How did the idea for Calastone CDSC come about?
Contingent Deferred Sales Charge (CDSC) products continue to gain popularity and in some markets, such as Taiwan, distributors have only been onboarding new funds if a CDSC class of the fund is also available.
The processing of a CDSC fund is, however, still a largely manual process for the transfer agent (TA) and fund manager, due to the additional information that must be ingested, stored and processed. Moreover, they are burdened with the ongoing monitoring of each investor’s status and the need to calculate exit fees. If something goes wrong, it can be a mammoth task to unpick what, where and how it happened. The post-mortem can require days of analysis, potentially followed by the need to begin the whole process from scratch.
These processes led one of our fund manager clients to approach us. They were keen to launch a CDSC product, but their TA was unable to support the fund class. The client was aware of our technology and experience in automating the funds industry. This led to the design and implementation of Calastone CDSC.
At a time when margins are being squeezed, firms are looking to find ways to enhance a fund’s profitability and reduce the overall running costs, Calastone CDSC helps them to achieve that. In addition, automating this process simplifies the launch of new products and saves considerable internal time and resource.
What is Calastone CDSC and how does it work?
Calastone Contingent Deferred Sales Charge (CDSC) is a new part of DMI Fund Services. It digitalises and automates the entire CDSC investment process, enabling fund managers and TAs to improve investor servicing, as well as reduce the cost and risk inherent in manual processes.
It operates as a digitalised register, automatically capturing all the necessary CDSC information, such as tracking the subscription date for each investment and early redemption exit fee calculations. This ensures that investor holdings are converted to the appropriate share class accurately at maturity. In the case of Taiwan, for example, these are A shares, which have lower annual expenses than other fund classes.
What benefits do users typically see?
Calastone CDSC has automated the lifecycle of CDSC funds from trade placement to conversion and exit fee rate calculation. This allows firms to more easily issue and support share classes and funds that they might not have been able to support previously, and cater more readily to the preferences of different investor groups.
It also gives firm’s a real-time view of the status of each investment and the relevant charges. This provides a clear audit trail, so if something does go wrong, it is easy to diagnose and fix. In addition, fund managers can fulfil internal product and compliance information requests quickly and easily.
By eliminating manual work, Calastone CDSC makes the entire process faster, more accurate and transparent.
What does automating this process mean for the funds industry?
It is not only a tool for generating operational alpha, but also a key to building product attractiveness. By increasing processing accuracy and efficiency, firms can transform recordkeeping into a competitive advantage. New CDSC funds can be launched more quickly and can be supported without increased risk.
It allows funds to open up more opportunities for their investors. It works in concert with the rest of our DMI Fund services to enable a future where fund managers and TAs can quickly launch and support different share classes, new funds and a wider range of asset classes. Firms can strengthen their fund recordkeeping, providing a foundation with which they can meet the needs of the next generation of investors, all while cutting the time, risk and cost of existing manual processes.
How do you see the landscape for Calastone CDSC developing in the future?
Launching first in Taiwan, Calastone CDSC adapts to fit all markets. It is part of our mission to help the funds industry transform by automating and digitalising the global investment funds marketplace, reducing frictional costs and operational risk to the benefit of all. The power of automation is not to replace, but to augment the abilities of fund managers and TAs, so they can provide a better service to investors, make investing more accessible and help realise operational alpha from everyday, currently manual tasks.