Only 15 per cent of the world’s assets under management had been fully outsourced to investment administrators, creating a growth opportunity for global custodians.
Joe Antonellis, Boston-based vice chairman of State Street, says that a combination of regulatory change, a push for transparency and continued asset diversification is creating a need for “major administration system changes” which many asset managers were unwilling to make.
“Asset managers and pension funds are stuck in a way,” says Antonellis, who will deliver a keynote speak at the Conexus Financial Investment Administration Conference in Sydney this week.
“They don’t have the money to invest in major system changes. We find that around 41 per cent of the client base we surveyed are not doing anything right now because a whole lot of rules and regulations have not been finalised.
“Everyone is sitting and waiting before they spend the money on systems, and that push is going to drive more and more asset managers to outsource to custodians who also have a large middle-office business.”
Custody, says Antonellis, used to be considered a “sleepy business,” but the post-global financial crisis environment had shaken up the industry and created opportunities to create services around traditional custody.
“Custodians have to be much more nimble, and need to be closer to the client and how they are moving and how we can best serve them,” says Antonellis.
“More and more asset managers would rather spend their money on new product or distribution rather than major system changes, so they need to turn to someone to make that investment, so why not come to a global custodian who has that capability and can spread that cost over a client base.”
State Street, for example, has acquired a hedge-fund administration business and another business in real estate administration to serve the move into alternatives by its clients.
“We understood that we needed to move there and that if we weren’t servicing them, someone else would have and we would have lost the client or a major part of their assets as they re-allocated.”