Criteria
I. Quality of Agent Bank (capital, credit standing and liquidity) & Service, Management and Staff
II. Commitment to Custody Business
III. Pricing
IV. Best in each market approach
V. Group vs Non-Group
VI. Approved Banks as defined by FSA (no brokers or investment banks)
2. RFP questionnaire – over 200 questions
3. Scoring process On-site due diligence visit
4. Re-score
5. Risk Assessment: All new appointments go through a rigorous selection, risk assessment & approval process via the Agent
Risk Assessment Team with final approval by the Global Head of Credit & Risk:
I. Credit risk assessment – using HSBC internal Credit Risk Rating (CRR) system (approved by UK regulator, FSA)
II. Operational risk assessment from due diligence (people, processes, systems, external suppliers)
III. Country risk: using HSBC country classification
IV. Market infrastructure risk: based on local legal opinions obtained
V. Legal risk: based on legal contracts in place
VI. Overall risk rating given which determines whether appointment can be made
6. Approval Process: Final approval provided by the N2MI Governance Panel, formed of senior executives from Compliance,
Credit & Risk, Legal, GTB (HSS + PCM), PB and GBM
The Policy is to select the most appropriate provider that meets all requirements. Group or non-Group.

23. 23
Ongoing Sub-Custodian Performance Monitoring
1. Biennial on-site due diligence visit – Risk based approach for Group & non-Group suppliers
– Agreed and Monitored by Compliance, Agent Risk Assessment Team & Governance Panel
2. Service Level Agreements: setting out agreed performance standards
3. Ongoing financial health checks: undertaken by HSBC Credit & Risk using CRR system
4. Annual reports: reviewed by Global Relationship Managers and Group Credit & Risk
5. Annual external audit reports
6. Active Performance through Quarterly Agent Bank scorecards
– Monthly Agent Bank Issues Meeting – feedback from all global business lines
7. League tables – external benchmarking to industry performance surveys

24. 24
Legal Opinions
 External legal opinion obtained for each market on a biennial basis
– An annual exercise is undertaken with 50% of markets being covered in one year and the remaining 50% in the following year
– Baker & McKenzie appointed for the legal opinion exercise
 Standard questions and topics determined by HSBC: Main Criteria
– 17f-5 and 17f-7 eligibility
– Recognition of Trust and Nominee concept
– The optimum registration and account structure that a sub custodian could adopt in the local market
– The level of protection afforded to HSBC’s clients’ assets in the event of insolvency of the local CSD, sub custodian or HSBC
 Segregation of assets (HSBC & sub-custodian)
– Any controls and/or regulation that would affect the of ability of HSBC to recover it’s clients’ assets
– Improvements that could be made to HSBC’s current approach
 Supplementary market specific questions and topics determined by HSBC: Potential Reasons
– Regulatory or legal changes
– Operational or market practice changes
 Foundation Memorandum drafted by HSBC Legal Department and issued to Baker & McKenzie
– Full instruction letter submitted by HSBC Legal department

25. 25
Agent Bank Network
HSBC Securities Services (HSS) covers the full range of
instruments in 95 markets worldwide through a network of
sub-custody agents. The full Network incorporates 42
HSBC entities and 53 non-HSBC entities.

26. 26
Thank you

27. 27
International Regulatory and Litigation Risk in the
Alternative Asset Management Sector
The Zuellig Forum – Singapore 17 Nov 2011

28. Barings Bank - US$1.3b

29. SociétéGénérale - US$7b
UBS - US$2.3b

30. Asset Management Sector Specialists
• Fund Manager clients in Asia, Middle East, N America, Continental Europe, UK
• Fund clients in Cayman, Mauritius, Dublin, Channel Islands, Luxembourg, UK
• Our credentials in the UK
700+ Investment fund and manager clients
30% of the Top 50 European Hedge Fund Managers (Hedge Fund Journal)
48% of UK Investment Trusts with AIC membership
36% of London Private Equity/Venture Capitalist market
25% of the directly regulated IFA market
Asset management claims experience:
121 open claims
248 closed claims

31. Asset Management Claims experience
Analysis of Hedge Fund claims 2010
Claimant types Nature of allegation
Employee
Investee 4%
Company Other
7% 16%
Regulator
Other 14%
Regulatory
5%
16% Breach of
Liquidator Fiduciary Duty
2% Investor 55%
68% Fraud
9%
Employment
Practices
Matter
4%

32. 32
Corporate Governance in Hedge Fund Investors
Survey 2011 (Conducted by Carne Global Financial Services)
• Top 100 allocators globally were approached.
• Responses received from allocators accounting for US$600 billion in allocations, approx. 30% of all
hedge fund AUM
PENSION FUNDS
6%
CONSULTANTS
W EALTH MANAGERS 10%
24%
INSURANCE COMPANIES
6%
INVESTMENT BANKS FUNDS OF FUNDS
10% 44%

33. Corporate Governance in Hedge Funds
 “91% agreed poor governance would deter them from investing, even if
other operational and performance criteria were met”
 “76% have already decided against investing on at least one occasion due
to governance concerns”
 “Allocators are more content with governance levels on fund boards
promoted by European fund managers than by n American or Asia Pacific
managers “
Carne Global Financial Services survey 2011

34. Corporate Governance in Hedge Funds -Asia
Specific issues for Asian managers are:
 “Lack of transparency and willingness to provide information”
 “Lack of independent directors on boards with directors lacking the
requisite skills and experience or holding too many directorships”
Carne Global Financial Services survey 2011

35. UK FSA fines against regulated firms
 2008 £4.4m
 2009 £27.3m
 2010 £33.6m
 2011 £96.7m
12 months to 31st March

36. Mitigation of litigation and regulatory risk through
insurance
Risk Insurance Solution
Regulatory investigations Covered under PI and D&O policies
Litigation risk PI and D&O policies protect fund management entities
against allegations of wrongful acts in the provision of
investment services and manager and fund directors
against claims for breach of directorial duties.
POSI policies cover allegations of misstatement in
prospectuses
Investment risk Transactional liability insurance can cover claims for
breach of representation or warranty arising out of a
corporate transaction

37. Disclaimer
This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Howden
Insurance Brokers Limited, except that clients of Howden Insurance Brokers Limited need not obtain such permission when using this report
either for their internal purposes or to give to their clients. The information contained herein is based on sources we believe reliable and
should be understood to be general risk management and insurance information only. Howden makes no representations or warranties,
expressed or implied, concerning the accuracy of information contained herein. The information is not intended to be taken as advice with
respect to any individual situation and cannot be relied upon as such.
Copyright © November 2011 Howden Broking Group

38. 38
“Challenges you may face as a
fund manager in Singapore”
Ho Han Ming, Partner, Clifford Chance and Chairman of AIMA Singapore

39. 39
Questions
?