Greg O’Sullivan, domestic head of sales at State Street Global Services, says the custodian’s recent and successful bid to win the $18 billion REST Superannuation’s back-office contract was a “very solutions-driven process” centred on core services, such as fund accounting and tax and performance reporting. The deal, which saw State Street break the 18-year incumbency of JPMorgan WSS, was something of a comeback for the custodian after it pulled out of the Australian market in the late 1990s. However, despite its focus on core services, REST will have access to a broad range of offerings from State Street. Following the amalgamation of its global markets and custody businesses, State Street can provide additional service such as securities lending, multiasset class trading and transition management. The roll-out of more specialised services will continue in a ‘best of breed’ world, O’Sullivan says, and is a major reason why State Street ploughs between 20 per cent and 25 per cent of its annual revenue into upgrading and developing new technologies.

In 2010, this amounted to a $1.5 billion being put back into the business, he says. Ian Martin, head of global markets and investor services for State Street in Australia and New Zealand, says the custodian has also adjusted its operating model in its attempt to become more competitive. “The challenge for us, as with all custodians, is to create the right operating model and cost-base to allow us to compete,” Martin says. “Having done that, we were happy to compete very aggressively on price – but it was a value proposition with REST.” Losing REST was disappointing, says Laurance Bailey, Asia-Pacific CEO of JPMorgan WSS, who secured that contract 18 years ago while working in Australia. But he says it’s often inevitable that clients look elsewhere after such a long partnership, and that most tender outcomes affected the custodian one way or the other.

Looking ahead, Bailey says that as JPMorgan WSS continues to roll out specialised services in response to the unbundling trend, it also aims to strengthen its core custody offering worldwide through the “custody foundation” project. “Clients used to want to invest anywhere. Now they want specific locations, so they need local cash accounts and local processing,” Bailey says. “It’s a reflection of what clients are doing. Global clients are going local or local clients are saying they are going to do other things in other countries.” Last year’s acquisition of ANZ’s custody business by JPMorgan WSS is part of this “direct custody roll-out”, and is being mirrored by takeovers of custody businesses in other markets, such as Taiwan, India and Brazil. “The benefit of being a global custodian is that no matter where your clients are investing, you get the same service. However some clients are saying they want to go directly into China, Russia or India, and that they’re big enough to have a relationship in their own right on the ground.”

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