A pressure point exists between fund managers and their external asset servicers. Susan Ebenston has sat on both sides of it. The chief operating officer of Aviva Investors speaks to Nick Fitzpatrick.
Joining Aviva Investors in June meant Susan Ebenston became a client of JP Morgan, its main custodian where she was global head of fund services. As chief operating officer (COO), she has the influence to take from JP Morgan a large part of the firm’s £234 billion (€292 billion) of assets under management.
Though she by no means indicates that this is even likely, Ebenston and her team are moving to cut back Aviva Investors’ external providers, she tells Funds Europe. JP Morgan is the largest custodian to the firm, while Citi carries out custody services in Singapore and the US.
“There are a plethora of others doing various things like trustee services and we want to slim-line the provider base and move from provider relationships, towards business partnerships,” she says. “I polled colleagues recently and most agree that we should reduce external providers.”
A likely criteria for any successful operations provider to Aviva Investors will include to ability to support complex funds, those on a par with the successful Global Absolute Return Strategies, or GARS, product managed by Standard Life Investments. Euan Munro, Aviva Investors’ chief executive, was a GARS team founding-member and helped launch the fund.
Munro, appointed as chief at Aviva in July 2013, is now creating a low-volatility rival, which the group believes is now a milestone in the turnaround of Aviva Investors’ business.
Likewise, Ebenston – whose appointment was announced in June – also factors this into her own challenges as COO. “The focus at the moment is on being very clear about our strategy. The Aviva Investors Multi-Strategy fund range, which we announced recently, is a big part of this, though there are others too.
“We need to make sure we have the right data to support our strategy, and then we need to manage the cost base.” She adds: “I would not say that we will re-tender but we will work towards creating the right number of service providers. It is unlikely we would move to just a single provider, though, because our size and complexity means we need back-up.”
Providers who succeed will be those that can demonstrate competency and who can customise service, says Ebenston, who most recently worked as a chief compliance officer in Australia, where she “learned much about supplier management – particularly to not accept what suppliers want you to hear”.
“As a client, you need providers that can show you, not tell you. Some suppliers struggle with this more than others, though many are ready because they know this is where regulators are going.”
For custodians, there is a tension between providing standardised services to get a grip on their own costs, and providing the customisation that clients want. Ebenston is familiar with this.
Having worked for the world’s third-largest custodian in dollar terms, she will also be familiar with the industry obsession with size. Custody assets have been reaching record levels recently as stock markets rallied.
Asked about the custody banking industry, Ebenston says: “As markets rise, there are some startling headline numbers, but it is a crude measure of success is to say how many custody assets you have. I’m interested not in volumes but in service.
“Client service will differentiate the banks going forward. Do they really understand what I’m trying to achieve?
“If they want to standardise everything, then how can they offer something specific to me?”
She adds, though, that some comfort does come from a provider’s size. “With regulators crawling all over them, you know they are subject to extra regulatory interest and scrutiny owing to the regulatory focus on systemic risk of large institutions.”
This is not the first time Ebenston has been a COO. She joined Scottish Widows Partnership in 2001 in the same role. But those proved to be very different days.
Ever since the Madoff scandal in 2008, friction has risen between custody banks and fund firms over the costs of depositary services. Regulators say the depositaries must restitute fund assets in cases like fraud or other failures not even related to wrongdoing. Depositaries want to increase their fees levied on funds as a result.
Fund managers, meanwhile, continue their long-standing push back on all fees for custody-related services, with the depositary fee now central to it. Fees rising from one basis point to ten have been mentioned (see pages 28-29), though other projections are whispered.
At JP Morgan, Ebenston understood the need for strong measures like this as custodians, which also act as depositary banks, sought to control risks. Now, back on the fund management side of the industry, she says an approach to the depositary question is still being formulated at Aviva Investors.
She says that another challenge for Aviva Investors has been for its property business – which is a major chunk of assets under management – as it adapted to the new regulatory environment under the Alternative Investment Fund Managers Directive (AIFMD).
“We are meeting the [AIFMD] regulatory milestones and are generally in a good position. A particular issue for Aviva Investors was the large property business where we had to pull a lot of previously unregulated funds into regulatory scope, but we are very happy we’ve done that and having a better-regulated industry is a better thing all round for clients.”
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