The investment funds industry could save 25 percent of processing costs and gain over € 250 million by streamlining trading, settlement and custody of cross border mutual funds distribution. This is the result of a study by Deloitte in partnership with Clearstream, the international central securities depository within the Deutsche Börse Group, released at Fund Forum this week in Monaco.
Additionally, with Basel II standards coming into effect in 2008, industry participants such as transfer agents and distributors would also save approximately 20 percent of regulatory capital required to run their business. This translates to some 4% in economic equity according to the findings of the study conducted between March and June 2007.
The European mutual fund industry uses different models: transfer agents in Luxembourg and Dublin, Central Securities Depositories in France and Germany or mixed models. All models currently involve a significant amount of manual processing in order trading. As there is no standardized trading solution there is also a need to interface with a multitude of actors. Last but not least payments of subscriptions and redemptions are processed via different channels with various risk components and a multiplication of intermediaries.
The study’s focus was cross border mutual fund distribution in Europe’s two major markets, Luxembourg and Ireland which together manage close to € 3 trillion in assets and account for over 90% of the cross border trades. The study decomposed the value chain in processes and sub processes and looked at the main components in terms of risks and costs. Assumptions and findings were then validated with major players at each level of the value chain.
Philippe Seyll, Head of Investment funds services at Clearstream, commented: This study, for the first time, quantifies efficiency gains through streamlined processes of cross border investment funds. Clearstream is particularly proud to put its expertise, in other asset classes such as bonds and equities, at the service of the investment funds industry and to deliver solutions best adapted to the needs of market’s participants and best suited for the industry’s benefits”.
Clearstream offers two services dedicated to the Funds industry: Vestima+ is the only existing open order routing solution for investment funds industry participants. Over 27000 investment funds are available on the platform and the volume of investment funds related instructions processed by Clearstream rose 47% in 2006 over 2005 to close to 6 million. CFF, the Central Facility for Funds, has been offering since March 2007 one single set of settlement and payment instructions for all participating firms, transfer agents, fund distributors and fund promoters.
