Despite the increasing complexity of securities servicing – more cross border transactions, more derivatives, more private markets, more demand for information and transparency – there may be a silver lining for the big custodians. Maybe, for the first time in memory, they are able to differentiate themselves on capabilities rather than price.
David Braga, head of Australia and New Zealand for BNP Paribas Securities Services, told a regular media briefing last week that all the talk about big data and the importance of both harnessing and interpreting ‘data’ for ‘information’ was really just an outworking of complexity.
“For me, the case is obvious that funds and fund managers will continue to go through a massive evolutionary process,” he said. “Funds can’t keep on buying Aussie equities – there’s nothing left they can buy. They are going to move further into more and more complex asset types… And the expectation on service providers is increasing.”
Braga said there were several aspects to the way services from asset servicing providers were being extended:
. Geographic spread as cross-border investing gathers pace requires wider coverage
. Different types of asset classes being invested in require different adherence to regulations and compliance
. Private markets and derivatives usage need different administration systems
. The total portfolio needs to be brought back together in terms of reporting. “It’s a bit like the custodian as a chef,” Braga said, “and all the asset types and geographies are the ingredients.”
To process the information through traditional custody safekeeping is different from processing through tax and accounting. With the addition of ESG-orientated reporting, there is a need to know a different level of information too.
Braga said: “Complexity is the real story of what’s happening inside custody… What BNP Paribas is focusing on are things like data visualization tools which can make the data more consumable.”
The firm’s recently launched Data Navigation Analysis is being rolled out across all its service offerings. The product is a group of tools, which allow funds to compare and contrast all data, including true exposures in asset classes and sub-classes and trend analyses, corporate actions processing and other information.
Whether or not this complexity makes it easier for securities services companies to differentiate themselves when bidding for business depends on the degree that they can demonstrate a partnership relationship.
“Most clients can be assured about the service provider aspect of the relationship,” Braga said. “But they need to have more detailed conversations about the future.”
Jonathan Green, general manager of investment implementation and operations at NSW TCorp, one of BNP Paribas’ biggest client funds, made a more detailed observation about the shift in asset servicing at the ‘My Platform Rules’ fund administration conference on the Gold Coast last month.
He said that with best-of-breed technology, utilising a range of locations, you could get “pockets of excellence” which led to “vertically integrated operating models”.
He said that the key enablers of client outcomes were critical for the success of both organisations – the fund and the custodian. But there were tensions between internal efficiencies and client deliverables.
“Headwinds” created by fragmented delivery of technology in financial markets meant that client funds were seeking “champions of holistic change”.
An example of taking a holistic approach from the outsource partner’s perspective was the simultaneous deployment of co-existing technology and operating models.
* Greg Bright is publisher of Investor Strategy News (Australia)