The dominance of NAB and J.P. Morgan in Australian custody is being challenged by energised rivals vying for large superannuation fund clients. 

On the first working Monday of 2011, REST Industry Super completed its 14-month search for a custodian. News broke throughout the Australian investment industry that the $20 billion fund had ended its 18-year relationship with J.P. Morgan Worldwide Securities Services and hired State Street Global Services.

Many workers in custody industry, still on summertime holidays, were not in their Sydney or Melbourne CBD offices to talk about the deal. But it sparked many coffee table and boardroom discussions throughout the year, particularly when J.P. Morgan lost another large client, the $24 billion Commonwealth Superannuation Corporation (CSC), in October.

This time it was beaten by Northern Trust. The next month, State Street became custodian for the $19 billion Sunsuper after a close contest with the custody business of National Australia Bank (NAB). NAB had held the contract for 13 years.

The fund was not dissatisfied with the bank’s services, but the investment analytics that State Street could provide to its investment team compelled Sunsuper to make the change. Together, these losses do not weaken the dominant positions of NAB and J.P. Morgan. But they show that their rivals – particularly State Street, BNP Paribas Securities Services, Northern Trust and Citi – are strong contenders.

 

 

Duopoly

 

“NAB and JP Morgan have had the lion’s share of the market and preferred clients between them. They are under more threat now,” says Drew Vaughan, custody consultant with Dymond Foulds & Vaughan in Sydney.

At June 30, 2011, NAB held $556.3 billion in assets under custody, more than any other custodian in Australia, according to the Australian Custodial Services Association (ACSA). J.P. Morgan followed with $341.1 billion.

Continuing their long-standing duopoly, the custodians held more than half of the $1.4 trillion in superannuation savings. But in the past two years the strength of the top dogs has been tested (click on Figure 1 above). ACSA data showing how these deals have changed custodians’ market share were unavailable when Investment Magazine went to press, but will be available in the coming weeks.

NAB and J.P. Morgan are being challenged by global companies that can perform fundamental custody tasks and provide additional services that large super funds have grown to need, such as investment analytics, alternative asset administration and collateral management.

Simon Mumme became a fnancial journalist through a stroke of luck. Upon graduating with a Master of Journalism from The University of Queensland in 2006, he set out to fnd a news organisation that would employ him as an overseas correspondent or business reporter. Or both, ideally. Conexus Financial hired the bright-eyed cadet, and in the ensuing years he wrote for all of its titles until being appointed editor of Investment Magazine in June 2010. Under his guidance, the magazine continues to dominate the Australian institutional investment media through its authoritative, insightful and engaging feature stories and analysis. Outside of work, Simon trains keenly in Muay Thai kickboxing, revels in the surf breaks fringing the Sydney coastline and reads as much high-quality journalism and non-fiction writing as he can. Committed to his role as a niche business reporter, Simon is aware that an overseas posting as a correspondent still eludes him. He hopes Conexus can help him with that career goal too.
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