Bangalore, INDIA, November 24, 2009: Butterfield Fulcrum, a top five independent alternative fund administration company, announced it has partnered with MindTree Limited, a global IT Solutions company, to deliver a new generation of technology solutions for the alternative fund administration industry.

With increasing demand for greater transparency and control characterizing the alternative fund administration industry, Butterfield Fulcrum has successfully deployed best in class technology to provide greater flexibility, transparency and control to its customers who include hedge funds, fund of funds, managed accounts, private equity funds and real estate funds. The most recent step in Butterfield Fulcrum’s commitment to continuous improvement is the firm’s proprietary Enterprise Management System (EMS), a technology application developed in collaboration with MindTree that tracks and controls all customer operations at Butterfield Fulcrum’s offices in eight countries.

“In the complex and highly sophisticated segment of financial services, we have leveraged the technological expertise of MindTree to develop solutions that are unique to our industry,” said Akshaya Bhargava, Chief Executive Officer, Butterfield Fulcrum. “In doing so, we have effectively combined best practices from the BPO industry with deep understanding of hedge fund administration to deliver incremental value for our customers. Through our EMS, our customer interactions will become data-driven, based on measurement against client deliverables, rather than perception-driven. This also creates a fact-based platform for continuous improvement.”

“The development of this new technology solution is an indication of MindTree’s ability to deliver world-class solutions and services to the financial services market,” said MindTree President and CEO – IT Services, Anjan Lahiri. “MindTree’s partnership with Butterfield Fulcrum, in fact, reinforces the commitment of our Banking and Financial Services unit in addressing both the tactical and strategic objectives of financial firms, helping them develop and maintain their technology infrastructure, and overall, simplifying the process of outsourcing.”

MindTree has played an integral role in the development and implementation of technology solutions for Butterfield Fulcrum, including development on Investor Central, Butterfield Fulcrum’s proprietary investor servicing platform and BFonline, the company’s online portal that gives customers access to real-time accounting data and positions, investor statements, risk reports and service metrics.

Butterfield Fulcrum has recently been the recipient of two major industry awards – Best Single Manager Administrator at the inaugural HFMWeek European Service Provider Awards and more recently, Best Administrator for Managed Accounts at HFMWeek’s Inaugural US Service Provider Awards. These awards are an affirmation of the Company’s innovation and technological excellence.

MindTree helps Banks and Financial institutions to enhance their IT systems, drive operational efficiencies and manage transformational challenges. MindTree offers a variety of IT services for Banks and Financial institutions, ranging from Application Development and Maintenance to Business Intelligence solutions to Legacy Modernization and specialized IT Strategy Consulting. MindTree has partnered large as well as mid size banks and travel companies and in segments like Corporate Banking, Lending solutions, Structured Finance, Cards and Payments as well as several areas in Capital Markets and Investment Services – Hedge funds, Asset Management, Wealth Management, Options trading and Market making.

About Butterfield Fulcrum

Butterfield Fulcrum, a top five independent alternative fund administration company by assets under administration, has 20 years experience servicing the alternative investment industry. It provides administration, middle office and risk reporting services to hedge funds, fund of funds, managed accounts, private equity and real estate funds. The company has a unique Global Operations Model leveraging time zones and talent to deliver transparent and highly customized solutions in real time via BFonline, a client access Web portal. Headquartered in Bermuda, the company services more than 700 funds and has 11 offices in nine countries (Bahamas, Bermuda, Canada, Cayman, Guernsey, India, Ireland, UK and the USA). For more information, please visit www.bfgl.com.

About MindTree Ltd.

MindTree Ltd. is a global IT Solutions company specializing in IT Services, Independent Testing, Infrastructure Management and Technical Support (IMTS), Knowledge Services and Product Engineering, which comprises of R&D Services, Software Product Engineering and Wireless Products. MindTree partners with its clients to create a transparent, value-based relationship. Our people build innovative solutions in a wide range of technology domains that enable our customers to succeed in their business goals.

MindTree was ranked 45th among the leaders in The 2009 Global Outsourcing 100 by the International Association of Outsourcing Professionals. Widely known for its focus on human capital development, MindTree has been consistently rated among the most admired employers by several industry surveys, including Great Places To Work Institute, Hewitt Associates and Mercer. MindTree was ranked No. 1 among the Most Admired Knowledge Enterprise (MAKE) India Award winners for the second consecutive year in 2008. MindTree is the winner of the National Award for Excellence in Corporate Governance in India in 2007-08. The Company is publicly listed in India. Please visit us at www.mindtree.com.

Safe Harbor
Certain statements in this release concerning our future growth prospects are forward-looking statements, which involve a number of risks, and uncertainties that could cause our actual results to differ materially from those in such forward-looking statements. We do not undertake to update any forward-looking statement that may be made from time to time by us or on our behalf.

For more information, contact:

For MindTree
Ashwini Rajeswara
MindTree Limited
91-80-67064000
ashwini_rajeswara@mindtree.com

Jay Russo
LVA Communications
860-739-5598
jay@lva.com

For Butterfield Fulcrum
Sheona Griffiths
Butterfield Fulcrum
+44 7799 892933
sgriffiths@bfgl.com

Melissa Arulappan
+91 98450 22389
melissa@airtelmail.in

Financial News Online by Julia Shieffer - Hedge funds, cashing in on the credit crisis by buying distressed credit, are turning to third-party hedge fund administrators to help them handle the back-end processing of these complex securities.

Stuart Feffer, co-chief executive of LaCrosse Global Fund Services, a hedge fund administrator based in Chicago, said “We are being approached by firms that are lining up to go after one aspect of this credit crisis — investing in distressed assets or distressed credit in various forms. Servicing the distressed credit products is becoming a sub-specialty for us.”

Funds are buying distressed credit assets to hedge with an interest-rate swap, a credit-default swap or a currency exposure. Rather than expand their own operations teams, many hedge funds are calling in specialist administrators to provide operational support and ensure the products are properly valued and accounted for.

Feffer added: “We’ve launched a couple of clients and we have a few in the pipeline and we are being approached at an increasing pace — we are approached a couple times a week somewhere in the world.”

Fund administrator Fulcrum has also received interest in distressed credit products from existing clients, according to Tim Thornton, head of strategy and product development in London. He said specialist understanding of these products was essential, particularly for valuations and helping hedge funds communicate with investors.

However, distressed debt is not an area in which all fund administrators and asset servicing companies will want to compete, according to Gary Enos, executive vice-president and head of relationship management and client service for State Street’s Alternative Investment Services business.

He Said: “New distressed credit products are getting more scrutiny and administrators have to look at whether or not they want to bring it on.” State Street has serviced credit funds and structured products for more than two years.

Although most administrators will be involved in long-short and distressed products as part of fund managers’ 130/30 and 120/20 funds, many providers will want to avoid going overweight on specific strategies, preferring instead to build businesses that mirror the broader market, said Enos. Securing independent valuations is one of the most complex aspects to servicing these products, he added.

Isabel Schauerte, analyst at finanacial consultancy Celent, agreed. She said: “Issuing valuations of hard-to-value instruments on time and with the highest degree of accuracy requires platforms, human capital and processes not all players can line up.”

Leading administrators, however, must be able to understand all new investment instruments, according to Schauerte.

She said: “The administration of less complex strategies is becoming commoditised and, as such, the margins available are falling. As a consequence, large administrators need to keep pace with the demands of more complex clients or risk being marginalized.”

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Money Management Executive, by John Morgan – NEW YORK: Cautious investors will be watching 130/30 funds over the next few years to see how the new products perform.

Many investors are attracted to these active-extension strategies capable of hedge fund gains. But with higher fees than regular mutual funds and short-term track records, even though they are often under the supervision of well-established financial services companies, 130/30 funds are still very new and considered a gamble.

“If you do have a track record, it’s a tremendous advantage,” said Yin Luo, managing director and head of North American quantitative research for Macquarie Capital at the National Investment Company Service Association’s Alternative Investments Conference last month at the New York Athletic Club.

Their popularity could launch into orbit if these strategies are able to meet their promise of producing alpha, especially during a market slump, but if they barely beat or fail to meet benchmark indexes, investors will question whether they’re worth the cost.

Fees for 130/30 funds are often higher than the typical actively managed mutual fund, potentially cutting into performance. Furthermore, their long-short strategy can act as a double-edged sword if the markets move in the wrong direction, magnifying both gains and losses.

Selecting the right sales channel and primary broker to sell 130/30 funds is also key.

For the time being, at least, the attention and assets flowing to directionally long strategies has exploded recently-estimated to be in excess of $100 billion-but money managers should be careful not to misclassify these products, said Russell Kamp, CEO of the global structured products group at Invesco.

“There is an unfortunate new movement among a handful of academics and financial firms to classify these strategies as hedge funds or market-neutral strategies, and develop actively managed indexes to benchmark their performance,” Kamp said. “A 130/30 is like market-neutral lite.’ A 130/30 fund is not an alternative investment product; it is an alternative approach to investment management, because it maintains the beta.”

Benchmarking investment performance can be a critical tool for measuring the skill and risk of an active approach, but it also has its limitations, Kamp said.

“The benchmark is forcing you to be sub-optimal,” Kamp said. “A benchmark constrains your allocations. Hedge funds, on the other hand, are unconstrained.

“Traditional portfolios are, by their nature, not linear because of the inability to express one’s underweight convictions to the same extent as overweight convictions,” he said. “Active managers have the opportunity and flexibility to significantly overweight their highest-rated stocks, but they are prohibited from underweighting their lowest-rated stocks to the same extent because of the long-only constraint.”

With a directionally long strategy, the manager shorts a certain percentage and reinvests that in their highest-rated stock, such as 110/10, 120/20, 130/30, 140/40, 150/50, etc.

A 130/30 strategy is the most popular because the alpha range takes a steep jump between 120/20 and 130/30, then levels off, Luo said, adding that, “in theory, a 130/30 fund can get alpha at any level.”
2008 Factiva, Inc. All rights reserved.

You’re never going to offer a product that’s right for everybody, Luo said. A conservative investor will likely have little interest in taking on so much risk, but the funds can play a diversification role among institutional investors and pension funds.

“I believe [130/30 funds] can add value and are an effective tool for a balanced portfolio,” Kamp said.
The funds are good for clients who are comfortable with them, but there is a big difference in client preference, said Jason Segal, managing director and co-head of 130/30 strategies for Citi Prime Finance.

For 130/30 specialists like Segal, there are exciting new tools and tricks for chasing alpha without sacrificing the transparency, simplified tax reporting, lower fees, daily valuation and liquidity that is lost when investing in hedge funds.

Investment methods like shorting from within, enhanced leverage and rehypothication (the process of lending a security that has already been used as the collateral for another loan) are risky, but can be extremely successful in the right manager’s hands.

Those non-hedge fund managers who can master the alpha will be able to command higher fees.

“As more managers desire to borrow or short stock, costs will go up,” Segal said. “With higher costs of borrowing, more pension funds will be willing to step up.”

Long positions need to be held at a custodial bank, and short positions need to be held at a prime broker, but both these positions need to be consolidated for reporting, he said.

“Your prime broker can make or break you, so you need to make sure you’re comfortable,” Segal said. “Does your prime broker have diversity in the underlying client base?”

Firms will also need to improve reporting efforts to meet ’40 Act requirements such as Regulation T and Rule 431, which define margin securities and margin, respectively.

It’s also imperative to train and educate your investment manager, said Steve Slessor, managing director of client services and manager of hedge fund services for Fulcrum Fund Administration.
Their complexity and high risk may be a turn-off for less sophisticated investors, but that doesn’t mean they’re a bad product. For the right investor, a 130/30 fund could be the perfect way to help break out of a market slump.

Ultimately, the success of these products will depend on their performance and the willingness of investors to take risks. If they are successful, the strategy could expand to other investment products, like 130/30 exchange-traded funds, Kamp said.

“The majority of future equity products will have some sort of long-short aspect,” Segal said. “The question is when.”

(c) 2008 Money Management Executive and SourceMedia, Inc. All rights reserved. Used here by permission.

Securities Industry News - by Maureen Nevin Duffy: Though it was not a new product, SuperDerivatives noticed a decidedly heightened interest in its SD-Revaluation service during last summer’s credit crunch.

“This is really where we saw clients come to us for a very real-time solution–same day or as close to trade as possible,” says Dani Weigert, manager of the SuperDerivatives revaluation center.

“Every single institutional investor on the buy side and sell side is looking for an independent revaluation service, either out of fears regarding risk management and … losses caused by mismanagement of derivative positions or pressure from regulators,” says Weigert. Over the second half of 2007, the London- and New York-based options pricing, benchmarking and analytics provider saw interest peak in valuations of plain vanilla credit default swaps (CDS), credit default indexes (CDX) and collateralized debt obligations.

SD-Revaluation, introduced in 2004, also performs valuations on derivatives and underlying assets for interest rate swaps, equity options and foreign exchange options. Prices are generated through a combination of in-house modeling and market data contributed from a variety of sources. The company believes it has a better handle on valuing less-liquid, infrequently traded products due to its benchmark pricing models, which–although they don’t publish them–are “freely accessible via our pricing applications,” explains Weigert. “This is as transparent as it can get.”

Markit Group, a data and valuation services provider that specializes in over-the-counter derivatives and last month announced that it would later this year launch Markit Valuations Manager, a multidealer, cross-asset-class platform, would disagree. Jeff Gooch, Markit’s global head of trade processing and valuations, calls SuperDerivatives’ model “a black box. You can send trades and they send back values, but it won’t give you any transparency as to how their mathematics works or where they source their data from.”

Gooch asserts that Markit uses “standard math models to value trades and consensus or public sources of data along consensus credit curves. We do calibration for all banks [Markit's clients] at month’s end; and we believe we use the best data sources in the best way.”

Weigert counters: “Transparency is about providing an accurate price–not to publish a series of models. Our aim is to simulate the price that is actually traded in the market.” As to Markit’s characterization of the product, Weigert claims “that’s a sign the competitor is worried.”

Bermuda-based fund administrator Fulcrum Group, which has $10 billion in assets under administration, distributed among 50 funds, started using SD-Revaluation in August. Fulcrum services the complex strategies of investment funds, hedge funds and funds of funds, offering a range of functions from simple month-end net asset valuations to daily middle- or back-office needs.

Clients depend on Fulcrum to supply independent portfolio valuations, for which the group uses different vendors. It relies on the SuperDerivatives service primarily for valuations of CDS, CDX and a variety of OTC option types–plain vanilla, equity and FX.

“SuperDerivatives provides a much wider snapshot for what’s actually happening in the market on which to base evaluations,” says Tim Thornton, director of risk at Fulcrum. “The service provides genuine trading values, rather than theoretical market prices.”

During times of volatility, when it is difficult to mark to market, Thorton says that SD-Revaluation’s historic market data–in addition to its validated data–and models help to give a fuller picture. Because SuperDerivatives offers these details and the risk variables used to arrive at the valuations, the process is “fully transparent for our clients and the investors,” notes Thornton.

Despite last year’s market surges, Fulcrum didn’t experience any bottlenecks in submitting files and getting prices back, a process that involves collecting data across portfolios and submitting Excel files via e-mail to SuperDerivatives. The positions from SD-Revaluation are returned to Fulcrum in spreadsheets populated with customized fields. That information is then uploaded to Advent Software’s Geneva, which Fulcrum uses for portfolio management and fund accounting.

Valuation transparency became particularly important when market concerns during the volatile period prompted extra scrutiny of the process by clients, says Thornton. Fulcrum had to field more inquiries from clients doing “due diligence on how we administer or would price the portfolio,” he says.

Thornton says that he’s found the SuperDerivatives valuations to be as accurate as any found in the market. “Ultimately you’re looking for the price that represents the reality and can be supported on independent sources,” he adds. A number of auditing groups also use the SD-Revaluation service.

(c) 2008 Securities Industry News and SourceMedia, Inc. All rights reserved. Used here by permission.

Custodians allow smaller hedge funds to slip through their net

Financial News Online – by Paul Allen: It has been another busy year of consolidation for headge fund administrators, with the large banking organisations scoopting up smaller rivals in an effort to increase the scale and range of their services.

The most notable deals include the Bank of New York/Mellon Financial merger, State Street’s acquisition of Investors Financial Services, Citigroup netting the Bisys Group and, more recently, French administrator Caceis’ deal with Olympia Capital International.

With more set to follow, some commentators are questioning whether independent administrators’ days are numbered, suggesting the industry could see the same rationalisation path already experienced in the mainstream custody arena.

Ken Somerville, head of business development with Dublin-based hedge fund administrator Quintillion, thinks not. He said: “The asset classes that managers trade, the fund structures they use and the valuation mechanisms that are required are so boutique aqnd so specialist that this kind of commoditisation will not be possible for a long time.”

What’s more, where consolidation has taken place and administrators have tried to commoditise processing functions, some fund managers have been disgruntled because it is “to the detriment of the service standard”, according to Somerville.

So whereas a manager with $5bn (3.4bn EURO), or $6bn in assets will receive the requisite tailored solution from the administrator, those running $1bn or $2bn and below may not. “It has therefore created a market space for us and a number of other providers,” he said.

Quintillion, which launched in November last year, has $4.5bn in assets under administration and is attracting clients from start-up managers with between $50m and $1.5bn in seed capital. Somerville sees new business opportunities for independent firms such as Quintillion falling into three broad categories.

The first comes from investment managers with no existing relationship wit an administrator. Such managers will consider both big institutions and independent providers, with the choice based on a combination of criteria including the administrator’s technology infrastructure, the range of services, the costs, the firm’s staff retention policy, how important the fund will be as a customer and the prospects for a long-term relationship, according to Somerville.

The second opportunity occurs where a fund manager already has a relationship with an administrator and is happy to build that relationship as it adds new funds to its own business. Somerville said this has supported considerable organic growth in the sector.

A third chance for an independent administrator comes when a hedge fund manager seeks to replace its current provider because it is dissatisfied with the standard of service — whether due to slow net asset value delivery, unfavourable commercial terms or any other reason.

Somerville argues that service standards often deteriorate because of the scale of the large administrators.

He said: “That doesn’t apply to everybody. Managers with large sums, $3bn and above, are inevitably the key relationships for the very big firms and to a large extent are well served. But there is a category below that, managers with less than #2bn who potentially find that the large administrators don’t have the firepower to support the relationship internally because the bigger relationships occupy the attention of senior management.”

Hedge fund managers in this position could consider switching to an independent provider with which they can “build a better long-term relationship because there isn’t the bureaucratic infrastructure in the background that makes yoru particular piece of business less visible or less significant to the provider”, Somerville said, adding that abotu 30% of Quintillion’s business this year has come from this route.

However, the impetus to change does not come solely from the managers. In som cases administrators are culling relationships with the smaller funds on their books to create spare capacity or redirect resources towards the larger and more valuable components of their business, according to Somerville. He said: “While it may not be as blatant as the administrator resigning its mandate, there have been other measures we’ve seen that effectively are the same thing.”

One strategy is to raise fees to a level more in line with a higher asset base. “Perhaps you’re running $300m and they’ll propose a fee which is equivalent to $1bn product,” said Somerville. “As a manager you have no choice but to replace that relationship, because one of your responsibilities is to manage the expenses of the fund with a veiw to delivering good investor returns.”

Some administrators demand minimum account sizes when taking on new managers. Dermot Butler, chairman of Dublin-based Custom House Administration & Corporate services, said minimum account balances used to be between $50m and $100m; now they are between $200m and $300m and, in some cases, $500m.

He said: “Between 60% and 70% of all hedge funds are less than $100m. You’re now seeing that funds of $200m aren’t particularly welcome where they thought they would be. It provides good opportunities for companies such as Custom House. This has been recognised by others because previously unknown names are starting to come out of the woodwork, such as Channel Islands and Caribbean law firms turning into administrators.”

However, thriving as an administrator is not just about the availability of clients. It also requires the functionality to support an increasingly demanding and complex market. This requires investment in sophisticated technology and quality personnel.

Some commentators have questioned whether independent administrators can compete with deep pockets of the big banks.

Glenn Henderson, global head of sales with Bermuda-based Fulcrum Fund Services, disagrees. He said: “I don’t think there’s a correlation between the big banks and their greater ability to afford technology and talent. The fund administration business is not as profitable as some of the trading environments in an investment bank or big bank. And I don’t think they are the first guys on the block when it comes to allocating resources.”

The recent credit crunch could also have an impact on the banks’ future investment capabilities. Henderson said: “I think back-office, fee-earning businesses within the banks are going to have to tighten their belts the same as all other groups. I don’t think it’s going to get any easier for them.”

In addition, he believes the big banks’ legacy platforms will restrict the technology they use.

Henderson said Fulcrum had the flexibility to be opportunistic about hiring talented staff and the aggressive budgets and strong in-house technology talent. “We know what our clients want and we go out and build it.”

“Being nimble and being a first mover is also the way a lot of hedge funds run their businesses, and we’ve proved that with the level of technology and quality of service we can provide.”

He believes Fulcrum’s technology and staffing skills give it a competitive advantage that allows the administrator to support a range of strategies, asset classes and investment vehicles.

He said: ” The traders keep thinking up more exotic ways to make money and, as these get more complex, administration will get tougher. The companies that are willing to invest time and money to get the talent and technology to support those strategies will definitely win out.”

In June, 3i’s venture capital arm, 3i Growth Capital, invested $57m in Fulcrum, which will use the equity infusion to expand in Europe and Asia. Henderson believes this investment should remove hedge fund managers’ concerns about counterparty risk. “You have an independent administrator that has great technology and great talent, and now has FTSE 100 backing.”

“That is a significant change for the better for us.”

As for the overall prospects for independent administrators, it is a case of basic economics, said Quintillion’s Somerville.

The continued growth of the market and launch of new funds means they need to find a home. He said: “Without new providers, or an expanse of administrators, potentially supply and demand will be mismatched.”

This document is for your personal non-commercial use. Any further copying, reporduction, distribution is strictly prohibited. To obtain permission please contact reprints@efinancialnews.com – © 1996-2008 eFinanialNews Ltd. Used here with permission.