Gary French is the managing director of the investment operations unit at Zurich Scudder Investments. That unit is comprised of roughly 325 employees. He is also chairman of the board of the National Investment Company Service Association.
French discussed the 2002 NICSA Operations Conference, which is taking place this week in Miami, as well as current operational challenges for Zurich Scudder and the industry in general with Mutual Fund Market News' Andrew Brent.
MFMN: When did you become NICSA board chairman and how did that come about?
French: I became the chairman of NICSA's board effective May of last year, and it's basically a two-year term carved out of a six-year board member commitment. I guess it's the proverbial I forgot to step back when they asked for volunteers.' But in all seriousness, there is a nominating and governance committee of the board, which is comprised in part of former board members. They review the folks who have been suggested to them as possible chairmen. And because it is a voluntary organization, there has to be a certain amount of willingness on the part of the board member to actually function in that capacity. They asked me if I was willing to do it and I said, Sure.'
MFMN: Does being involved with NICSA and being chairman offer any advantages in terms of visibility for Zurich Scudder, or is it strictly a voluntary service?
French: I would characterize it as purely a volunteer service. I've been active with NICSA for a number of years. I chaired the operations conference committee for a couple of years, and I think it's an excellent organization and one I'm willing to devote time to. I'm thankful that my employer, and my former employer [United Asset Management] for that matter, were willing to allow me to devote the time to the organization because I think it's an outstanding group of folks. If there are any visibility issues, it's not why I do it.
MFMN: What are you looking for from this year's Operations conference? What do you think will be this year's hot topics?
French: I think first and foremost it's going to be disaster recovery and the ramifications of the September 11 and following days' events on our industry. I think there will be a lot of conversation around disaster recovery capabilities. In fact, our Monday keynote speaker is [Cristobal Conde] from SunGard recovery services, and so I think it's a timely topic.
Just as an aside, we on the board have been anxious about the attendance for the conference and our advanced registrations are off somewhat from prior years. It's hard to tell whether that's a result of normal budgetary limitations people are undergoing because the industry is not doing as well as in prior years, or whether there is a more conservative approach on the part of member organizations that have said, We need to be paying more attention to what's going on in our offices.
MFMN: When was the conference agenda put together? Was the topic of disaster recovery put in after the program was already set?
French: The typical process is that the program planning committee actually gets underway shortly after the prior year's event to recap and identify those things that went well and those things that need some work. Then there's a break in the action over the summer, and although there are periodic meetings that take place over the summer, the real effort gets underway in the August-September-October timeframe. They were, no doubt, right in the throes of setting the agenda and lining up speakers in September. Most of the keynote speakers are not paid speakers and sometimes it's difficult to get on their calendars, so we try to do it as much in advance as possible. But their schedules change and it's frequently necessary to make adjustments along the way. I think this one just fell into place.
MFMN: What are your responsibilities at Zurich Scudder?
French: I run a group called investment operations, which provides, to use the pejorative term, back-office support for the investment activities of the firm. That's anything having to do with portfolio investments that's post-trade execution, including settlement, custody, reconciliations, corporate actions, pricing, sub-accounting [and] NAV calculations for the mutual funds. We service all of the various distribution channels that Zurich Scudder has historically been involved in so that we can provide investment operations support for mutual fund activities as well as institutional separate accounts, high-net-worth accounts and co-mingled pools out of the Scudder Trust Company.
MFMN: Has the firm's corporate management paid more attention to investment operations and implementing some protection and/or disaster recovery initiatives post-September 11?
French: As to the question of whether or not it's been easier to get attention from a corporate perspective, the answer is probably yes. But more importantly, I think the events of September 11 caused us to think differently about the nature of a potential disaster. I think, like many others, that we tended to think from a very localized perspective beforehand--What if we had a fire in our building and couldn't access our facilities? What do we do in that kind of disaster scenario?
Now we're thinking much more broadly around what are the potential impacts of a regional outage and how does that impact our ability to get back in the game quickly.
MFMN: Have there been any significant developments in the back-office service area recently?
French: I think, from an industry perspective, next to disaster recovery perhaps, outsourcing is high on everyone's list these days. Whether you're a third-party service provider like a State Street, for example, or whether you're a proprietary provider like ourselves, you're constantly looking at the whole notion of whether you should continue to provide services on an in-house basis or whether you should outsource those activities which you can and keep only the services that are unique to your institution. That's an ongoing item of discussion and debate.
Clearly, efforts on the part of third-party service organizations are broadening beyond doing fund accounting and fund administration, and we are now looking at, and having some success in, institutional asset management.
Lurking in the background is the whole area of T+1 and STP [straight through processing]. I think a lot of people have not made the progress in those areas that they would like to have made by this time.
Fortunately, we got a bit of a deferral on T+1, but at the same time, the events of September 11 delayed a lot of work in that area. Net we're probably, as an industry, about where we would have been otherwise. But that's one that people are really going to have to start focusing on here over the next six months to a year. We've had our share of things, whether it was Y2K, the Euro, and now T+1. There's a neverending stream of industry impacts. Probably everyone's in the same boat as we are, always looking for new ways to enhance our service delivery capabilities from a technology perspective.
MFMN: Last year, Zurich Scudder was acquired by Deutsche Bank. From an investment operations perspective, what is involved with a merger of that size?
French: I can't get too much into the specifics, but I've been actively involved in the whole process as a result of my role on the integration planning committee, which was put together early in the process. Anytime you've got a combination of two organizations the size of Deutsche Bank and Zurich Scudder, each with their own legacy policies and procedures, but more importantly their own technology, it's a very complicated process. And it's one that we've devoted an enormous amount of time to already and will continue to do so for perhaps a year or more into the future.
MFMN: Generally, what are the major challenges during that process?
French: Within each firm, the highly integrated nature of the investing process creates challenges. Trade entry systems, trade order management systems, investment accounting systems, mutual fund NAV systems are all, to greater or lesser degrees, integrated and tie together within the confines of each firm. We, and many other firms, have a real challenge in terms of maximizing the integration within our own organization to make those systems talk to each other and work as efficiently as possible. When you then open the doors and try to go across to another corporate entity that has a completely different and unique suite of technological applications, and you try to get those to talk together, it's just an order of magnitude more difficult.
Still, while the technology is different, the basics of what we do, at least in my area, are very similar. You buy a security, you settle a security, you have a corporate action maybe, you price that security, you hold it for some period of time, you sell it, convert it to cash and you begin the cycle all over again. That's exactly the kind of thing that we houned in on when we combined all of our operations across distribution channels here at ZSI, and it's the same fundamental concept that allows us to talk the same language across ZSI and DB and to achieve integration.
MFMN: Have the investment operations units at the two firms been combined?
French: We haven't actually done any combinations at this point. As you know, the transaction hasn't closed, so for the time being we're still operating as separate entities.
Zurich Scudder At a Glance
Corporate Headquarters: New York City
Offices Worldwide: Boston, Cincinnati, Chicago, Costa Mesa, Dallas, Frankfurt, Hong Kong, Kansas City, London, Los Angeles, Milan, New York, Norwell, Philadelphia, San Francisco, Salem, Seoul, Singapore, St. Louis, Sydney, Tokyo, Toronto, and Zurich
Size of Firm: 4,500 employees
Size of Investment Operations Unit:
Assets Under Management
Worldwide: $327.9 billion
Americas: $228.8 billion
Europe: $90.5 billion
Asia Pacific: $8.7 billion
Breakdown of Americas Assets
Mutual Funds Group: $105.6 billion
Institutional Group: $57.8 billion
Private Investment Counsel Group: $14.1 billion
Other Affiliates: $50.7 billion
Breakdown of Americas Assets by Type
Equity: $74.7 billion
Fixed-Income: $116.4 billion
Money Market: $37.4 billion
Alternative Investments: $0.4 billion