Merrill moves to Euro-Wrap

Fund houses Dexia and Merrill Lynch have signed innovative contracts with service providers, creating a new standard. Roxane McMeeken reports.

Securities services providers are developing new technology to facilitate open product architecture models as they unfold in Europe. Two recently signed deals indicate the new lengths to which global custodians are having to stretch in order to satisfy both distributors of third party funds and those selling their own funds through third parties. Deal One: BBH and Merrill Lynch In July, US-headquartered securities services provider Brown Brothers Harriman (BBH) announced its appointment as custodian and fund administrator to a new range of Merrill Lynch funds, ML Global Selects Portfolio. Launched in February as a Dublin-domiciled Ucits funds umbrella, Merrill is billing the range of funds as a “mould-breaking approach to open architecture”. The fund range takes the legal form of a single product, but is in effect a managed account programme. Under the programme, multiple vehicles – designed by Merrill but managed by external houses – are sold through investment advisers and directly to Merrill’s clients. “Many people offer open architecture, but what makes this different is that we combine managers rather than just provide access to lots of managers,” claims Marc DeSario, head of the offshore Managed Assets Group and director of managed assets at Merrill Lynch. Merrill has christened the approach “intelligent open architecture”. The vehicles are managed by 70 different money managers, including ABN Amro, BNP Paribas, Gartmore, JP Morgan, Merrill, Pimco and Pioneer. “We are trying to emulate our US wrap account programme,” Mr DeSario explains. The structure allows products managed by fund managers registered in various countries with differing tax regimes to be sold under a single umbrella. As with any multi-manager fund, this puts particular strain on the back office provider, but there is a further characteristic of the ML Global Selects Portfolio which demands even more of its custodian and administrator, BBH. Mr DeSario says that Merrill is aiming to make the programme as transparent as possible, providing clients with customised portfolio information such as geographic, sectoral and specific stock exposure information on a web-based reporting platform. “Each of the fund managers we are working with had to agree they would disclose daily all the holdings and values to our clients,” he reveals. In order to implement this rare level of transparency BBH must interact with all the money managers to gather information, handle trade settlements and then pass the data back to Merrill Lynch. The tailored nature of the service Merrill is offering clients is another challenge BBH has to meet. The custodian has had to set up trading accounts from its Dublin office with each investment manager. It is then BBH’s job to gather all the orders from each of Merrill’s clients and send them to the managers in a timely and accurate fashion. Andrew Tucker, partner at BBH, says, “what is particularly ground-breaking about this is that we are providing clients with the ability to see into the underlying portfolios in great detail on a daily basis. “Traditionally in the funds world,” he says, “investors get a breakdown of the holdings of funds in terms of classes and sectors only and on a periodic basis. With our technology linking our fund accounting systems with Merrill’s front end, investors can see the full holdings, completely up to date and whenever they wish.” The service is in line with the needs of the new more sceptical and better informed type of investors who are demanding open product architecture from their wealth managers. While it might seem a tall order to implement such a service, Mr Tucker claims that it took just three months to design and create the complex links between BBH’s systems and Merrill’s front office. He says that this is a mark of the flexibility built into the systems of both companies, as well as an advantage stemming from BBH’s focus on investment management clients. The ML Global Selects Portfolio has reached $350m (E310m) to date. Deal Two: Dexia and Robeco Later in July, Luxembourg-based Dexia Fund Services announced another agreement that demonstrates the new services being rolled out by custodians in order to support open architecture models. Dexia has been appointed by Robeco Asset Management as custodian, fund administrator and transfer agent for its range of Luxembourg mutual funds, with assets totalling E3bn. Charlotte Insinger, manager of Robeco Asset Management’s back office, says the existing provider, Fastnet, was dropped and Dexia was hired in its place in order to support a plan to increase the indirect distribution of its products in several European countries. “We needed a professional service provider with a clear and easy procedure when they are servicing our funds,” says Ms Insinger. “We are putting more emphasis on our Luxembourg range,” she explains, “because for the past two years we have been selling more funds outside the Netherlands.” Dexia has the job of interfacing between the systems of Robeco and the third party distributors. It aims to make available a wide range of information – now being demanded by the distributors – such as precise holdings in Robeco’s funds, corporate actions, risk monitoring and performance. Moreover, the information is updated daily and available online.

‘With our technology linking our fund accounting systems with Merrill’s front end, investors can see the full holdings, completely up to date and whenever they wish’

Andrew Tucker, BBH