Spring 2014 - US Bancorp Fund Services, LLC

Mutual Fund Solutions
Alternative Investment Solutions
our vision
ETF Services
Distinct Services
Sharing solutions on topics affecting our clients and their shareholders
through innovative insights, sophisticated technology, and a solid tradition.
Helping Safeguard Your Data
The State of Information Security at U.S. Bancorp Fund Services
U.S. Bancorp Fund Services
According to information provided by the FBI to the financial
services industry in 2013, the U.S. government informed
3,000 companies that they had been compromised and
did not know it. Due to the abundance of recent highprofile breaches, information security became a subject of
household concern.
U.S. Bancorp Fund Services is committed to protecting
confidential data. Lately, it is hard to pick up any major
publication without reading about some type of data
compromise, most recently, for example, the ‘Heartbleed’
threat and breeches at large retailers such as Target, Neiman
Marcus, and Michaels Arts and Crafts stores. Incidents
such as these have grabbed the attention of regulators of
the financial services industry who are concerned about the
internal controls over information security at financial services
companies as well as their service providers. In fact, FINRA
and the SEC are conducting an assessment of how firms are
managing cyber-security threats.
Investment management, at its heart, is about risk
management. The financial services industry is about trust;
it only works if there is a sound risk management process in
place to protect information and assets. In fact, computers
communicating with other computers regarding information
about the amounts of money they possess have become a
very important factor in the operation of the world economy
with about 96 percent of the world economy involving
conversations between computers and the exchange of
monetary data.
In 2013, President Obama signed an executive order to set
up critical infrastructure and adopt the National Institute of
Standards and Technology (NIST) cyber security framework.
NIST’s framework is a system for saying what you should
be doing, not how you should be doing it. U.S. Bank is
committed to adopting the NIST framework to further protect
the company and our customers.
U.S. Bancorp Fund Services, as a wholly-owned subsidiary
of U.S. Bank, NA, benefits from the IT infrastructure and
information security policies and procedures that have
been adopted, approved, and implemented across U.S.
Bank. These policies and procedures include, among other
safeguards, controls around computer access, secure
file and data transfers, intrusion detection, penetration
testing, anti-virus and patching protocols, key card access,
surveillance cameras and security guards.
For more information on the state of information
security at U.S. Bank and U.S. Bancorp Fund
Services, contact your relationship manager.
www.usbfs.com | 1.800.300.3863
SPRING 2014
our vision
Secure It, Monitor It, Prevent It
Transfer Agent
Strong and extensive controls are the cornerstone of
keeping your shareholder data secure. Avoiding potential
hacking by cybercriminals intent on breaching networks and
stealing personal, financial, and confidential information from
unsuspecting investors is a responsibility that the Transfer
Agent at U.S. Bancorp Fund Services takes very seriously. As
shareholder data moves back and forth between the Transfer
Agent and DST, our recordkeeping system vendor, reliable
network security and stringent user access protocols protect
the confidentiality and integrity of information being processed,
transmitted, and retained.
Shareholder data moves between DST and the Transfer Agent
through multiple dedicated and encrypted networks. These
networks are actively monitored for bandwidth usage and any
abnormal intrusions. When DST sends data to the Transfer
Agent, their connection terminates at our extranet which is a
buffer zone between the DST data and our internal network.
Traffic is qualified and authenticated according to the IP address
and port designation at the application level. If the data is not
coming from either an IP address that is preconfigured or going
to a pre-assigned port, the data is not allowed into our intranet.
U.S. Bank uses only commercially available cryptographic
algorithms, key lengths, key management and security protocols
to protect the confidentiality and integrity of information.
Additionally, anti-malware software installed on U.S. Bank servers
and workstations is centrally-managed and updated daily.
While network and firewall vigilance is essential to preventing
threats and intrusions, controlling and monitoring user access is
also vital to maintaining a secure environment.
Control and maintenance of all DST applications (TA2000,
TA2000 Desktop, and AWD), user IDs, and passwords for
internal personnel is centralized within the Transfer Agent’s
Technology and System Support department (TSS). User
IDs are assigned based upon specific U.S. Bank enterprise
roles which limit access based on job responsibilities. All user
access requests and request approvals are documented and
appropriately maintained for at least three years. User access
controls are audited several times throughout the year. Physical
security of DST applications is achieved using 15 minute
inactivity lockouts on all workstations and all passwords must be
reset at 30-day intervals.
Daily reports that detail security violations and unsuccessful login
attempts are generated and reviewed to determine whether
trends of denied access can be detected. Unsuccessful
attempts into a facility are usually unintentional, and are generally
infrequent. By reviewing daily reports, it is easy to determine if
a user is attempting access to a restricted facility intentionally.
If a trend (3 or more daily concurrent attempts) is determined,
management is contacted to ascertain why access was
attempted.
U.S. Bancorp Fund Services places the highest importance
on protecting shareholder information, processing transactions
securely, and ensuring that our critical systems and processes
are protected and uninterrupted.
For more information on our information security
practices, contact your relationship manager.
Your Opinion Matters to US!
U.S. Bancorp Fund Services
While enjoying the relaxing summer months, be sure to keep
an eye on your e-mail inbox for the 2014 U.S. Bancorp Fund
Services’ Annual Voice of the Client Survey.
Our knowledgeable business line experts, from Alternative
Investments and CCO Services to Fund Accounting and
Fund Administration, have come together to develop
questions that help us assess how well we are servicing our
clients, and where we can provide more support.
2
We value your response and look forward to learning more
about each of our clients’ needs and how we can continue to
provide quality service to your funds at the highest level.
For more information on the upcoming survey, please
contact your relationship manager.
www.usbfs.com | 1.800.300.3863
HFMWeek European Hedge Fund Awards
Recognition in the over $30 Billion category
Quintillion Proud to Receive Best
Overall Administrator Award For
Fifth Year
U.S. Bancorp Fund Services
Quintillion, U.S. Bancorp Fund Service’s European fund
servicing division, is honored to have been named best
administrator for client services in the over $30 billion AUA
category at the prestigious HFMWeek European Hedge Fund
Services awards.
consider quantitative and qualitative information to assess
performance and genuine innovation across a number of
different business areas.
We largely attribute our success to a combination of a
vastly experienced team, unique service structure, and
advanced deployment of leading technology solutions. Our
senior operations contacts take primary responsibility for
maintaining client relationships. This is supported by direct
access to our senior management team.
“It is a privilege for Quintillion to be recognised as
an award-winning provider by HFMWeek for the
fifth consecutive year. It reaffirms our commitment
to having a highly talented staff, clever technology
deployment and efficiency, as well as providing
a client-centric business model and servicing
experience.”
Our structure and our experienced accounting and
investor services professionals and leading technologies
are at the core of our ability to deliver superior fund
administration solutions.
- Joan Kehoe
CEO
Quintillion
The HFMWeek Awards are designed to recognize and
reward the industry’s leading hedge fund service providers
for their outstanding service and support to the European
hedge fund industry over the past 12 months. Administrators
are judged by senior industry representatives who
For more information, visit www.hfmweek.com/
events/awards.
CCO Forums: A Focus on Valuation
Risk Management & Compliance
The Risk Management & Compliance department of
U.S. Bancorp Fund Services offers periodic CCO Forums for
our clients at different locations throughout the country, This
year’s primary topic is valuation, with a focus on fair valuation
issues. Our CCO Forums offer CCOs a chance to enjoy an
informal discussion with their peers and
industry experts.
The first 2014 CCO Forum was held on April 29, 2014 in
New York at the offices of International Data Corporation. A
forum was also held on May 8, 2014 in Dallas, TX at the
offices of Hodges Capital Management. We are also planning
CCO Forums in the Midwest and west coast regions later in
2014. Stay tuned for more information on upcoming CCO
Forums in your region.
To sign up for a CCO Forum, or for more information
on our Risk Management & Compliance department,
please contact your relationship manager.
3
SPRING 2014
our vision
Starting up a hedge fund is more complex than the emerging
manager might first realize, bearing many hurdles which need
to be overcome in order to be successful. Prospective fund
managers need to understand the difficulties along the way as
well as the best resources to provide a helping hand. Michael
Von Bevern, head of U.S. Operations for the Alternative
Investment Solutions division at U.S. Bancorp Fund Services,
gives the full story on what they need to know.
How to Start a Hedge Fund in the U.S.
Alternative Investment Solutions
Q:
What main pieces of advice would you give to
emerging managers starting out in the U.S.?
A: Today’s emerging managers face a daunting task.
The markets are challenging, costs are increasing, and
competition for investor capital from overseas markets along
with large, well-established, U.S. funds pose a significant
barrier to entry. Putting aside how difficult it is to find qualified
investors, an emerging manager is faced with many issues
related to running an entire business.
I would say to emerging managers: do your homework
and your due diligence, and perform the right tests and
checklists. If you do not have the right partner that is
culturally a good fit for you it can be very difficult to be
successful in the long-term.
Q: What are the biggest challenges facing emerging
managers in the U.S. and how they can be overcome?
A: One of the biggest challenges facing start-up managers
is the realization that the alternative asset business is vastly
complex and that without size and scalability, issues such
as technology, middle and back-office costs, marketing
and investor relations functions and legal costs can be a
significant obstacle to overcome. All of these hurdles have
caused emerging managers to fail to get off the ground.
Given the landscape in 2014, I recommend that emerging
managers avail themselves of the many competent and
4
knowledgeable business partners that exist to help guide
them towards a successful launch. Identifying service
providers that are true partners in your business and who are
vested in your success is vitally important.
Q: What are the main trends currently in the U.S. hedge
fund sector and how do they impact start-up funds?
A: At U.S. Bancorp Fund Services, we see many of our
emerging managers dealing with a variety of issues. The
most prominent are the ability to attract investor capital, draw
on investor commitments, and launch a fund with enough
size and scale to cover their cost basis.
Additionally, emerging managers now face increased
regulatory requirements. Also, the investor community
continues to demand lower fees, increased transparency,
and complex reporting, requiring emerging managers to
invest in state-of-the-art technology and to outsource
support functions.
From a new business perspective, we are seeing an
increase in registered alternative funds or “liquid alts” and
other investment vehicles, such as business development
companies and insurance dedicated funds, which indicates
that emerging and existing managers realize the key to initial
and future success is to expand the array of strategies and
products they offer to meet investor demands.
www.usbfs.com | 1.800.300.3863
Q. What are the benefits of the U.S. as a location to start
up a hedge fund?
A: Contrary to popular belief, it is still possible to launch a
hedge fund today in the United States. Recent data does
indicate that the Asian and European markets are seeing the
largest inflows of new money, but that does not mean that
a new U.S. based manager, with a well-designed business
model and dedicated and complementary business partners,
cannot be successful. Every year we see many U.S.-based
managers launch successfully, and the common denominator
is a focused and diligent approach to building a business
that will endure for the long term and not the next three to
five years.
Q. How do you foresee the hedge fund space
evolving in the next 12 months, particularly in relation
to start-up funds?
in hedge funds with more private equity-like features, such
as performance fees based on carried interest models, as
well as more investor transparency and access to data and
increased due diligence. All of these trends indicate that
investors are driving the future of the hedge fund industry.
Hopefully over the next 12 months we will see an increase in
the allocation to the alternative asset class. My hope would
be that all fund managers will be given the opportunity to
focus on more desirable technology initiatives such as clientfacing portals, trading and order management systems and
middle and back-office technologies that will actually help
them to grow their business and increase margins.
For more information please contact your primary
administrator or Michael Von Bevern at
michael.vonbevern@usbank.com.
A: Over the next year, I foresee a steady increase in
alternative investment products and strategies, an increase
U.S. Bancorp Fund Services
Together, we’ve navigated changing terrains, overcome
obstacles, and scaled challenging paths to achieve
success. As we return to the Abbey Resort in Fontana, Wis.
June 11-13, we’re getting geared up to celebrate today and
look forward to tomorrow by “Reaching New Heights &
Expanding Horizons.”
We are looking forward to seeing our clients and associates
at our annual Client Conference, which will feature interactive
roundtable sessions, distinguished speakers, and live
entertainment. When the meetings are over, you’ll have the
chance to enjoy a challenging round of golf, sip wine while
learning new recipes, see the forests of Lake Geneva while
zip lining, drop anchor for an afternoon of leisurely fishing, or
just sit back and relax and enjoy the scenic lake views.
We look forward to being your guides next month as we
pack our bags and head back to the Abbey Resort for this
exciting and educational event.
5
SPRING 2014
our vision
Fixed Income Transparency
Fund Accounting
“Valuation Guidance” was named as one of the SEC Division
of Investment Management’s top three short term priorities
and the PCAOB continues to push auditors to dig deeper
into firms’ valuation procedures. With the pressure on, firms
are looking closely at the policies and procedures they use to
value hard-to-price assets.
Interactive Data, a global provider of evaluated pricing
services available through U.S. Bancorp Fund Services, has
noted an increased demand from their mutual fund clients
to provide support for their Financial Accounting Standards
Board Accounting Standards Codification Topic 820 and
International Financial Reporting Standards fair-value
measurement determinations and disclosures.
Evolving regulatory requirements and accounting standards
(e.g., ASC Topic 820 and IFRS 13) demand more
transparency into the valuation process. Funds must be
prepared to answer probing questions such as:
How did you get comfortable with these valuations?
How do you evaluate the quality and completeness of
INPUTS to your pricing?
What controls do you apply to your models
and assumptions?
How do you evaluate the quantitative inputs pricing
sources used in deriving a price?
How do you arrive at an understanding of the
valuation methods, assumptions and other inputs
used by third party pricing services?
Jon Parisi, who manages Interactive Data’s relationship
with U.S. Bancorp Fund Services said, “Mutual fund firms
should be implementing best practices to manage valuation
risk. This should include documenting and cataloguing the
key inputs and methodologies that they use to support
their valuations.”
Interactive Data provides clients with their methodology
documentation, SSAE 16 reports, and other materials that
can assist clients with these activities. Further, Interactive
Data’s VantageSM web application provides transparency into
their fixed income evaluations and the fixed income markets,
by unifying in-depth market information and workflow tools
for global corporate and sovereign bonds, global ABS and
structured securities, and U.S. municipal bonds.
To download Interactive Data’s complimentary “Topic 820”
checklist, or to request a VantageSM demo, please visit: http://
go.interactivedata.com/USBFSVantageDemo
Requests.html.
For more information on our valuation procedures
and best practices, please contact your frelationship
manager.
6
www.usbfs.com | 1.800.300.3863
U.S. Bancorp Fund Services Offers Services to Guernsey
Domiciled Accounts
Alternative Investment Solutions
U.S. Bancorp Fund Services (Guernsey), Limited was
recently formed to provide fund administration services for
alternative investment funds domiciled in the Bailiwick of
Guernsey. The Bailiwick of Guernsey is a series of islands in
the English Channel off the coast of France and forms a part
of the Channel Islands.
We are now able to provide clients with administration
services related to these domiciled accounts. Our service
offering includes the same services, technology, and
products that we offer our other existing clients, in addition to
Corp Sec/Registered Office services.
A major advantage of using Guernsey entities is that they
can be listed on the London Stock Exchange (LSE), Euronext
Amsterdam, the local Channel Islands Stock Exchange
(CISX) based in Guernsey, and the Hong Kong Stock
Exchange (HKEx). Guernsey has the most companies listed
on the London Stock Exchange, across the Main Market,
AIM and the Specialist Fund Market, of any jurisdiction
outside of the UK.
Many European clients are choosing to re-domicile their
Cayman funds in Guernsey. Since many Cayman funds are
being administered out of Dublin, clients are choosing to
streamline their tax and regulatory compliance by domiciling
their funds in one location. Guernsey offers two parallel
regulatory regimes to meet the needs of multiple investment
vehicles. Therefore, they can offer an AIFMD compliant
regime for EU investor funds and, for feeder funds with a
non-EU investor base, they can offer a regime not subject to
AIFMD.
Future AIFMD requirements warn managers that choosing a
location to domicile a fund is more than just checking a box
on a form. A manager may have to demonstrate that there is
sufficient substance within the Guernsey domicile to warrant
the selection. Therefore, many managers are relocating
headquarters, establishing satellite offices, or purchasing
residences in Guernsey.
Regulation is overseen by the Guernsey Financial Services
Commission (GFSC). The GFSC has a reputation in the
industry for establishing high standards, but also approaches
regulation from a realistic and practical standpoint. The
GFSC is a member of IOSCO, the International Organization
of Securities Commissions, ensuring that international
regulatory standards are adhered to. External agencies
such as the IMF, OECD and Financial Stability Board (FSB)
continue to place Guernsey within the very top tier of leading
international finance centers.
Guernsey has signed Tax Information Exchange Agreements
with 38 jurisdictions and 13 Double Taxation Arrangements.
The formal ratification of Guernsey’s zero-10 corporate
tax regime in December 2012 by the EU’s Economic and
Financial Affairs Council (ECOFIN) provides an additional layer
of reassurance for investors and managers that Guernsey
is a jurisdiction which is willing and able to move quickly to
ensure it continues to meet international tax standards, while
also retaining its position as an extremely competitive place
to do business.
For more information on our services for Guernseydomiciled funds, please contact your primary
administrator or relationship manager.
7
SPRING 2014
our vision
See US This Summer at the Following Conferences & Events
U.S. Bancorp Fund Services
From coast to coast, our team of professionals will be on site at industry-leading conferences and events to discuss your
2014 servicing needs. Visit US at the following conferences.
M AY
S
M
T
JUNE
W
TH
F
S
S
M
T
W
TH
F
S
1
2
3
4
1
2
3
4
5
6
7
9
10
11
12
13
14
5
6
7
8
9
10
11
8
12
13
14
15
16
17
18
15
16
17
18
19
20
21
19
20
21
22
23
24
25
22
23
24
25
26
27
28
26
27
28
29
30
31
29
30
May 1-2 | The ETP Distribution Summit:
Exploring Strategies to Maximize Market Share
and Support Industry Growth, New York, NY
May 8 | NSCP Regional Conference,
Chicago, IL
May 8 | CCO Forum Dallas, Dallas, TX
May 19 – 21 | 2014 FINRA Annual Conference,
Washington, DC
June 11-13 | 27th Annual Client
Conference, Fontana, WI
May 21-22 | National MLP Conference, Ponte
Verdra Beach, FL
May 20-22 | ICI GMM Conference,
Washington, DC
May 29 | Marcum MicroCap Conference,
Grand Hyatt, NYC
For more information about
any of our upcoming events
please contact U.S. Bancorp
Fund Services at usbfsinfo@
usbank.com.
BUILDING ON FOUR DECADES OF INVESTMENT EXPERIENCE
With 45 years of service distinction, U.S. Bancorp Fund Services combines industry-leading technology with high-quality customer service to provide
our clients with customized solutions. For more information about our comprehensive suite of mutual fund, alternative investment, and ETF products and
services, call 800-300-3863 or visit www.usbfs.com.
U.S. Bancorp Fund Services, LLC
777 East Wisconsin Avenue, 4th Floor
Milwaukee, WI 53202
Please send your comments and suggestions to usbfsinfo@usbank.com. U.S. Bank does not guarantee the products, services, or performance of its
affiliates and third-party providers.
usbfs.com
1.800.300.3863
8
052114