Our annual custody survey shows BNY Mellon is still at the top for global custody assets, but other firms saw most growth in percentage terms. Mark McFee provides an overview.
Global assets under custody (AuC) increased almost universally between March 2010 and June 2011. In absolute terms, custody giant BNY Mellon saw its assets grow the most: by €1.6trn, or 9.2%, to €18.36trn.
But in percentage growth terms, this was outpaced by several groups. Brown Brothers Harriman registered an increase of 19.4%, Swedbank 14.3%, BNP Paribas 11.7%, State Street 11.4% and Northern Trust 11.2%.
AuC did not increase across the board, however. UBS registered a decline from €2.268trn in last year’s survey to €2.243trn this year.
RBC Dexia Investor Services registered €2trn last year; this year the firm registers €1.622trn – but says this ‘decline’ is because it gave a combined figure for custody and admin last year. The survey only asks for custody data.
The picture for European assets remains different from the global one. Of respondents who provided data for European assets, Citi maintains its lead from 2010, having increased AuC by €540bn (12.1%).
Citi’s growth was outpaced by Northern Trust, which registered a 24.9% increase in the region and UBS, whose AuC went up 15.5%.
This year we asked for net flow data and the results provide a reminder of the increasingly tough market conditions in which firms find themselves operating, with inflows higher than asset growth in many cases. There were, however, a couple of exceptions to the rule, such as Citi attracting inflows of €200bn but increasing global AuC by €600bn.
We also requested data about new custody business wins in the year to 30 June 2011. State Street led the field with 357 new custody clients, although roughly two-thirds came from its acquisition of Intesa Sanpaolo in the course of the year.
Joseph Antonellis, vice chairman at State Street, claims that what sets the firm apart from the rest is its “unparalleled skill and experience in wrapping our core custody capabilities into end-to-end, value-added solutions that address our clients’ most urgent challenges and opportunities”. This is being enhanced through investment in technologies such as cloud computing.
Societe Generale netted more than 200 custody wins. Bruno Prigent, deputy head of Societe Generale Securities Services, sees the firm’s strengths as lying in its proprietary network of sub-custodians covering 24 countries, dedicated multi-country IT platforms to support the provision of fund administration and transfer agent services, and an expertise in funds and hedge funds with direct market access and trailer fees management.
By far the biggest win for which data was provided came from State Street, which added €122bn from a UK fund manager to its AuC. While most top wins came from developed markets, JP Morgan provided custody for €1.5bn of assets from a Turkish asset manager, and Pictet revealed that its third largest win was a pension fund in the Middle East.
Indeed, emerging markets, and particularly the Middle East, were prioritised for development by several custodians over the past year, and this looks set to continue in 2012. Germany, Luxembourg, Switzerland and the UK were all mentioned by multiple respondents as developed markets to concentrate on over the coming year.
Meanwhile, some groups are broadening their gaze to more exotic locations, with JP Morgan eyeing opportunities in Bosnia & Herzegovina, Cambodia and Malawi, having already added Palestine, Trinidad & Tobago, Uganda, and a number of west African nations to its custody network in 2011.
Regulation, regulation, regulation. Custodians are unanimous on this point in their appraisal of challenges they have faced in 2011, and still face in 2012. Thanks to the sheer number of pieces of financial legislation in the pipeline in Europe and the US, this is not only a common concern, but a major one.
“As the asset management industry becomes increasingly globalised, regulatory change in one local market is not isolated…its impact has the potential to profoundly impact a firm’s global strategy and operations,” says Geoff Cook, partner at Brown Brothers Harriman.
A considerable amount of time and resources are being diverted to ensure custodians get to grips with what the myriad new regulations will mean for both them and their clients. At Northern Trust, Penelope Biggs, executive vice president & regional head of institutional investor group, says that the firm has established a global financial regulatory reform team to monitor and develop understanding of the impacts.
Several custodians have noted that this situation presents asset servicers with a great opportunity if they can stay ahead of the curve in understanding regulation by aiding their clients to appreciate the implications involved, mitigate regulatory risk, and reassure them of the integrity of the guardians of their assets.
But in order to ensure smooth transitions, coordination between industry players and the regulators is becoming ever more important, according to John Van Verre, head of global custody at HSBC Securities Services. “As many changes are being implemented within a relatively short period of time and the detailed requirements are not yet available for some of the new regulations, there is little time for making all the required operational and IT changes.”
Custodians operating in Europe are faced with the need to ready themselves for 25 different pieces of legislation and while adaptations for Ucits IV are well underway, preparations for Solvency II, the Dodd-Frank Act, Fatca and AIFMD, among others, are keeping custodians very busy.
Custodians have had a busy year developing and launching new products to enhance the services they provide. While many of the products developed, such as fund order routing systems and online reporting tools, are idiosyncratic to each group, a over spill from the growing pressures of regulation can be observed. Several custodians have been focusing on Ucits-related products, with a number of mentions of key investor information document (KIID) services following the implementation of Ucits IV in July.
Forthcoming products also make for a colourful bunch, varying from integrated custody solutions to new reporting capabilities, enhanced risk services and accelerated dividend payments.
Improving reporting services is something that could prove to be of great benefit when it comes to assuaging concerns regarding the guardianship of assets in the post-Lehman and Madoff world. Chandresh Iyer, global product head for custody and investment services at Citi, sees “increased client and regulatory interest in counterparty risk management, transparency and safekeeping of nontraditional assets such as hedge funds, private equity, precious metals and carbon credits”.
Aside from multiple regulatory changes, what else will 2012 bring custodians in the way of hurdles? A key theme is giving clients what they want – and they want increasingly more. Biggs, of Northern Trust, says that “clients are looking for greater transparency and granularity in a faster environment, in order to make more informed decisions”. To achieve this, they are requesting more tailored data management solutions.
Marc Briol, CEO of Pictet Asset Services, also says clients are becoming more discerning. “The industry will also probably be challenged in terms of potential conflicts of interest since clients will look at more agile solutions and connectivity across the value chain rather than imposed solutions upon them.”
©2011 funds europe