The Depository Trust & Clearing Corporation (DTCC) has received regulatory approval from the US Securities and Exchange Commission to launch its Alternative Investment Products (AIP) range of services. AIP, a service platform that links broker/dealers, fund managers, administrators and custodians, will provide settlement of subscriptions and redemptions for various alternative investment vehicles, automating the exchange of all trade-related account information.
“AIP will support growth in the marketplace and facilitate greater product distribution. Over 20 years ago, our Fund/SERV system revolutionised how mutual fund orders were processed and settled. We believe AIP, modelled after the success of our other mutual fund products, will have the same positive transformation on alternate and direct investment administration,” says Ann Bergin, managing director, DTCC Wealth Management Services.
Alternative investment products include funds of hedge funds, single hedge funds, Real Estate Investment Trusts (REITs), private equity funds, and energy, equipment, and commodity pool funds. They are typically pooled investment products that are offered through private placements to high-net-worth individuals and institutional investors, such as pension funds. Driven by investors’ desire for portfolio diversification, the market for alternative investments has grown significantly since 2000. Hedge fund assets alone have grown to $2.7 trillion and are projected to reach $4 trillion by 2010. REIT assets, at $438 billion, have almost tripled in just five years.
AIP will standardise the way the alternative investment industry communicates about the investment security and the associated investments. By effectively addressing operational issues that challenge broker/dealers and fund sponsors, AIP will help the alternative investment community become more scalable through increased efficiencies, reduced operational risk and lowered costs.
“MFA supports efforts to improve efficiency and reduce operational risk in the alternative investment industry, including DTCC’s efforts in creating the AIP suite of services. MFA continues to work to create global guidelines and standardize industry practices to achieve these shared goals,” says Richard H. Baker, president and CEO, Managed Funds Association (MFA).
Alternative investments are currently handled through hardcopy, fax, email, phone calls and spreadsheets, and the lack of automation and centralisation prolongs the transaction process. Not only is manual processing of these instruments error-prone, it also prevents business growth as volume outpaces the industry’s ability to manage it.
With DTCC as a central clearing facility for uniform operational functions, and thus eliminating the multiple contact points for fund sponsors, broker/dealers, administrators and transfer agents, the AIP service will streamline and automate all the processes related to trade order initiation, money settlement and post-trade reporting.
AIP was developed at the request of, and in consultation with, industry participants worldwide. This new suite of services will be offered by DTCC’s National Securities Clearing Corporation subsidiary.