September 18, 2008
ReFlow Expands to Luxembourg, Offering New Anti-Dilution Options to UCITS Market. Simon Barnes Named to Head ReFlow Europe
(San Francisco, CA) ReFlow Services LLC, a global provider of tools that help investment funds preserve performance by countering the negative cost and risk impacts of shareholder flows, has announced its expansion to Europe. The firm is opening a Luxembourg office and offering its anti-dilution solutions to the UCITS fund industry.
As part of its move into Europe, the company also announced the appointment of Simon Barnes, a European fund industry veteran, to be head of ReFlow Europe.
“Europe is logical next step in the firm’s expansion,” said ReFlow President Paul Schaeffer, noting that the tremendous growth and success of UCITS funds has been accompanied by heightened scrutiny of cost and risks that erode fund performance, including those resulting from asset flows.
“Given the Luxembourg fund industry’s high level of awareness and regulatory action concerning issues of performance dilution, we see Luxembourg as the ideal base from which to serve the European fund market. ReFlow is making a major commitment to Europe because we see a major need for the kinds of tools we specialize in,” said Schaeffer.
Schaeffer said that UCITS providers have been searching for the best ways of meeting regulatory requirements for anti-dilution measures. He noted that U.S. mutual fund complexes are also affected by this issue.
Of the 376 asset managers offering funds domiciled in Luxembourg and/or Dublin, 43 are U.S.-based firms, according to Strategic Insights, a leading industry research firm. More than 3,200 funds, or nearly 22% of all Luxembourg- or Dublin-domiciled UCITS funds, are offered by U.S. firms. U.S.-sponsored UCITS represent more than €314 billion in assets under management.
The Luxembourg fund industry regulator, the Commission de Surveillance du Secteur Financier (CSSF), requires funds to have access to sufficient liquidity to meet shareholder redemptions. Following CSSF rules aimed at protecting investors against performance dilution due to market timing, the Association of Luxembourg Fund Industries (ALFI) has also issued voluntary guidelines for anti-dilution measures.
As a result, said Schaeffer, investors, regulators and industry leaders have all grown more aware of the dilutive effects of trading costs resulting from shareholder flow. He emphasized that those include the major hidden cost factors of delay and market impact, as well as explicit costs of commissions, bid/offer spreads, global custody, clearing, and currency conversion.
With ReFlow, UCITS that are experiencing net outflows can receive cash offsets on demand, thus eliminating the need to liquidate portfolio securities and avoiding the consequent trading costs.
“ReFlow’s liquidity solution gives funds another option for dealing with anti-dilution regulations and the complexities of swing pricing,” said Barnes. “It’s clear that funds have been struggling to find the optimal solution. We’re here to show how ReFlow can complement swing pricing as well as offering an alternative to it.” He added that ReFlow is planning to bring its solution for high net inflows to Europe as well, giving funds even greater control over cash and liquidity.
ReFlow insulates investment funds from trading cost and risk they would otherwise incur as a result of shareholder redemptions. As a result, it not only helps fund managers preserve the performance they have earned, but frees them to implement their portfolio strategies unimpeded by shareholder activities.
The firm has been offering its toolkit to U.S. mutual funds since 2003. Its liquidity solution has been authorized for use in the U.S. by 161 individual funds within 16 fund complexes with a total of more than $365 billion in assets. In Europe, ReFlow gives UCITS funds an added anti-dilution option that is both a complement and an alternative to other approaches. ReFlow’s solution has a number of advantages in that it:
- Eliminates costs rather than allocating them.
- Is an automated, everyday solution easy to implement and use.
- Addresses both explicit and hidden trading costs.
- Benefits all shareholders by enhancing performance.
- Helps funds improve overall performance rankings.
- Raises no transparency or fairness issues.
- Has little or no impact on daily operating or accounting procedures.
Barnes has worked in Luxembourg since 1986 and spent most of that time working for a large European banking group in various roles. More recently he has been involved in commercial activities in the funds administration industry. He will manage ReFlow Europe from its offices at: 2–4 avenue Marie-Thérèse, L – 2132 Luxembourg.
For more information, please visit www.reflow.lu or e-mail to Simon Barnes - Director of European Sales & Marketing, +352 26683 – 355 / SBarnes@ReFlow.lu.