This publication recently interviewed Calastone, a global transaction firm for the investment fund industry. It continues to expand, and recently, some of its senior executives met up with this website to discuss its strategy and direction. We spoke to Thomas Bruno, managing director, Americas; Shannon Sweeney, managing director, Calastone Australia; and Sebastian Chaker, managing director, head of Asia. 

Bruno has over 23 years of experience in financial services, focusing on operations, client relations and distribution. For more than seven years, he worked in Luxembourg with State Street and IFDS leading teams and organizations focused on cross-border fund distribution and the strategy behind connecting different markets and products. He has spent time with Phoenix Investments, Putnam Investments and MetLife, as well as a stint as a financial advisor at Merrill Lynch.

Sweeney has more than 15 years of experience in the financial services industry, most recently as product manager, global fund segment strategy, leading the global middle office and fund administration product at Royal Bank of Canada. She has worked for firms such as JP Morgan, Westpac Institutional Bank and Zurich Financial Services.

Chaker joined Calastone in 2010 to set-up the Luxembourg branch and build the Calastone cross-border fund business.  Since January 2012, he has taken responsibility for the Asian region and subsequently relocated there in 2013 to set up the Hong Kong branch and expand the Calastone franchise in Asia. He joined Calastone from Brown Brothers Harriman in London.

Can you give me an overview of where Calastone is right now in terms of its development, expansion and recent growth?

Sweeney: Calastone recently celebrated its fifth anniversary of doing business, focused on facilitating transactions within the funds industry. Its core service has been to provide a solution to fund managers, their third party administrators if appropriate and the distributors buying their products to electronically exchange messages, such as those instructing buy or sell orders. What was a UK-centric business has followed its clients into other domiciles and territories, thereby expanding into Luxembourg, followed by Asia and subsequently into markets such Australia. More recently Calastone has been reviewing the opportunities in the Americas.

Chaker:  In the last five years, Calastone has evolved from a UK mutual funds order messaging solution to becoming a global funds messaging network. Geographically, Calastone now provides its network on four continents to over 450 customers globally. Functionally, Calastone has evolved from solely offering fund trade solutions to post-trade services such as fund settlement and payments, reconciliations, re-registrations, and trade notification messaging services.  

What regions of the world does Calastone operate in? Where is it not yet present and where does it want to go?

Sweeney: Calastone as a company operates in the UK, Europe, Asia and Australia servicing trades across 17 domiciles. Calastone has been live with trades in Australia since November 2011.

Chaker: Calastone has been providing cross-border Ucits fund automation in Asia since 2009 and has expanded its offering to domestic Asian funds in 2012. The first distributor in Latin America went live in 2013.

Bruno: Calastone has arrived at a point where it is now assessing new markets and participant needs in the West as it considers the broader Americas region - Latin America, the Caribbean and Anglo-Americas (US and Canada). Each presents unique regional opportunities, and as we have seen with the UCITS expansion across Asia, each market in each region will require practical market experience and connections to ensure a high value is delivered across the base of all market participants.

Is there such a thing as a typical client that you can describe?

Sweeney: Calastone’s traditional business model includes a distributor and a fund manager as two connecting clients. Distributors come in different forms depending on the country, but are mostly banks and wraps, or fund platforms.  Fund managers some times outsource their administration to transfer agents or custodians.

Chaker:  Calastone’s business model is to automate interactions between investment fund buyers and investment fund providers.  Typical fund buyers are banks, fund platforms, insurance companies. Our typical fund provider client is a fund manager distributing funds to third party investors. As our business has grown, so too has our base of ‘typical’ clients.  In the early days when Calastone was positioned as a fund transaction network, these ‘typical’ clients fell largely into either ‘distributor; or ‘fund provider’ categories.

However, as Calastone is now much more than a simple network designed around a single premise, we have deployed solutions for post-trade processing, information exchange and data transformation – and as such have seen our client base broaden. To include, for example, custodial banks, CSDs and exchange infrastructure providers, as well as market utilities and distribution aggregators.  We have also continued to expand the partners who we work closely with to deliver solutions to our mutual clients, such as transfer agents, to data providers, to commercial banks.

In our meeting, you described how clients in some places are still not comfortable with making deals online and want to still sign a physical document or send a fax. How much of an issue is this? Is your business still affected by this sort of thing?

Sweeney: In all cases where businesses are shifting from manual systems to those which are automated, there are challenges to overcome. Where a signature was previously regarded as a means of identification or a piece of paper might have been passed from one person to another for manual checking of input, automation streamlines the process and removes the risks. Once the risk is removed, the processes are no longer required. Hence it is not so much a question of the client not feeling comfortable with the dealing or the automation, but more to do with ensuring the client is able to feel comfortable with the new automated process. In every case these hurdles are overcome, but it does sometimes means it can take more time to bring clients onto the network.

Chaker:  As we move into less mature markets where there is virtually no fund automation, we do face some resistance to change from local players. Based on our experience, global firms active in these markets will usually be the driver for change.  This is what we have experienced in Singapore where global asset managers that have experienced the benefits of automation in other parts of the world have driven the Singaporean fund market to adopt automation.  Based on this successful experience, local fund providers and distributors are now starting to join the initiative.

What are the main trends you see in your sector and what accounts for them? (Can you break these down into Asia, Europe, Americas, etc?)

Sweeney:  Australia: Politically, the past three years of regulatory reform is finally easing. A new government is in place, so there is still some discussion of white papers on further reforms. There is a trend of investors moving to DIY self-managed portfolios for their pensions and investments. This move, plus the FOFA regulations affecting commissions and advice, is putting pressure on the Platforms business model, forcing them to redefine their value proposition and their fee models.

Chaker: We see continuous growth of UCITS fund distribution into Asia. This has led to a big increase in transaction volumes, which has had a negative effect on automation levels for these cross-border funds. 

Bruno: Our experience in the Americas still being in the early stages, some key trends include: the need for  increased access across the global markets – ie distributors looking for product options, managers looking for investment support and fund providers seeking new distribution lines; solutions that bring efficiencies that open opportunities for local/global growth through new product release, improved transaction and data exchange and reduction of risk profiles; the search for market reforms, such as pension model developments in Latin America that better position the robust economies of the Americas to build investment; and retirement markets that are on par or exceed those we see today across the globe.

How big a deal is regulation in driving change?                       

Sweeney: In Australia, regulation can drive a lot of change as seen with the impacts of FOFA and ‘Stronger Super’.  Eg the government’s ‘Stronger Super’ initiative is a large reform in terms of the way that Australians can change between Superannuation (pension) funds and receive their mandatory contributions.

Chaker: Several regulatory driven initiatives are currently happening in Asia-Pacific (ASEAN, ARFP, CHKMRS) with the objective to create an Asian fund passport to facilitate intra-regional fund distribution. Although, at this stage it is difficult to predict which of the three current initiates will prevail and when that will happen, these will have a massive impact for distributors and fund managers in region as well as for service providers active in the fund distribution value chain. 

Bruno: Regulatory change is the new norm the world around, and such is the case in the Americas.  While the Anglo Americas markets consider reforms that improve data flow and transparency, and as the world considers how to balance the need for more access to greater amounts of data with the fundamental concerns of privacy and security, our clients and other market participants in the Americas are all faced with significant developmental needs and an ever evolving landscape of regulation.  To meet those competing demands head on, our clients expect Calastone to be nimble and flexible, while always remaining reliable and service-focused.  Our ability to innovate, to partner with our clients to design solutions that fit the market conditions and needs, means we are able to offset some of those challenges for them.

What would you say is the key defining quality of Calastone? What is the USP?

Sweeney: Calastone lowers the barrier to entry for those wanting to gain the benefits of automation (reduced risks, greater efficiencies and lower costs). Calastone does this by offering flexibility in the protocols of connectivity, a good coverage of products and services, and broad coverage of distribution markets and language, and all this is supported by a team of operations who pride themselves on service excellence.

Chaker: Calastone removes barriers to entry for firms to embrace fund automation by providing fund distribution access to distributors and fund providers in a flexible, reliable and low-cost environment.

Bruno: Independence, innovation, and service culture.  As our only business proposition is in the connection and transformation of data, we have to be exceptional passionate and successful to build on our early successes. This drives us then to be very innovative, to think ahead of what our clients need now to ensure we are able to continue to meet needs as the develop.  But we also hold our existing clients, and the solutions we’ve build for them, as paramount translating into a strong focus on the client - a customer-centric way of thinking we bring to everything we do as a company.