Section 1 - FTSE

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FTSE GLOBAL MARKETS • MARCH/APRIL 2009
Outlook
IF THERE IS a recurring topic in this edition, it is trust and fiduciary
care. Paul Whitfield introduces the theme in the Market Leader,
outlining a mounting trend in the Low Countries towards fiduciary
management.The trend is expected to be replicated elsewhere in Europe.
Investment management firm BlackRock, for one, thinks the trend will be
substantial. In December, it predicted that the value of assets run by
fiduciary managers in the UK alone would rise from the current figure of
about £2bn to over £300bn within the next few years.
Fiduciary management refers to the provision, by a single supplier, of
a range of services that taken together remove the operational
management of a pension fund from trustees, handing it to a third party
manager. What it cannot do however is lift the fiduciary responsibility
from the shoulders of the trustees, who are still ultimately responsible
for the performance and lawful management of their fund.
The movements towards fiduciary care and transparency are global,
rather than regional trends. Moreover, they encompass the spectrum of
investment activity. Neil O’Hara picks up the theme in his article on the
dynamics of the US asset servicing industry. While the global recession
has dampened investor and banking sentiment and activity in the
financial markets, asset service providers have directly benefited from
the resulting downturn in two ways.
Following the rescue of Bear Stearns, the Lehman Brothers
bankruptcy and Bernard Madoff's alleged Ponzi scheme, attention is
now focused squarely on counterparty risk. Moreover, the safety of
assets held in trust that are not exposed to the parent entity's credit
risk has sent hedge funds and institutional investors scuttling to
custodian banks. In addition, money managers who have seen their
asset-based top line revenues slashed are now homing in on the
bottom line. Asset service providers, who can take over middle and
back office functions, turning them from fixed into variable costs, have
benefited in consequence.
Emerging markets are jumping on a similar bandwagon. John
Rumsey in São Paulo reports on moves by Brazil’s market regulator, the
Comissão de Valores Mobiliários (CVM), to enforce procedures in cases
concerning possible derivatives scandals (it is unable to name the
companies). It looks to be a timely moment for the CVM to be
designing new rules that will help further develop the corporate
governance agenda in Brazil. The new focus is on achieving real gains
through the fostering of greater transparency, which will increase the
level of local disclosure requirements substantially.
In this and subsequent editions we will be looking at how regulators
will help or hinder the rebuilding of the sometimes scorched remains of
the financial markets. Our focus in this edition is on the UK’s Financial
Services Authority (FSA). With its reputation dented in the wake of the
financial crisis, the FSA finds itself under a spotlight, with market
participants anxious to see how it intends to regulate going forward.
Some market watchers worry that the FSA will impose a US Sarbanes
Oxley type regime, thereby eradicating the principles-based regulation
that traditionally has been a cornerstone of the UK framework. Others
believe that FSA will hold firm to its fundamental doctrines, albeit with
a somewhat heavier hand under new chairman Lord Adair Turner. Lynn
Strongin Dodds reviews the options.
Francesca Carnevale,
Editorial Director
March 2009
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