NeMa Event Looks at the Changing Role of Network Managers

The growth of frontier and emerging markets has lead to changes in the role of network managers, who are managing risk down to their agent banks in those markets, while taking full responsibility for the safety of their clients’ investments.

By Janet Du Chenne(59204)

The growth of frontier and emerging markets has lead to changes in the role of network managers, who are managing risk down to their agent banks in those markets, while taking full responsibility for the safety of their clients’ investments.

In addition to making markets, network managers’ clients, who carry the most risk when investing in these markets, expect them to provide effective execution, asset safety, liquidity, cash management services and make sure they have effective infrastructure.

At the NeMa Event in Athens it was noted that that while the underlying risks for network managers have not changed, their regulatory risks have. These risks are now more granular, with a higher level of operating risk. 

 

Having the right operating model is important as operating risk can turn into market risk. “We need to
select the right market provider who helps us manage that end-to-end model – we need the right operating model to help us manage that,” said one network manager.

And with more than half (58.5%) of delegates polled at the NeMa event describing their firms’ interest in frontier and emerging markets as ‘on the rise’, their demands of agent banks, in terms of risks, will
change

Network managers noted the potential in Asia, where flows are now improving with Stock Connect, albeit a year since the launch of the exchange link. “There was ultimately a solution but it was still a tough road,” said one network manager.

“There is not a workable solution: there is no standardised way to get into the market, with no MSCI upgrade just yet, which would have been the game changer. The asset management industry is not comfortable
that everything has been resolved,” she said.

In markets such as Africa and the Middle East providers see their roles as more than just custody providers: “We’re not just adding custody. We have to decide which part of the value chain clients want
to do,” said one. “FX is often the part asset managers want to do but if you decouple that from the operating model it adds risk due to segregated accounts structures.”

The uncertain economic situation in Argentina and the Ukraine market are also influencing the way providers operate and the way they look at risks. One provider recalls the impact this had on a client: “With the exit of the incumbent, we maintained the infrastructure and a risk-based approach, understanding the in-bound capabilities. We expedited due diligence from the incumbent and had discussions with sub-custodians. We also looked at fast tracking the process on an omnibus basis.”

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