Citi has been in the custodian market since the mid-1980s, but it’s only in the last five years or so that it has broadened its offering to include a full range of fund administration services.
According to Martin Carpenter, managing director, securities and funds services, this gives them more reasons to interact with superannuation funds.
It’s a time of expanding the offer and broadening organisation’s capabilities.
“It really is an exhaustive analysis of our capabilities versus the other players,” says Carpenter.
A great deal of product development has occurred, with Citi bringing international systems to Australia, and developing performance reporting. Some of this is being driven by the greater amount of assets being managed internally by superannuation funds.
“They are wanting to better understand how a manager has performed against a benchmark, right down to real-time attribution,” says Carpenter.
“So on a daily basis you can point to the sources of difference between the manager and the benchmark – an overweight position in a particular stock, for example.”
Super funds now want layers of data in a user-friendly format, easily sortable so that they identify what matters to them.
“The whole delivery of data … has become really important, and I guess that’s the leading edge for custodians in terms of sophisticated investment information.”
Carpenter believes super funds are increasingly receptive to discussions with potential service providers, particularly as they broaden their offerings.
“For example, being able to hold equities alongside a managed fund product or other asset classes, or being able to go offshore and find a partner to invest in infrastructure,” notes Carpenter.
“For us it’s been very much about demonstrating we’ve got the core capability, but then trying to bring other parts of the bank into the engagement.”
Super funds aren’t hindered by convoluted management structures; the executive teams are generally small and proactive, which makes the process easier.
“They’re interested in talking about investment strategies, a whole range of market-based solutions, whether it’s derivatives clearing, transition management, FX securities lending. All of those things you may have a CIO or CFO or someone else responsible for.”
Let’s talk about service
Timing has been “interesting” for Citi, adds Carpenter, given the unprecedented period in terms of super funds proactively approaching custodians.
“It hasn’t always been that way. Obviously there’s always been a level of engagement, but it’s stepped right up.”
Carpenter says issues of compliance due to reforms are a factor, but custodians have also come under scrutiny.
“They’ve spent a lot of time one-on-one with the custodians, with the industry as a group, and we’ve participated in those industry forums through the Australian Custodial Services Association.”
Super funds are increasingly asking custodians how the service provider might help their business, according to Carpenter.
“How can we broaden our product offering? How can we offer our products at a lower cost base? How can we invest in offshore markets and access other asset opportunities in an economical way?”
Carpenter says Citi has a good range of super fund clients, of various size.
“We have deliberately not tried to confine ourselves to a particular segment or even a particular size. They’ve got to meet a deal profitability model, you’re not going to take on business if you can’t meet your minimum margins,” he says.
But the core custody piece is fiercely competitive, says Carpenter. “You’ve really got to do things differently to warrant the client making that change. But also for the economics of your own proposition – obviously the more products in the picture, the better chance of meeting that profitability hurdle,” he says.
It can deliver services at a lower average price if there are more product components in the overall solution.
“More of the larger players, in our experience, are buying into that, because they recognise this scale advantage.
“If they are directing more flow and activity to their core service provider, they can receive those core products at a lower average cost,” notes Carpenter.
“The funds are in this game of consolidating and merging and moving to scale, and so I think they really buy into that. It works for both of us.”