Citigroup Inc.’s Martin Carpenter’s well cut suit, choice of shirt and necktie are sending a signal. Australia’s fifth-biggest custodian is dressed up and ready to challenge rivals.
Carpenter, managing director of securities and fund services, global transactions services, says Citigroup will be at the forefront of competing for custody mandates from the biggest Australian funds this year.
As of June 30, 2011 Citigroup’s assets under custody were $123 billion out of a total of $1.86 trillion of assets under management in the country, a market share of 6.6 per cent.
“This is a significant year of opportunity,” says Carpenter.
“In the last two years we’ve been deploying our fund administration platform and in the past year been invited to the biggest custody tenders,” he says. “We’ve learnt a lot.”
Competition to win custody contracts is voracious. Margins are thin. Custodians charge between 3 basis points to 7 basis points based on assets under management . The bigger a fund’s assets under management, the lower the fee they pay to custodians.
A basis point is one hundredth of a percentage point.
Custodians hold securities, settle transactions, do tax reporting and provide corporate action services including proxy voting. Fund administrators report on the value of the total assets in the portfolio.
One fee can be charged for multiple of services or each service may be charged a fee. Citigroup is the fund administrator for 10 local companies.
Citigroup, which garners about a third of its global revenue from global transaction services, recruited Enzo Cotroneo last year from JPMorgan Chase & Co. as head of its Australian fund administration product.
It has also hired people to provide better investment analytics.
“Fund managers are making a lot of changes,” says Carpenter.
“They’re reviewing operating models, looking at whether they can save money in their custody or fund administration business.”
Australian regulators want to know all about custody and fund administration especially after the biggest bankruptcy in U.S. history, the collapse of Lehman Brothers Holdings Inc.
“The government has got a lot more interested in our business,” says Carpenter. “People didn’t really understand the risks in the system prior to Lehman’s failure.”