ROUND TABLE
                                                                                                                         ROUND TABLE

The ICFA Luxembourg Funds
IndusTry round TAbLe 2009
Around The TAbLe:
     CHAIR: CHARles MulleR is the deputy director general of the Association of the luxembourg Fund Industry (AlFI). He
     studied law in Paris at the sorbonne (Maitrise en Droit) and in london at university College (llM) and is a fully qualified
     luxembourg barrister (Avocat-Avoue). Charles left the Bar in 1994 to work for BGl where the last position he held was
     deputy secretary general. He joined AlFI in 2003 and is now deputy director general. His role mainly includes promotion
     and relations with the authorities. He is a member of the management committee of the european fund association
     eFAMA and a board member of the worldwide fund association IIFA.

     Josée DenIs is is vice president at BnY Mellon Asset servicing in luxembourg. she forms part of eMeA sales &
     business development where she mainly covers the growth and business development of the bank’s asset servicing line
     of business. Having mainly covered cross-border global fund administration services between Asia and europe for over
     18 months, Josée’s current remit is the emerging markets of Central and south eastern europe. she is the founder and
     chairwoman of the luxembourg TA & Distribution Forum, launched in 1999 as well as the founder and chairwoman of the
     AlFI TA Forum since its integration into AlFI in 2004.

     HuBeRT GRIGnon DuMoulIn is the head of the issuers and securities department at the luxembourg stock
     exchange. He joined the stock exchange in october 2004 in charge of issuers and market regulation, notably for the
     implementation at the exchange level of the luxembourg legislation transposing the recently adopted eu directives
     related to securities markets. He studied economics and Finance at Paris university and in Paris Institut d’etudes
     Politiques. He also completed a programme in financial analysis (postgraduate degree in 1993). In 1991 he joined the
     French securities regulator (Commission des opérations de Bourse) in the enforcement division. In 1994 he moved to
     the corporate finance division where he gained experience on scrutiny of prospectuses and primary markets activities. He
     was entrusted with the position of deputy head of corporate finance division.

     JeAn-MICHel loeHR is chief of industry & government relations for RBC Dexia Investor services. Jean-Michel spent a
     large part of his career within Dexia BIl in various management functions related to fund administration and investor
     services. He also headed the fund services department for Banque Paribas in luxembourg for seven years before joining
     Dexia Fund services, a predecessor company to RBC Dexia Investor services, in 2000. Prior to his present role, Jean-
     Michel served as head of operations and Ceo of RBC Dexia Investor services Bank, luxembourg. Jean-Michel loehr is
     also a member of the board of directors of AlFI as well as a board member for a number of international funds.

     GeoRG lAsCH is Benelux head of coverage, institutional investors at BnP Paribas securities services. As such he is
     responsible for sales, relationship management and the business quality management teams in Benelux. He is also
     part of the executive committee of BnP Paribas securities services luxembourg. Georg sits on the board of several
     investment companies and has been active in the luxembourg fund industry for 15 years. Prior to joining BnP Paribas
     securities services in 2001, Georg was vice president at Credit Agricole Indosuez luxembourg, where he was in charge
     of selling back-office solutions to banks, investment managers and insurance companies in the us, the uK, sweden,
     Benelux and German-speaking countries.

                                                                         international custody & fund administration               43

      THe luxeMBouRG FunDs InDusTRY seeKs To FuRTHeR PRoMoTe ITs
      RePuTATIon As A CenTRe oF exCellenCe To DeveloP AnD exPAnD
      BusIness. ICFA InvITeD A PAnel oF leADInG InDusTRY exeCuTIves To
      DeBATe THe KeY oPPoRTunITIes AnD CHAllenGes THeY ARe FACInG

      Muller: Obviously 2008 was a chal-                take more time to analyse the changing             service provider, we have adopted a more
      lenging year with the sub-prime issue, the        market and the shape of things to come.            advisory, consultative role in assisting them,
      stock markets declining dramatically, the                                                            not least in representing their interests to
      liquidity crisis and Madoff. There are more       GriGnon DuMoulin: Indeed, 2008                     local associations and the local regulator. As
      than enough issues to discuss emanating           was a good year. The last quarter was diffi-       you know, we work very closely with other
      from these events. What is your impression        cult in terms of activity. We saw a sharp          associations as well with our US counter-
      of the past 12 months?                            decrease in the number of listings, in the         parts, not only on Madoff but also other
                                                        value of all asset classes, equities and invest-   market crisis initiatives. More broadly, BNY
      loehr: I think we should definitely cut           ment funding.                                      Mellon’s financial stability and strength has
      2008 into two parts. The first half year was                                                         so far kept us in very good stead through
      still positive. Volatility was high, but it       Muller: We lost 25% of assets under                the liquidity crisis and we remain very well-
      didn’t feel like the crisis it turned out to be   management. That is €500 billion and a lot         positioned for when the recovery begins.
      at the end of the year. There was a definite      of money. Although we all keep saying we
      change in the last quarter of 2008. Basically     didn’t have such a bad year, perhaps the           loehr: Liquidity was a major issue in the
      we had very good results in line with what        criteria of just looking at assets under           market by the end of last year. It is less so
      we had expected, although a bit down on           management is wrong. We found that 85%             now. We didn’t see the huge outflow of
      2007. But it really was the last quarter which    of this €500 billion was due to markets and        money market funds that we might have,
      saw major changes and concerns for fund           only 15% to net sales. What is your impres-        although it may still happen. That is the
      managers.                                         sion? Where do we still sell – is it Europe, is    good news. Definitely, the solution in such
                                                        it outside Europe?                                 a situation is about being very close to our
      lasch: The beginning of the year was                                                                 clients. There was a demand for more bridge
      good until April – then we saw the first          lasch: We started 2009 from a low base             financing towards the end of the year. We
      signs of markets declining. In late summer        after a decline in markets over the second         needed to make sure on a short-term basis
      and September came the real crisis.               part of 2008 and no sign of recovery in
        Our results were better than ever over the      2009. The outlook for 2009 is therefore
      year, pushed by the first half of 2008. But       grimmer than in 2008. Today we see a trust
      what changed was the composition of our           crisis in the banking system as a whole and
      revenues. On the one side we had a decrease       between financial institutions. Effectively
      of traditional asset-servicing revenues –         that is causing a flight to quality. While on
      revenues that are traditionally mainly based      the one side the valuation of existing assets
      on assets and transaction volumes and that        of our clients strongly decreased, on the
      were hit by the market downturn. On the           other side we generated a lot of new busi-
      other hand revenues relating from liquidity       ness from clients whom we never dealt with
      management and cash were strongly up.             before, as they turn towards safety. We are
                                                        seen as one of the safest banks with an AA
      Denis: The final quarter of 2008 has been         rating and the lowest CDS (credit default
      difficult for all of us. Nevertheless, BNYM       swaps) spreads. This is probably not the
      has a strong balance sheet and business           same for every bank in the market but is
      growth on the asset servicing side. Obviously     clearly a trend for the better-rated ones.
      we kicked off 2009 with lower revenues
      because the flow of mandates has slowed,          Muller: How are some of the problems
      but business may pick up again in Q2 as we        and issues of 2008, including the lack of
      see deferred projects start to come               liquidity, spilling over into 2009? How will
      through.                                          that affect this year?
        Many organisations have not cancelled
      their business development projects, they         Denis: Some clients have suspended their
      have merely postponed those projects to           funds over the last few months. As their

44	   april/may 2009
                                                                                                                                        ROUND TABLE

                     We always say good things come in small
                                                        Josée Denis, Bank of New York Mellon

that clients had liquidity to meet short-term    ‘new’ European countries view Luxembourg
redemption peaks. This was done in very          as a benchmark against which they can
close collaboration with the clients, making     measure their own evolution in the invest-
sure we really understand each other’s           ment funds space. Take Poland as an exam-
constraints, advising them on the options,       ple – migration means Polish investors are
in partnership together.                         now residing in the UK, Ireland and
  We were lucky. None of our funds has           Switzerland. They have deeper pockets and
suspended redemption so far.                     now have spare cash to invest not only in
  Regarding trends, liquidity today is less      Polish pension schemes in Poland, but also
of an issue than it was in September/            in other investment opportunities in their
October 2008.                                    new country of residence. Their choice may
                                                 well be a Luxembourg-domiciled product.           players who are here now – their ability to
lasch: At this crucial moment it was key         Most of the discussions that I am having          deliver and to transform the business – this
to take the right decisions together with        with potential clients in the CEE region          will be key in the future.
fund boards and clients to finance, suspend      are around the potential launch of a                Clients are looking at Luxembourg. We
NAVs or liquidate funds. The combination         Luxembourg SICAV or another type of               have to go to them and explain what we are
of having illiquid assets, redemptions, short-   fund in order to attract their own expatriate     about and not wait for them to come and
age of cash and FX losses forced service         communities.                                      listen to what we have to propose. We need
providers and clients to focus on risk                                                             to take the initiative much more, going out
management and credit control and effec-         lasch: Existing players are certainly             there and explaining the long-term
tively implied a daily provisional cash flow     looking at Luxembourg as a highly regu-           sustainability that we can offer.
control. These elements will continue to         lated and very safe haven. That is the argu-        Everybody can be successful once but our
bring value in 2009 as liquidity slowly re-      ment that is in the main attracting people to     clients have a 10-year perspective. When
enters the market.                               Luxembourg. The supervisory role of our           you build a solution and make the decision
                                                 regulator is very much appreciated and today      to invest, you want it to be sustainable for
Muller: Looking to the future, what              particularly the Ucits brand outside of           the next five to 10 years. That is definitely
are the main opportunities?                      Europe is generally linked to Luxembourg          something Luxembourg can offer and we
                                                 and its great reputation.                         can tell the world.
loehr: I think there are still many                From a European perspective, I think we
opportunities in the US because all the big      also see a lot of clients coming from the         Muller: Is the reign of unregulated
top-level players are there. There is a huge     Middle East and Asia. These are generally         funds over? Will regulation from the
amount of second- and third-level players        the very large groups, like sovereign wealth      European Union be seen as a threat to busi-
who work only domestically. They see             funds and government agencies that start          ness in general and to Luxembourg specifi-
moving to international business as highly       looking at Luxembourg as a country that           cally? Or is this an opportunity?
complicated. Canada would be another             offers regulation and provides safety. Hence
example for us. We do not see any Canadian       we see a growing interest from the Middle         loehr: It depends on what we want to
asset managers here and these people are         East and Asia.                                    achieve and what regulation will bring. If
definitely keen to enter into global distribu-                                                     regulation brings an additional level of qual-
tion models.                                     loehr: You mentioned quality. That is             ity with greater transparency and clearer
                                                 true and it is good news that Luxembourg is       rules, then that will also bring a lot of posi-
Denis: I see opportunities in Central,           seen as a quality centre. I would add that it     tive opportunities. It is about making sure
Eastern and South Eastern Europe, proba-         is also about sustainability because although     we have effective regulation that actually
bly because it is my remit at the moment.        there is a global crisis today, we have to look   addresses the problem we want to solve.
We always say ‘good things come in small         ahead now to what will happen after the           Over-regulating or regulating for the sake
packages’ and in those markets in particular     crisis – to the next six months or the next       of regulation makes no sense.
Luxembourg is viewed as a leading fund           two years. Sustainability, coupled with the         What is creating concerns today that
administration centre and the Ucits domi-        creativity and flexibility we have always         should be addressed by more regulation?
cile of choice for global distribution. These    shown, is actually a desirable quality. The       Those are the questions to be answered.

                                                                                        international custody & fund administration                  45

                                                          One of the aims of the regulation should be
                                                       investor protection that helps generate additional
                                                       Georg Lasch, BNP Paribas Securities Services

                                                       or at least accountability, within the regula-   it is about, explaining, again, how these
                                                       tory framework.                                  new opportunities can help clients enhance
                                                         I therefore see some value in further          and develop their business. We should do it
                                                       regulation.                                      now before the law is enacted. This is a
                                                                                                        great opportunity not to be missed for the
                                                       Muller: Ucits IV is designed as a pack-          industry, to go to clients and work with
                                                       age to make the Ucits framework more effi-       them to explore the options, such as stay-
                                                       cient for fund mergers, for master feeder        ing here, bringing business in and the
                                                       pooling, for management companies to             downside of moving out. It is a question of
                                                       passport products throughout the EU.             looking at what changing really means,
                                                       Changes are coming. How do you view that         what we can bring and what the market-
                                                       for Luxembourg? Will that be an opportu-         place can bring.
                                                       nity to increase business in Luxembourg or
                                                       is there a threat that, for example, manage-     lasch: Clearly, on the master feeder side,
                                                       ment companies might go elsewhere and            we see this will probably bring much more
     Muller: For example, let’s take mini-             manage their funds other than in                 business into Luxembourg as master funds
     mum global rules on hedge funds. Would            Luxembourg?                                      will typically be domiciled in Luxembourg
     that be positive for us?                                                                           and feeders will be located in domestic
                                                       Denis: In Luxembourg we are very good            countries.
     GriGnon DuMoulin: If there is a                   at being a proactive industry, in that we          Merging funds, communication between
     comprehensive framework, it might help the        always aim to be at the forefront of new EU      regulators and key information documents
     cross-border distribution within the              directives, regulatory changes and so on.        – all these are positive. However, there are
     European Union of hedge funds and alter-          For instance, as soon as a directive comes       concerns about its impacts in reality.
     native investment funds.                          out, we are one of the first countries to        Particularly with regard to mergers as the
                                                       review it across all related associations in     tax aspect, that is the main blocking point
     lasch: One of the aims of regulation              close co-operation with our regulators. As a     has not been addressed. We anticipate that
     should be investor protection that helps          directive is transposed into the Luxembourg      instead of merging say a German and
     generate additional trust. Investors mainly       regulatory and legal framework, we will          Luxembourg fund, we might see the
     fall into two categories. One is the sophisti-    have prepared ourselves extensively. We          German fund transforming into a feeder of
     cated investor who is very knowledgeable          already have various ALFI working groups         a Luxembourg master and keeping its
     and is prepared to take some risk, some-          looking at Ucits IV across many subjects.        German investors in the local product in
     times a high risk, but with a good under-         Transfer agency is a particularly good exam-     order not to generate taxable events.
     standing of that risk. Then there is the          ple: an ALFI TA working group is currently         This would increase the size of Luxembourg
     smaller investor who is generally less            defining guidelines on the migration of          funds but keep the same number of funds in
     educated about markets and risks and there-       funds’ business from one fund administra-        Europe as before.
     fore needs much more protection.                  tion service provider to another within a          We believe larger asset management
     Regulation should have two different              domestic context. We are giving serious          companies will continue to use Luxembourg
     approaches related to these two types of          thought to the implications of Ucits IV and      as a location for oversight and governance,
     investors.                                        the management company passport and the          closer to regulation and the market – smaller
       Where regulation could also bring addi-         migration of funds’ business to or from          ones might just keep a domestic presence.
     tional value is in covering the risks that are    Luxembourg.
     not taken consciously. Madoff highlighted                                                          GriGnon DuMoulin: We see some
     this. There is regulation and everybody           loehr: There are different scenarios. I          opportunities in Ucits IV because of new
     thinks that it protects against a certain         definitely see Ucits IV as being an extraor-     documentation requirements. Our subsidi-
     number of risks but that is not necessarily       dinary opportunity to start a dialogue now       ary Finesti, is going to propose automated
     the case. More regulation on interpretation       with our clients. This is the time to start      solutions to prepare the kind of documents
     of risk is probably bringing additional safety,   talking about options and explaining what        needed by Ucits IV.

46   april/may 2009

                                                             The SIF is certainly a success
                                                        Jean Michel Loehr, RBC Dexia Investor Services

                                                        viewed as an innovative and sophisticated         Denis: It is a rumbling volcano. Let’s just
                                                        product.                                          wait and see when it starts erupting which
                                                                                                          of the key names will exit the business.
                                                        Muller: The SIF is used mainly for real           Certainly, a lot of players are currently
                                                        estate, private equity and Islamic funds.         taking a hard look at their ability or willing-
                                                        What trends do you see?                           ness to stay committed to this business in
                                                                                                          the longer term.
                                                        loehr: Definitely real estate is still a hot
                                                        topic, and private equity. Speaking to insti-     Muller: What are the operational chal-
                                                        tutional investors, they see the SIF as a         lenges, particularly in the area of
                                                        perfect tool. There is a lot of institutional     automation?
                                                        money still to be invested.
                                                                                                          Denis: Most institutions have invested
                                                        lasch: Every private equity and real              significantly over the past five to 10 years in
                                                        estate client we have goes into a SIF.            standardisation and automation in line with
                                                        Nevertheless, the largest SIFs are created by     the various corresponding SWIFT initia-
                                                        institutional clients with traditional long-      tives. At BNY Mellon we have put a lot of
     Muller: The SIF has been used for two              only investment policies or simple hedge or       energy into promoting such initiatives, both
     years now and has spawned a lot of new             funds of hedge funds. We definitely believe       internally and externally. We have ourselves
     structures. Is it a success?                       this trend will continue.                         made great strides in terms of being as auto-
                                                                                                          mated as possible. Most key players now
     loehr: The SIF is certainly a success. It          Muller: Will 2009 bring industry                  have global distribution support capabilities
     is a perfect example of a well-designed prod-      consolidation?                                    where only five years ago there were only a
     uct answering a clear demand from a certain                                                          few available. Having such a seamless cross-
     client segment. It is regulated and answers        loehr: Definitely there will be consoli-          border fund administration service that effi-
     the needs of a very specific segment of            dation of asset management and in custody.        ciently supports global fund distribution
     clients.                                           Whether we will see this in 2009 or 2010 is       across whole regions is key today.
       In the Middle East it could be a very            a moot point. In the very short term, it is
     attractive product. It is a good example of        difficult simply because businesses are diffi-    loehr: There has been huge progress
     what we should do more of in the future:           cult to price. The uncertainty of the market      particularly in creating a dynamic around
     listening, adapting, and designing products        makes it difficult to sell or to buy. The prob-   transfer agency in Luxembourg and helping
     which are regulated and which answer a real        lem is in agreeing on what the right price        to push that forward. The question needs to
     need.                                              should be. Pressure on costs is fundamen-         be put to the client at the distributor level
                                                        tal. Many asset managers are reviewing            because that is really where the difficulties
     lasch: The SIF is an extraordinary                 their models as they are suffering today and      lie.
     success story. It provides institutional clients   that should definitely drive a wave of              Today, we have automation of around 70–
     with a product that allows a quick time to         consolidations over the next couple of            75% in terms of order processing. This is
     market with strong flexibility. The types of       years.                                            good but 25% remains manual and labour-
     investors that use these structures are                                                              intensive. There is a large potential for
     sophisticated and need minimal protection          lasch: I do not see Luxembourg as being           improvment. I am amazed about the huge
       It has taken market share from other             a place where there will be a lot of consoli-     gap between the phenomenal success of
     offshore locations and it has also taken a         dation. Luxembourg banks will not experi-         Ucits III, or Ucits as a global brand, and the
     share of the Ucits market, mainly because of       ence consolidation. Rather, it is part of the     way that funds are still settled in Europe. It
     its flexibility. SIFs are often funds that could   global landscape. As the financial world          is like the Middle Ages. We do not actually
     have been created under Ucits or non-Ucits         goes through the current crisis, there is a       have any kind of integrated settlement or
     Part II.                                           great deal of merger and acquisition activity     routing process in Europe. As a marketplace
                                                        across banking activities. We are in the          we do not want to miss an immense oppor-
     Denis: I think it is a great success, partic-      frontline so we will see some consolidation       tunity for profiting from the dynamic we
     ularly in the Middle East and also in Central      in Luxembourg reflecting consolidation            have created worldwide, where tens of thou-
     Europe. People are looking at Luxembourg           globally. It is the same on the asset manage-     sands of distributors use our products but
     SIFs for high-end investments, as they are         ment side.                                        without a standardised settlement process.

48   april/may 2009
                                                                                                                                        ROUND TABLE

Denis: Because Luxembourg is the lead-           securities settlement system] to constitute a    on management skills that become more
ing centre of cross-border funds, it is often    driver in STP.                                   important as teams grow.
viewed as a benchmark but nonetheless we
could still enhance its profile further.         Muller: Is finding qualified staff still a       Muller: Where would you like your
EFAMA is looking at using the fund               problem, given the economic downturn?            organisation and the Luxembourg fund
processing passport (FPP) as a way to push                                                        industry to be in a year’s time?
for a European central funds database as a       Denis: Within Luxembourg, there is a
repository of all FPPs in Europe across all      gap opening up between the younger gener-        loehr: There is a lot I would like to see
domiciles. In Luxembourg, two FPP facili-        ation and the mature veterans of this indus-     but one important thing would be for
ties are currently being proposed to the         try. Plenty of us have been in this business     Luxembourg to move into a much more
market but – while we are luckier than many      for 15 or 20 years and have reached a senior     dynamic type of communication with the
other markets – the FPP has clearly not          level, but we are not so well placed when it     outside world. We have so much to sell as a
proved a great success for Luxembourg-           comes to the middle management/supervi-          centre but we are forced to be so defensive
domiciled funds. Despite intensive efforts,      sory layer – with at least 10 years of experi-   in light of recent market developments. If
out of over 3,400 funds in Luxembourg, no        ence and knowledge – that is so key for          we could move to a much more proactive,
more than 120 funds have FPPs. Now, for          managing operational teams day-to-day and        positive, professionally organised marketing
EFAMA to drive the implementation of a           bringing through junior administrators.          effort for the Grand Duchy, it could lead to
dedicated European central funds database,                                                        more business. We have a lot of positive
this will necessitate an extremely strong and    loehr: It is obviously less difficult now        things to say as an internatioanal fund
formalised commitment across all European        than it was a couple of months ago but           centre of excellence, but we have to find a
fund associations. It took Luxembourg four       whatever happens, this industry will need        way of bringing that information to poten-
years to launch the FPP.                         skilled and talented people in the future.       tial clients.
                                                 This will be an ongoing story. So we have to
loehr: Today the level of straight-              educate people, particularly managers.           Denis: From an ALFI perspective, budget
through processing (STP) is around 70%.            We all have this problem of scarce middle      restrictions mean it will be particularly diffi-
What would be interesting to see as a statis-    management, or even top management               cult this year to promote our industry.
tic is not transaction volumes but the size of   resources. That is where Luxembourg has          Paradoxically, at the time we need to reas-
assets that are moved and whether the STP        perhaps not fulfilled its educational role       sure countries and promoters about our
rate actually represents a higher percentage     over the past 10 years and now has to catch      strengths and services, we are constrained in
of the total value of the transaction            up. As we have to import these                   the marketing avenues we can take. In these
compared with the number of transactions.        management skills, this could be seen as a       trying times, we should be opportunistic in
This figure would be more indicative of the      risk or an opportunity. Up to now, it has        promoting Luxembourg as a leading fund
risk involved.                                   enriched this country to have external           domicile and fund administration centre.
                                                 talent brought in to build the community.
GriGnon DuMoulin: On the settle-                                                                  lasch: My general wish for the industry
ment side, we expect the Target 2S project       lasch: It is not an issue at the moment.         is for a recovery of the financial world.
[the European Central Bank’s proposed            At BNP Paribas, we tend to feed talents          In order to get there we need a good portion
                                                 from our other mainly European locations         of optimism and motivation and most
                                                 through internal mobility. In that way we        importantly trust. We will continue to safe-
                                                 can both ensure the cultural mix, cross-         guard the assets of our clients and provide
                                                 fertilise through different locations and        the services and products that our clients
                                                 learn from different experiences. At today’s     need throughout the globe.
                                                 speed of change people focus a great deal on
                                                 their ‘little silos’, their own immediate area   GriGnon DuMoulin: We would
                                                 of activity, and they do not take the time to    like to see a return to normal conditions in
                                                 get the training needed to become a top          capital markets, especially in the financing
                                                 manager. It is therefore important to rotate     of credit institutions. That would help all
                                                 people in order to give them different views     the financial services, including the fund
                                                 on our business and train them particularly      industry. n

                                                     We would like to see a return to normal conditions
                                                 in capital markets
                                                 Hubert Grignon Dumoulin, Luxembourg Stock Exchange

                                                                                       international custody & fund administration                   49

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