In the so-called Year of Big Data, the “custodian of the future” is already here and working in the Australian market, according to Northern Trust country head, Rohan Singh.
Singh, whose firm has $140 billion under custody and administration across Australasia, says that custody has already changed from a commodity to a value-added service, and relationships with clients have been transformed.
“Custodians are increasingly engaging with clients at the board level, at the policy-setting level and we are increasingly helping clients drive and chart their own destiny, rather than simply being a provider,” Singh told I&T News at the recent Conexus Investment Administration Conference in Sydney.
“Clients have cost pressures, there is the drive for transparency and the search for alpha, and our role is to help clients better understand the value of that data.”
He said that while data was a frequently used term, it was “not understood very well, very often.”
“Data has multiple characteristics, multiple meanings, and different levels of power and effectiveness if it is produced in the right way. It is powerful portfolio oversight,” said Singh.
“Clients need to get behind that data and understand how that is produced and what are the elements, what are the controls, because data is king as a decision support tool and is the most precious asset we have. The quality of the data is a function of our global operating model and technology set. It is at this level that multi-asset classes across multiple geographies are produced on a single platform globally, and delivered to Australian consumers in a way that allows them to upgrade internal risk infrastructure, make better informed investment decisions, and meet regulatory reporting requirements. This is ultimately where the value mechanism of custodians comes to rest.”
Another trend in custody, said Singh, was convergence between the back, middle and back office.
“Typically in the old days it was front office to back office, then back office to custodian, but this convergence is smashing together these functions, and they are becoming increasingly borderless,” he said.
Singh’s views were echoed by Seamus Collins, senior relationship manager for JP Morgan Worldwide Security Services, who described an “ecosystem” that goes beyond the traditional bilateral client-custodian relationship to include other service providers.
“There’s a lot of talk about a one-stop shop,” said Collins. “And while custodians would aspirationally like to do everything there is a realisation that at some point the client is going to have another service provider to do some of the reporting, asset valuations or certain niche functions, so the challenge becomes how does a custodian’s environment handle that integration.
“That’s almost an evolution to a situation where a custodian is a platform able to support apps.”
Collins sees custody as moving well beyond a commodity, as custodians create systems to handle asset classes beyond equities.
“A big super fund, for example, has left equities a long way behind in the rear view mirror,” he said.
“They are owning ports in Poland, waste facilities in Western Australia, and these are asset classes which custodians were not originally set up to manage, so now we have a dedicated alternatives administration function, a dedicated syndicated loan function.
“As clients get larger, their assets become more complex, their asset strategies become more complex, and custodians have to grow more complex in managing that.”
This momentum, said Collins, was driving a trend for more contact between custodian and clients than ever before.
“Now we are seeing customers wanting to come in and wanting to look at our processes and sit down with our teams,” he said. “This is a level of openness in the industry which hasn’t happened in the past.”
At NAB Asset Servicing, executive general manager Christine Bartlett agreed that customers were looking for more from their custodians. “There are all kinds of value added, services, around unit pricing and tax and so on, so it has become much more of a collaborative partnership,” she told I&T News.
The major driver, however, remained cost. Clients needed the economies of scale the custodians could deliver, and were often no longer able or prepared to make the technology investments in house. “For some of the smaller funds, having a competent custodian they can outsource to gives them confidence over other parts of their business, and they are able to focus more closely on that,” said Bartlett.
To watch a video interview with Rohan Singh, click here.