NAB the first casualty in STA/ARF merger plan

The first of many service provider agreements by the giant STA/ARF industry funds post their merger mid-year is expected to be announced this week, with JP Morgan winning the custody contract ahead of National Custodian Services.

The merged fund will have about $20 billion under management. For National, the loss of the $9 billion STA represents its biggest of only a handful of client losses in Australia in the history of the custody division. Bank of New York, National¹s global custodian, will also lose out with the decision. For JP Morgan, which already had the ARF custody business, the win marks an important gain in the Victorian industry fund heartland, which has been dominated by Melbourne-based National since the 1980s. Other service providers, particularly the dozens of funds managers involved with either STA or ARF, will look at the custodian selection with interest. One of the most difficult service providers to change ­ member administrator ­ will not have to be assessed with the merger because both funds use SuperPartners. Some managers had expressed the view that because STA¹s chief executive, Michael Delaney, is to be the chief investment officer at STA/ARF, and Ian Silk, the ARF chief executive, is to retain his title, that the STA investments service providers were likely to be favoured post merger. It is understood the custodian selection involved lengthy discussion by trustee directors and investment committee members. A decision was expected mid-month but was delayed by a week for further consultations. Elana Rubin, the outgoing ARF chief investment officer, who will remain a member of the investment committee after the STA merger, ran a custody tender for ARF in 2004, after which JP Morgan was reappointed. She is thought to have favoured the ARF incumbent because of recent reinvestment in technology. The fund merger, which also includes the $500 million FinSuper financial services industry fund, is timed to take effect from July 1.