How is business in Asia progressing?
In two years, the Calastone customer base in Asia has grown from less than five to 35 live clients. In the next six months, based on our client implementation roadmap, we believe this number will reach 50, as new distributors such as Aviva, Entie Commercial, Navigator Investment, Mega Bank and additional fund houses join our network in Asia.
In order to support this exceptional growth, Calastone has been strategically adding dedicated resources to our operations, client onboarding and client servicing teams to support Asian based clients in their own language from onboarding planning stages to live operational support.
Our primary focus in the region has been in the order routing automation space, but we have recently gone live with our fund reconciliation support service in Asia, and we are in validation stages to introduce additional post-trade services.
What is the reason for your high rate of growth in Taiwan?
We said what we would be doing, and came through.
When we went live, last year, with our new Taiwan Depository and Clearing Corporation (TDCC) offer in Taiwan, our main commitment to the market was to provide Taiwanese banks the highest STP levels in the shortest timeframe. In order to achieve this we have focussed on signing up and connecting the widest range of offshore fund managers distributing in Taiwan and, since most banks in Taiwan had no previous experience of STP dealing into funds, we’ve focused on providing additional support to educate and prepare our clients’ for a smooth transition into STP.
The results of our efforts have been highly visible in the market as demonstrated through our first two Taiwanese distributor onboarding success over TDCC last year. In just three months after going live with Calastone, for example, Far Eastern International Bank moved from zero to over 80 percent STP rates in offshore funds dealing. They are now enjoying the highest offshore funds automation rate in Taiwan.
This success-story has led many other banks in Taiwan to accelerate their move to our service. Four additional banks are currently developing or testing their TDCC interface and by mid-2014, Calastone will have automated trades of 10 Taiwanese banks into over 35 of the leading offshore fund houses distributing in Taiwan.
What other Asian countries are you looking to expand into?
With our client base composed of the main global fund houses, our natural expansion was to start in countries where UCITS products were already widely distributed ie, Hong Kong, Singapore and Taiwan.
As we have established our brand and reputation in the funds automation space in Asia, and as more local distributors join the network, we have started to expand into the automation of domestic fund orders starting with Singapore funds in 2012 and Hong Kong funds last year.
We are driven by client demand and we continue to assess market entry into countries where we believe our solution can help them achieve more operational efficiency.
Obviously, with the Hong Kong China mutual recognition initiative, and with the emergence of other fund passport schemes in Asia, we receive regular requests and enquiries from our clients as they see Calastone as an enabler of cross-border fund messaging. We are continually monitoring local and regional initiatives to assess how best we can support our clients, in order to enable them to reap the many benefits that such initiative can bring.
What are the differences between fund automation in Asia and Europe?
Fundamentally, there is no real difference between fund automation in Asia and in Europe. However, we strongly believe that automation in Asia will happen at a much faster rate than the European experience.
While Europe has been investing in fund automation for 15 years, Asia automation only started a few years ago. At that time, new solutions and new technology unavailable to European distributors in the early 2000’s, was already available in Asia, making the case for fund automation much easier as it significantly reduces the initial investment and the ongoing cost of automating fund orders.
Asian players can also leverage the European experience to avoid repeating some of the mistakes that have delayed European automation growth. In that respect, the successful model implemented by the TDCC in Taiwan shows that, to the contrary of what many European led initiatives have been advocating, a full service model with delivery-versus-payment (DVP) facility is not necessarily the most cost-effective option to automate funds processing and is certainly not the quickest way to achieve it.
A solution like the one Calastone has deployed in Asia with banks, insurance companies and specialised fund platforms allows for a simple, cost-effective and progressive move towards fund processing automation—and without any loss of control or any additional intermediary involved in the processing chain.
How will developments in the Asian region affecting fund order routing automation provide opportunities for European UCITS fund managers?
We believe that the fast drive towards funds automation in Asia will significantly change the operational models in Asia.
Currently, most fund managers distributing in Asia have had to build a bespoke and costly operating and servicing model to support Pan-Asian distribution. The largest ones have established on the ground in-house operations to support their demanding Asian distributors. Mid-size players have had to appoint third parties such as a master agent in Taiwan or sub-transfer agents to support their clients locally. With labour costs quickly rising in the main Asian financial hubs, many firms had to offshore their operations into low labour cost countries such as China, India and Malaysia, in order to process the growing number of fax orders and client phone calls.
With the rapid automation of fund orders in Asia, we believe that fund managers will be able to greatly simplify their operating model and better leverage their existing global distribution capabilities to support their Asian based clients. Thereby realising the economies of scale of a single global operating model.
This will surely allow a growing number of mid-sized and boutique UCITS fund managers that have, up until now shied away from Asia, to enter this fast growing market without the current overheads required to support it. And that can only be good news for Asian investors who will benefit from greater choice in their investment decisions
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