Vicki Martyn, NAB Custody’s head of product development, says that NAB, which is on the panel, only gets the business if its pricing is as good or better than the others. She says that the firm is currently developing a passive currency overlay service. The growth of private equity has presented administration challenges for both funds and their custodians. Some custodians, such as State Street, JP Morgan and BNP Paribas have brought – or are bringing – their offshore specialist systems to Australia. Others have been looking at local thirdparty specialist systems or have adapted existing systems.
Jean-Marc Pasquet, BNP Paribas Securities Services managing director and head of Asia Pacific, says there is no one solution for all the different types of alternatives. “We have an existing product for hedge funds,” he says. “But to automate the process is very difficult.” In private equity, BNP Paribas has developed a system in conjunction with its funds management sister company, which will be made available in Australia.
This collaborative effort, with an “internal” client, worked well for BNP with its performance measurement tool, which the company believes is the best of its type in the world. “It’s top of the list because it was developed from a client’s perspective,” Pasquet says. “That’s what we’re also doing in private equity.”
RBC Dexia’s Scott MacDonald, however, points out that close links with a funds management company may not always be in the best interests of other – external – clients. “Many fund management clients aren’t comfortable with the idea that an asset manager, who might be a competitor, has input into the pricing of their securities,” he says. MacDonald agrees that alternatives will always be difficult and that the best way to succeed in providing good administration services is for the custodian to have an intimate knowledge of the client. “Hopefully, we get brought into the loop well before they launch a product,” he says. “It’s a challenge for the whole industry.”
Hedge fund and private equity managers present another challenge because not only are they complex, particularly with regard to valuations and fees, but also they tend to be small firms. Pasquet says there is a minimum investment required by the custodian for each client partly because of the regulatory environment but also because each one requires some degree of customisation and a minimum of service. “The plain vanilla service has come down in price because of automation,” he says. “If we were in a motionless market, with no new products or regulations, the industry would be fantastically efficient, but it is our vocation to permanently deal with changes.”