SWIFT Funds Conference explores critical challenges and progress of automationMore than 260 people attended the London event on 12 JunePublished on 4 July 2008 Enabling greater transparency for clients is a key priority for the fund management business.
These were among the many messages from speakers and panelists during the SWIFT Funds Conference at London’s Grange City Hotel on 12 June. More than 260 people attended the event, now in its fifth year, to hear and participate in a series of panel debates on the critical issues facing the funds industry.
Keynote speaker Adam Lessing, Head of European Business Development at Morley Fund Management, sought to put the current market difficulties created by the credit crunch into perspective, and to reassure delegates that “the world is not ending”. Using the example of Bear Stearns, he pointed out that though after its rescue its stock price fell, its bond price rose – meaning “there are ways to produce alpha for your clients if you are positioned in the right place in the market”.
Effective use of technology impacts all aspects of the funds industry, as Maggie Williams, executive editor of The Fund Business, discovered when she attended SWIFT's annual Funds Conference on 12 June in London. Read the article — which appeared in The Fund Business June 2008 edition — to find out her main impressions of the day.
However, Lessing also said the industry does have some serious problems to address. There have been unprecedented outflows from mutual funds in recent months, and those investments are not “shifting” but “disappearing into cash”. A key driver of this has been that in the downturn, “a number of products have not performed as expected”, he continued. “Money market funds lost 20 per cent of their value – and that is utterly unacceptable. Our ability to predict the type of performance, the shape of the curves – the fact we can’t gauge the risk in products that we thought were risk free, and that ultimately triple A isn’t triple A – creates issues that we must work through,” he said, by developing a stronger risk and performance analysis capability.
During the interactive panel discussions that followed, many of the themes raised by Lessing were explored in greater detail. A panel on the critical issues facing the industry concluded that improving fund distribution is a major priority for the industry – although SWIFT’s Edward Glyn came back to this point later, asking why gaining more assets is at the top of the agenda, given recent outflows. Surely the focus should be on addressing the reasons why investors are moving their money away?
The challenge of providing transparency to investors who are clearly losing faith in some products in light of their recent poor performance was also a recurring theme of the discussions, with James Finch of Barclays Global Investors pointing out that the rise of portal distribution makes providing transparency more difficult still.
Another focal point for speakers was the need to reduce costs to maximise profitability in this challenging market environment. As Margaret Adams, Managing Director, JPMorgan pointed out: “Our clients have increased pressure on their margins and want to reduce costs to keep their clients happy. That challenge for the asset managers trickles down to their service providers, and means we need to reduce costs.” The good news, she said, is that “there are a lot of things we can do as an industry to improve efficiency”.
The progress of STP in the funds business so far was revealed as being better in some areas than others. Some speakers expressed frustration that adoption of the solutions available to support automation has been too slow – because when the markets are buoyant firms don’t see the need to cut costs through STP, and when there’s a downturn, the appetite for investment in technology evaporates.
Elsewhere, however, there was evidence of real progress being made with improving automation, including an update on the SHarP initiative through which participants in the fund of hedge fund community are collaborating to use SWIFT’s funds messages to reduce cost and risk in their operations.
By taking a phased approach, the firms involved in SHarP – which started in Dublin and Luxembourg, but which has attracted interest in Switzerland and Japan, and is also now being aligned with the DTCC’s AIP product in the US market – are trying to make quick gains and then build on them. As Drew Douglas, Head of Alternative Funds Services, HSBC AFS told delegates, the aim is not “to bite off more than we could chew”, but rather to concentrate on achievable goals. What has been achieved so far is ‘not nirvana”, and there is a long way to go, he said – but already a significant amount of the risk and cost inherent in this complex business looks likely to be eliminated as a result of this automation initiative.
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