But until funds get their data structures under control and understand what risks are sitting in there, ignorance isn’t bliss. The stuff they don’t know is what can hurt you. Drew Vaughan: I think there’s an expectation at some smaller funds that the custodian settles the trades and the problem goes away. And that’s not actually the case. Bryan Gray: The interesting thing is, you’re right, the custodians are asked to gather this information. But at the same time I think the clients are benefiting from the vigilance that the custodians are taking of their own accord.

In terms of counterparty settlements for instance. When the Lehman issue was going through, we had automatically implemented a process of checking every single transaction that was going out. So the manual element of it – where generally we prefer things to go straight through, in those cases we were kicking them out on purpose to make sure we were comfortable with any payments that we were releasing. Michael Bailey: Let’s try and get a sense of how the counterparty risk assessment translates then into a transition decision.

What are the warning signals trustees should look for in an underlying service provider? Fenella Gray: Key things for us are staff changes. Key people leaving an organisation creates an alert to start with, because quite often the way we appoint is actually around people, as well as their fund performance. And also consistent performance. So if we’re noticing a trend of inconsistent performance against benchmark, what we’ll do is go line by line through the stocks, and look at what they’re trading, what they’re doing, because we’ve got our own investment professionals in-house.

So we’ve got the ability to do that. And that’s one of the big key things for us, which is what we actually did with one of ours recently, and we really couldn’t understand why they would be holding the stocks they were holding which were the poor performers. So we decided we didn’t like the way they were managing. We talked to them and they believed what they were risking was right and we really didn’t. So all the signs were there and it was time to move. Rose Challita: From an operational perspective, we engage Mercer to help us build a profile for when we select external fund managers.

And we’ve gone a step further. We’ve actually said to them, if your own counterparties don’t, for example, go with our custodian, then we’re not going to even look at you because we want to centralise our counterparties. Whereas before we didn’t have that restriction. Troy Rieck: Picking up on consistency of manager performance with expectations. The world has gone quite crazy in the last six months. Some of our manages have produced, on a naive basis, a surprising performance.

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