Citi is making a renewed bid for fund administration business in Australia, off the back of localising its Multifonds accounting platform as part of a worldwide middle-office deal with Dimensional Fund Advisors, and the relaxing of competitive tensions which occurred when BNP Paribas Securities Services Australia (another fund administrator) stopped using Citi’s global custody network in preference for its parent’s own. Citi decided it was more efficient to make Multifonds compliant with local regulations, such as the 12-month CGT concession, rather than “purchase a DST or a Simcorp”, according to Citi’s head of securities and fund services, Martin Carpenter.
“We’ve followed the State Street [Investor Services] model of upgrading our global platform…in providing middle office for DFA we were 90 per cent there anyway, because you have to reconcile with the other custodians. If you’re doing it for an existing client, you can offset some of the costs, rather than deal with a local software vendor that might have a pretty strong position in the market,” Carpenter says, diplomatically.
Citi is handling exclusively middleoffice functions for Dimensional – post-trade execution tasks including trade matching and reconciliation, corporate actions, portfolio valuations and reconciling those valuations against the client’s custodian. In Dimensional’s case, that custodian is JP Morgan Worldwide Securities Services. Carpenter said that in future, Citi may enter any competitive tender to take on those backoffice functions too (it is already core custodian for a large retail funds manager, said by market sources to be Colonial First State) but for now was focused on incremental additions to its fund admin business.
“We want clients to be assured they can work with us in a way that won’t disrupt the day-to-day running of their business at all,” Carpenter says. Funds managers are looking at ways to reduce their fixed administration costs, given the big fall in market-linked revenue, but Carpenter says managers are approaching outsourcing in a careful way rather than ‘big bang’. While Citi’s fund administration hub is in Singapore, a number of tax specialists have been employed in Melbourne to support Dimensional, and Carpenter says this team will form the backbone of the local admin business at it grows.
Carpenter is not particularly interested in competing for superannuation master custody business at this stage, but believes there is a niche in servicing hedge fund investors who want greater security over their assets in a post- Madoff world. Combining Citi’s own custody and prime brokerage capabilities with the hedge fund administration know-how it acquired with the Bisys business in 2007, Carpenter is offering a “prime custody” service to hedge fund investors which would provide “a traditional level of custody safekeeping” and ring-fence assets in a way that proved not to be the case with typical prime brokerage accounts. The Bisys business also has a private equity administration capability which Carpenter is confident can compete with existing offerings from the other major custodians.