Originally published in HFM Week, Guernsey Special Report, May 2012
Keith Johnson and Lisa Haggarty, of Deutsche Bank, explain how fund administrators and investment managers are demanding more from their custody services and require a flexible solution.
The strength and resilience of Guernsey's funds sector continues to bring opportunities for Guernsey-based financial firms and it is increasingly important to have the expertise of locally based custodians to underpin the sophisticated investment fund community.
Having had an established custody service through its Channel Islands o_ces for more than 35 years, Deutsche Bank continues to play a part in positioning Guernsey as a major European centre for custody business and believes strongly that custody is one of a number of crucial pillars that support the fund industry.
It is becoming increasingly clear that fund administrators and investment managers are demanding supplementary services in addition to their existing custody facility. Guernsey bene_ts from being home to a number of global institutions, like Deutsche Bank, that have the capability to act as a 'one-stop-shop' and meet these demands.
The rise of custody business in Guernsey accompanied the growth of the retail funds industry in the 1970s, allied to the growing accessibility of the stock market to the general public as a result of privatisations in the 1980s. Subsequent UK tax legislation changes have also fuelled the growth and attractiveness of the Channel Islands' custody services.
Today, Deutsche Bank has a formidable reputation for global custody solutions, looking a_er in excess of €13trn of assets globally, with the Channel Islands offices alone acting as custodian for assets valued at several billion euros. The first-class reputation Guernsey has as a jurisdiction for specialist funds is proving valuable, with alternative asset classes, including real estate, hedge and private equity funds, now representing a major proportion of the total value of funds business. _is has been a major growth area for Deutsche Bank, with recent new custody business encompassing Shariah-compliant funds, property, new energy, green and sustainability funds, as well as more traditional fund of funds structures.
In addition, as is widely expected, a change to Guernsey's rules for non-Guernsey funds will mean that rather than those funds having to go through a long approval process with the Commission, a Guernsey licensee will take responsibility for the due diligence process. This will enable the right corporate governance and oversight processes in place, to offer non-Guernsey funds a quicker turnaround time.
Having the right infrastructure is also important in managing the transfer of business from other custodians. Deutsche Bank's custody, client adoption and relationship management teams have a wealth of experience in working together to ensure efficient and seamless transition of business from previous custodians.
For instance, by having that appropriate framework in place, Deutsche Bank in Guernsey recently took on a complex protected cell company structure comprising 70 cells, with only minor interruptions to the day to day operation of the fund and the investment manager's ability to trade.
With the kind of custody services demanded by investment manager becoming more sophisticated, there has to be a flexible approach. As well as seeking custody solutions, there is also a need for bespoke support in other areas, such as lending, banking, foreign exchange and hedging, and if that can be managed by one organisation, it is a compelling proposition.
Lending, for instance, is an area where funds increasingly require support. Access to liquidity assists the investment manager to effectively manage their cash flows, giving them the flexibility to take advantage of investment opportunities as and when they arise, without the need to wait for proceeds to become available through subscriptions or from the sale of other assets. A liquidity facility can also be a valuable tool for the fund administrator when it comes to managing investor redemptions.
While a number of other established banks and credit organisations have been withdrawing from lending, Deutsche Bank has maintained a strong balance sheet and Tier 1 capital ratio throughout the credit crisis, and its ability to offer credit has stayed strong. This is equally the case in the Channel Islands, where Deutsche Bank has the capabilities to provide lending services to funds.
Foreign exchange (FX) hedging is another area of great importance to investment managers who need to minimise the currency risk which may arise when the fund is holding assets which are not denominated in base currency, or in instances where there are different currency share classes in issue.
_is is a facility that can be readily accessed through Deutsche Bank's Channel Islands-based Treasury Team. Globally, Deutsche Bank is a dominant force in the FX market – with around 15% of the market - enabling it to top the Euromoney FX Survey for the past seven years. Bespoke reporting is also high on the wish list for fund administrators, which is why Deutsche Bank's flexible reporting package, that can be tailored to clients' specific needs, is so attractive.
This year Deutsche Bank celebrates its 40th year of being present in the Channel Islands. In those 40 years what has helped achieve success has been a willingness to form longterm, strategic partnerships with our clients. As well as acting as custodian and banker for large funds, it has also been important to support more bespoke custody business, such as alternative asset classes and new fund launches.
Tailored solutions are crucial, which is why it is important to become the custodian of choice to fund administrators and managers. We pride ourselves on getting to know their business, so that we can adapt our custody and banking services, as well as a range of additional facilities to meet their needs. _is is why the global reach offered by Deutsche Bank is so attractive – it means our clients benefit from a worldwide network of direct agent relationship, access to complementary specialist financial solutions and markets globally.
With Guernsey's growing reputation as a centre for specialist funds, its network of fund managers and administrators will continue to require a responsible partner to provide them with dependable custody services. Alongside this, it is becoming more and more important to have complementary pillars in place to ensure success in a challenging environment, and Deutsche Bank in the Channel Islands is well placed to support the fund industry in all areas.
Keith Johnson,head of custody, Deutsche Bank International Limited, joinedDeutsche Bank in 2007 as director to focus on developing thecustody offering. He supports the businesses in the Channel Islands and Cayman. Keith is also responsible for custody businessreviews and leads the development of the online bankingplatforms.
Lisa Haggarty, joined Deutsche Bank in May 2007. She is currently relationshipmanager within the Financial Intermediaries Team and hasresponsibility for custody and fund clients. Lisa has worked in thefinance industry for nearly 20 years, beginning her career withNatWest Bank. She spent ten years with MeesPierson in variousbanking and credit roles before moving to Investec Bank andsubsequently joining Deutsche Bank. Lisa is IMC qualified and holdsa diploma in Fund Administration.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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