Shifts in the Investment Industry. Neeraj Sahai Global Head, Securities and Fund Services

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1 Shifts in the Investment Industry Neeraj Sahai Global Head, Securities and Fund Services

2 The needs of asset owners - both retail and institutional - are changing profoundly Driving change for all industry players none of us can succeed with business-as-usual approaches. 1

3 Markets Have Always Faced Change REGAINING INVESTOR TRUST CHANGING MARKET STRUCTURE INSTITUTIONALIZATION OF DEMAND RISE OF MODERN CAPITAL MARKETS Dow Jones Industrial Average Source: Bloomberg 2

4 3... And Continue To Face Change

5 Current Investment Industry Structure Asset Owners Asset Gatherers Asset Managers Asset Servicers Infrastructure Mass Retail (10K 100K) Wire Houses (Prudential, SmithBarney) Scale Players (Fidelity, BGI) Inter-Dealer Brokers (ICAP) Liquidity Pools (Fidelity Cross Stream) Mass Affluent (>100K) Private Banks Multi-Managers (Allianz) Broker / Dealers (Goldman Sachs, CMB) Exchanges / ECN s (NYSE EuroNext, TradeOp) High Net Worth (>1MM) Registered Investment Advisors (RIAs) Specialized / Focused (SAC, CAI) Custodians / Administrators (State Street, Citi SFS) CSD s (DTC) Pensions (GM) Trust Banks (Wilmington Trust) Clearing Houses (LCH) Sovereign Wealth Funds (GIC) CAGR 9% % % 3 15% 4 10% Worldwide investable assets, Putnam Lovell; 2 PwC GWM 2007; 3 ICI Factbook 2008 in global Mutual Funds; 4 Oliver Wyman The Future of Transaction Banking 5 World Equity Market Cap, World Federation of Exchanges June 2008

6 Industry Trends Demographics 50+ population expected to grow from ~20% in 2008 to ~24% in 2020, equivalent to over 500 million increase 1 Globalization Cross-border capital flows grew at ~14% CAGR between 1990 to 2006 reaching $8.2T or 17.2% of global GDP 2 Technology Effective IT governance and scalable, modern technology platforms becoming source of competitive advantage and differentiation Regulation MiFiD, NMS, Sarbanes-Oxley, etc. impacting investment industry across the globe 5 1 U.S. Census Bureau 2 Mapping Global Capital Markets, McKinsey Global Institute, January 2008 and players must adapt to succeed

7 What Will The Shifting Landscape Look Like? 6

8 The Asset Owner 7

9 Needs of The Asset Owner Outcome oriented absolute returns Accumulation to yield Pay for performance Superior advice & transparency 8

10 The Asset Gatherers 9

11 Impact on The Asset Gatherers Product management to portfolio construction Overlay management Open architecture New skills & infrastructure 10

12 Next generation wealth management platform Value Chain Positioning Trust / Pvt Banks Pvt Client AM s Independent BD s Citi Open Wealth Managers Markets Trading Markets Venues Open Wealth Operating Model Wealth Advisors Markets Portal (CitiDirect) Outcome Oriented Portfolio Asset gatherers/intermediaries to benefit from influx of AuM from Mass Affluent/HNW segment Asset owners need outcome oriented portfolios, adjusted for their risk appetite and life events Connectivity Network Web White Label Client Services & Consulting Tech. Outsourcing Portfolio Construction Bus. Proc. Outsourcing Manager Selection Connectivity Network Manager 1 Manager 2 Manager 3 Mid-tier players, independents & trust banks need to meet critical client requirement: tax optimized portfolio/asset allocation, rebalancing, overlay management, household vs. individual solutions, performance reporting Order Routing & Trade Execution Cash/FX Client Citi Custody & Settlement 11 1 Putnam Lovell 2 Potential CAI/GWM Opportunity

13 The Asset Managers 12

14 Impact on The Asset Managers Institutional to mass affluent focus Separation & bespoke repackaging of alpha & beta Newer strategies, asset classes, geographies (alpha) Barbelling scale, alpha focus or fully sub-advised 13

15 Enable growth & transformation of traditional asset managers Value Chain Positioning Institutional Manager 1 Outcome HNW Intermediary Multi- Manager MM Platform Manager 2 Manager 3 Multi-Manager Operating Model Brand & Marketing Traditional asset managers are moving to a fully sub-advised model sourcing the best in breed third party managers - and transforming into multimanagers or multi-boutiques Serve as a one-stop shop for constructors of outcome oriented portfolios - and access bespoke alpha engines Investor Needs / Product R&D Manager On-Boarding Manager Research / Selection & Due Diligence Transition Management Manager Performance Monitoring Performance Attribution Overlay Management Portfolio Analytics / Risk Assessment Needs new capabilities - manager on-boarding, transition management, portfolio analytics/risk assessment and performance attribution & operational oversight Operational Oversight Prime Brokerage Client Fund Accounting Citi Custody & Settlement 14 1 McKinsey: The Asset Management Industry in Potential CAI/GWM Opportunity

16 The Asset Servicers 15

17 Impact on The Asset Servicers Multi-asset, multi-geography & multi-strategy servicing Platforms enabling rapid customization Global consistency Consultative service paradigm... from Manufacturer to Integrator 16

18 17 What s Next?

19 What s Next? Change is the only constant A big-picture perspective is key Market participants will align in new and innovative ways Flexibility will be crucial to success 18

20 It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change ~ Charles Darwin ~ 19