Two big securities servicing tenders, totalling about $130 billion, are likely to be undertaken in the first quarter of the new year, marking an end to the relative calm of the past year. One of them, for BT Investment Management, could be particularly complicated.
Suncorp, with insurance assets of an estimated $30 billion will probably be the first of the two to go to market, having recently appointed Mercer Sentinel as consultant for the review. NAB Asset Servicing is the incumbent custodian, having won the business in 2013.
But the market is focused on the other, which is not only much bigger, at $95.8 billion as at September 30, but also has a range of service providers and a large number of investment options and funds. Hayden King, BTIM’s chief operating officer, is likely to appoint an adviser soon.
Later in the year, IOOF is likely to go to tender following its purchase of ANZ Wealth, which will be another in the order of $100 billion.
Half of the BT money – $48.3 billion as at June 30 – resides with the UK-based subsidiary JO Hambro Capital Management, which has also been expanding in the US. Hambros has offices in London, Singapore, New York and Boston and specialises in active equities.
BTIM uses at least four custodians and has an external administrator in its former parent, the Westpac subsidiary BT Financial Group. Hambro uses, mainly, RBC while BTIM in Australia uses HSBC for domestic custody and J.P. Morgan for international. A small significant investor vehicle business uses State Street.
It will be interesting to see whether BTIM is going to demonstrate its independence, with BT Financial Group now only an 8 per cent shareholder, and allow Westpac’s arch rival NAB to pitch for the business.
NAB lost its mantle as the largest master custodian in the market to J.P. Morgan this year and the pack is much more concentrated than it has been in the past. Scale brings a lot of pricing benefits and access to additional services in the securities servicing world.
While the trend is for consolidation among securities services providers, it should not be assumed that BTIM, because of its size, will appoint just one firm to oversee the lot globally.
The relative calm this year followed several years of frenetic activity following the GFC, with big super funds and managers reviewing their counter-party arrangements, from a risk perspective if nothing else.
Greg Bright is publisher of Investor Strategy News (Australia)