As investment markets continue to become more complex, asset managers are emphasising accurate processing and relationship management as key services expected from custodians, according to the fourth annual Finadium survey on securities lending, collateral management and custody.
“In prior years we have heard commentary on custodian performance, but this is the first year we heard many strong adjectives used to describe services, from excellent and outstanding to poor and awful,” writes Josh Galper, managing principal at Finadium and author of the report.
This and other industry trends were drawn from interviews with 36 asset management professionals across 30 firms which cover $16.5 trillion in assets.
Galper expects the strong feelings to continue as asset managers raise expectations for custodians to provide complex valuations and process an increasingly diverse set of financial instruments.
“The burden of keeping financial markets running smoothly continues to fall heavily on custodians, and this is at times no easy task,” he writes.
So what does a custodian need to do to be perceived as good at its job?
While basic accuracy in automation and processing was the most popular response, asset managers were also concerned about the quality of people and the ability of those people to both communicate and solve problems.
As testament to this trend, while Asia Pacific continues to dominate headlines as the next hot market, global custodians such as HSBC Securities Services have been announcing a deluge of new hires in the region to expand their services, particularly in client and sales management roles.
But survey responses indicated that asset managers are looking for experienced advocates within the custodian firm to discuss major and minor issues of industry importance.
An operations manager for a European asset manager commented: “The biggest issue we have with our custodian is the ability to keep up with the rate of change.”
Among other stated concerns was the need for more automation around corporate actions with some asset managers noting that they expected custodians to take on more of the work currently being performed in-house.
Still, based on the diversity of responses, Galper writes that the business of providing custody seems to remain a “moving target” and depends highly on the skills and attitudes of each party at any given time.
Author: Anna Reitman