Thursday 17th November 2011

Programme

4:30pm Registration

5:00pm Welcome address from Andrea Sorani, Deputy Chairman of AIMA Singapore

5:10pm Liability trends affecting the fund management industry- lessons learnt.

Speaker – Arati Varma, Underwriting Manager for South East Asia, India and Middle East, Chubb Specialty Insurance

5:30pm Selection, appointment, monitoring and risk management of local custodians around the globe.

Speaker - Paul Hedges, APAC Head of Network Management and Market Intelligence, HSBC Securities Services

5:50pm Break for Tea and Coffee

6:05pm International regulatory and litigation risk in the alternative asset management sector

Speaker - Lorraine Adlam, Group Chairman and Financial Institutions Practice Lead, Howden Insurance Brokers

6:25pm Challenges you may face as a fund manager in Singapore

Speaker - Ho Han Ming, Partner, Clifford Chance and Chairman of AIMA Singapore

6:45pm Wrap up and Q&A

7pm Networking drinks

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Speaker Profiles

Arati is the Underwriting Manager for South East Asia, India and Middle East for Chubb’s Specialty Insurance

(CSI), a division within Federal Insurance Company, Singapore (part of the Chubb Corporation – a Fortune 500

Company listed on the NYSE).

The division is responsible for structuring specialty financial and liability insurance solutions such as Directors

and Officers Liability Insurance, Professional Liability, Fidelity risks, Bankers Blanket Bonds for financial

institutions, Non Profit Organisation Management Liability, Commercial Crime and Kidnap and Ransom in the

South East Asia region, India, Middle East and Mauritius.

She specialises in the asset management class of business, which includes venture capital, private equity, unit

trusts, hedge funds, real estate funds and investment companies’ asset protection.

Arati joined Chubb in 2004. In her previous role in Strategic Marketing, she has worked on a host of strategic

issues across Chubb’s markets in the Asia Pacific region including China, India, Japan and Australia.

Her experience prior to joining Chubb has been in auditing, consulting and banking in India and Malaysia.

Arati Varma, BA (Econs), MBA (Banking and finance)

Regional Manager, Southeast Asia

Chubb Specialty Insurance

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Speaker Profiles

An experienced securities industry professional, Paul is a regular conference speaker, panelist and frequent

contributor to the industry media. Based in Singapore since 2005, Paul is currently responsible for HSBC’s

APAC Securities & Cash Network Management & Market Intelligence function, covering Group businesses for

Global Banking & Markets, Global Transaction Bank, Global Private Bank and Global Asset Management.

Prior to this, Paul was the Asia Regional President of the Chartered Institute for Securities & Investment (CISI).

Paul also has experience as COO of a boutique alternative investment firm after having been Regional Sub-

Custody Product Head for JPMorgan Chase Bank N.A. where he was developing an Asia Pacific business from

Singapore. Paul moved to Asia in 2003 as the Global Head, Securities Services with Standard Chartered Bank,

where he was responsible for the end to end product and business segment, overall strategic direction,

leadership and development of Asian Regional Securities Services, with its customer base extending to North

America, Europe, Middle East and Asia.

Paul spent his early career in a number of roles including Director, Worldwide Agent Network with Royal Trust /

Royal Bank of Canada, Associate Director with Continental Bank N.A and a full range of international banking

roles with Lloyds Bank PLC, London.

Paul is a Chartered Fellow of the Chartered Institute for Securities & Investment, a main Board Director, he sits

on the Membership and International Committees and was a Director of the Hong Kong Securities Institute in

years 2003 and 2004. His personal interests include travel, languages, DIY, gardening, and music.

Paul D. Hedges. Chartered FCSI

Head of APAC Network Management & Market Intelligence

HSBC

CISI Regional President, ASEAN, CISI (UK) Main Board Director

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Speaker Profiles

Lorraine has over 30 years' experience in the London insurance market as both a broker and underwriter,

specialising in professional/management liability and crime insurance for financial institutions.

She started her career on the Sedgwick (now Marsh) graduate training scheme and has held senior positions

within Aon, the Corporation of Lloyd’s, and Novae PLC.

Lorraine is Chairman of Howden Insurance Brokers Limited and Financial Lines Practice Leader for their global

operations, working closely with their specialist asset management team. She is a recognised market authority

on financial institution policy wordings and a frequent speaker on Directors’ and Officers’ Liability insurance for

investment funds.

More recently Lorraine provided advice on asset manager professional indemnity insurance to the BVCA,

EVCA and AIMA as part of their response to “ESMA’s draft technical advice to the European Commission on

possible implementing measures of the Alternative Investment Fund Managers Directive in relation to

supervision and third countries”. The Consultation is part of the European Securities and Markets Authority’s

(ESMA) work on providing technical advice to the European Commission on the detailed implementing

measures (Level 2) that should form part of the AIFMD framework

Lorraine Adlam

Chairman and Head of Financial Institutions

Practice

Howden Insurance Brokers Ltd

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Speaker Profiles

• Han Ming Ho has experience in fund formation matters. He regularly advises fund managers on the

establishment of companies in Singapore as well as the establishment, structuring and registration of their

funds in Singapore and various offshore jurisdictions.

In addition, Han Ming's on regulatory expertise includes advising compliance and licensing issues relating to

Singapore securities and financial advisory law as well as, liaising regularly with the Singapore regulators.

Chairman of AIMA (Alternative Investment Management Association), Singapore National Group

Member of the Regulatory Committee of IMAS (Investment Management Association of Singapore)

Director of RICE (Returns Invested in Children and Education), a charity that provides financial assistance to

grassroots level, cause-oriented groups that otherwise have difficulty finding funding

Han Ming Ho

Partner

Clifford Chance

Alternative Asset Management

Forum

Liability Trends in Today’s Market

… Lessons Learned

Arati Varma

17 November 2011

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Today’s Objective

• Impact of the Global Financial Crisis

• Key Litigation Trends

What events lead to lawsuits

Who is getting sued

Who is suing & why

• Exposures and Claims

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Alternative Asset Management

Forum

The views, information and content expressedherein are those of the author and do notnecessarily represent the views of any of theinsurers of The Chubb Group of InsuranceCompanies. Chubb did not participate in andtakes no position on the nature, quality oraccuracy of such content. The informationprovided should not be relied on as legaladvice or a definitive statement of the law inany jurisdiction. For such advice, an applicant,insured, listener or reader should consult theirown legal counsel.

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Impact of the Global Financial Crisis

• Increased regulation

• Pressure on fees

• Smaller funds struggling, while larger funds are attracting more capital

• Increased demands and scrutiny by investors

• Flight to Quality / Survival of the Fittest

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What events Lead to Law Suits

Everyday activities, such as…

• Back-office support functions

• Communications with third parties

• Spending your time wisely

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Trends: Who is Getting Sued?

Everyone / Everything

• Fund

• Firm individuals as PC directors

• Firm individuals

• Management company

• Fund management entity

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Trends: Who is Suing & Why?

• Clients and fund investors/shareholders

• Employees and former employees

• Companies invested in and their other stakeholders

• Management

• Shareholders

• Creditors

• Other: Competitors, Service Providers

• Regulators

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Trends: Who is Suing & Why?

Typical Allegations

• Breach of fiduciary duties

• Fraud

• Breach of contract

• Misrepresentation

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Ripped from the Headlines

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Investor Claims

• Most investor claims follow poor investment results.

• Investor actions don’t just occur when a fund has a major blow up. Other potential scenarios include misrepresentations, disputes over redemptions, valuation and pricing, fees, and undisclosed conflicts of interest.

• Typical claims are individual written demands, arbitrations and sometimes, lawsuits.

• Operational errors are a common claim trigger.

• Most frequent claimants are individual investors and public pension funds, along with fund of funds or family offices in the hedge funds sector.

• Most investor claims are settled.

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Regulatory Claims

• Most policies cover formal investigations by regulators against both entities and persons.

• Its not just the domestic regulator, but also any securities exchange, self regulatory organizations, and foreign regulators.

• Insider trading witch hunt.

• You don’t have to do anything wrong to be investigated.

• Legal expenses for investigations are very costly.

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Key Issues to Consider

• Market externalities

• Allegations are free to make

• Defense costs

• Knock-on effects by other stakeholders

• Consequences of wrongful acts, negligence, or even fraud by a third party

• Growing pressure from regulators and a rapidly changing regulatory environment

• Personal assets of the leadership team at risk

• Insurance as a risk management tool

Thank You!

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Sub-custody

Network

Paul D. Hedges

Head of Asia Pacific Network

Management & Market Intelligence

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Structure: Network Management & Market Intelligence (N2MI)

Global Head of Network Management

a Market Intelligence (N2MI)

Market Intelligence &

Strategy

Network

Management

Asia Pacific

Network

Management

Americas

Network

Management

EMEA

Market Information

Analysis (MIA)Support

Market

Information and

Support

Market Infrastructure

analysis

Industry Initiative Analysis

Risk Analysis

External Relations

Core network management functions

Due diligence and RFP management

Agent risk & performance management

– Sub-custodians, Futures brokers, Collateral managers,

Precious metals vaults

Infrastructure Risk Management

– Depositories, Clearing Houses, Central Counterparties

Legal documentation facilitation

Troubleshooting and escalation

Agent Fees Management

MIS & Reporting

Operational Efficiency

A/C Opening and Closure

Due Diligence Support

Market summaries, profiles

and news

Project

Management

Co-ordination

Office

Management

Financial

Management

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1. Identify suitable providers: Main Criteria

I. Quality of Agent Bank (capital, credit standing and liquidity) & Service, Management and Staff

II. Commitment to Custody Business

III. Pricing

IV. Best in each market approach

V. Group vs Non-Group

VI. Approved Banks as defined by FSA (no brokers or investment banks)

2. RFP questionnaire – over 200 questions

3. Scoring process On-site due diligence visit

4. Re-score

5. Risk Assessment: All new appointments go through a rigorous selection, risk assessment & approval process via the Agent

Risk Assessment Team with final approval by the Global Head of Credit & Risk:

I. Credit risk assessment – using HSBC internal Credit Risk Rating (CRR) system (approved by UK regulator, FSA)

II. Operational risk assessment from due diligence (people, processes, systems, external suppliers)

III. Country risk: using HSBC country classification

IV. Market infrastructure risk: based on local legal opinions obtained

V. Legal risk: based on legal contracts in place

VI. Overall risk rating given which determines whether appointment can be made

6. Approval Process: Final approval provided by the N2MI Governance Panel, formed of senior executives from Compliance,

Credit & Risk, Legal, GTB (HSS + PCM), PB and GBM

The Policy is to select the most appropriate provider that meets all requirements. Group or non-Group.

Sub-Custodian Selection

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1. Biennial on-site due diligence visit – Risk based approach for Group & non-Group suppliers

– Agreed and Monitored by Compliance, Agent Risk Assessment Team & Governance Panel

2. Service Level Agreements: setting out agreed performance standards

3. Ongoing financial health checks: undertaken by HSBC Credit & Risk using CRR system

4. Annual reports: reviewed by Global Relationship Managers and Group Credit & Risk

5. Annual external audit reports

6. Active Performance through Quarterly Agent Bank scorecards

– Monthly Agent Bank Issues Meeting – feedback from all global business lines

7. League tables – external benchmarking to industry performance surveys

Ongoing Sub-Custodian Performance Monitoring

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External legal opinion obtained for each market on a biennial basis

– An annual exercise is undertaken with 50% of markets being covered in one year and the remaining 50% in the following year

– Baker & McKenzie appointed for the legal opinion exercise

Standard questions and topics determined by HSBC: Main Criteria

– 17f-5 and 17f-7 eligibility

– Recognition of Trust and Nominee concept

– The optimum registration and account structure that a sub custodian could adopt in the local market

– The level of protection afforded to HSBC’s clients’ assets in the event of insolvency of the local CSD, sub custodian or HSBC

Segregation of assets (HSBC & sub-custodian)

– Any controls and/or regulation that would affect the of ability of HSBC to recover it’s clients’ assets

– Improvements that could be made to HSBC’s current approach

Supplementary market specific questions and topics determined by HSBC: Potential Reasons

– Regulatory or legal changes

– Operational or market practice changes

Foundation Memorandum drafted by HSBC Legal Department and issued to Baker & McKenzie

– Full instruction letter submitted by HSBC Legal department

Legal Opinions

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Agent Bank Network

HSBC Securities Services (HSS) covers the full range of instruments in 95 markets worldwide through a network of

sub-custody agents. The full Network incorporates 42 HSBC entities and 53 non-HSBC entities.

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Thank you

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International Regulatory and Litigation Risk in the

Alternative Asset Management Sector

The Zuellig Forum – Singapore 17 Nov 2011

Barings Bank - US$1.3b

SociétéGénérale - US$7b

UBS - US$2.3b

Asset Management Sector Specialists

• Fund Manager clients in Asia, Middle East, N America, Continental Europe, UK

• Fund clients in Cayman, Mauritius, Dublin, Channel Islands, Luxembourg, UK

• Our credentials in the UK

700+ Investment fund and manager clients

30% of the Top 50 European Hedge Fund Managers (Hedge Fund Journal)

48% of UK Investment Trusts with AIC membership

36% of London Private Equity/Venture Capitalist market

25% of the directly regulated IFA market

Asset management claims experience:

121 open claims

248 closed claims

Asset Management Claims experience

Employee4%

Investor68%

Liquidator2%

Other5%

Investee Company

7%Regulator

14%

Analysis of Hedge Fund claims 2010

Claimant types

Breach of Fiduciary Duty

55%Fraud

9%

Employment Practices

Matter4%

Regulatory16%

Other16%

Nature of allegation

Corporate Governance in Hedge Fund Investors

Survey 2011 (Conducted by Carne Global Financial Services)

• Top 100 allocators globally were approached.

• Responses received from allocators accounting for US$600 billion in allocations, approx. 30% of all

hedge fund AUM

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PENSION FUNDS

6%

CONSULTANTS

10%

FUNDS OF FUNDS

44%INVESTMENT BANKS

10%

INSURANCE COMPANIES

6%

WEALTH MANAGERS

24%

“91% agreed poor governance would deter them from investing, even if

other operational and performance criteria were met”

“76% have already decided against investing on at least one occasion due

to governance concerns”

“Allocators are more content with governance levels on fund boards

promoted by European fund managers than by n American or Asia Pacific

managers “

Carne Global Financial Services survey 2011

Corporate Governance in Hedge Funds

Specific issues for Asian managers are:

“Lack of transparency and willingness to provide information”

“Lack of independent directors on boards with directors lacking the

requisite skills and experience or holding too many directorships”

Carne Global Financial Services survey 2011

Corporate Governance in Hedge Funds -Asia

2008 £4.4m

2009 £27.3m

2010 £33.6m

2011 £96.7m

12 months to 31st March

UK FSA fines against regulated firms

Mitigation of litigation and regulatory risk through

insurance

Risk Insurance Solution

Regulatory investigations Covered under PI and D&O policies

Litigation risk PI and D&O policies protect fund management entities

against allegations of wrongful acts in the provision of

investment services and manager and fund directors

against claims for breach of directorial duties.

POSI policies cover allegations of misstatement in

prospectuses

Investment risk Transactional liability insurance can cover claims for

breach of representation or warranty arising out of a

corporate transaction

Disclaimer

This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Howden

Insurance Brokers Limited, except that clients of Howden Insurance Brokers Limited need not obtain such permission when using this report

either for their internal purposes or to give to their clients. The information contained herein is based on sources we believe reliable and

should be understood to be general risk management and insurance information only. Howden makes no representations or warranties,

expressed or implied, concerning the accuracy of information contained herein. The information is not intended to be taken as advice with

respect to any individual situation and cannot be relied upon as such.

Copyright © November 2011 Howden Broking Group

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“Challenges you may face as a

fund manager in Singapore”

Ho Han Ming, Partner, Clifford Chance and Chairman of AIMA Singapore

Questions

?

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