Finadium has released two reports, both in our new Finadium for Investors series. The first report is on custody banks, including an analysis of core vs. value added services and market dynamics to consider. The second, on investing in collateral management operations and technology, is a guide for investors to the players and major considerations in selecting collateral management service providers.
Understanding the Modern Custodial Bank
The custody industry has undergone a significant transformation during the past 30 years. Once there were hundreds of banks offering custodial services to asset owners and asset managers, but today a handful of very large players dominate the industry. The most significant barriers to new entrants are economies of scale, onerous government regulation, a global footprint, and access to complex technology.
The custody industry today is working to reshape itself to ensure and enhance profitability. Prior to 2008, these institutions could rely on their bread- and-butter custody businesses to deliver relatively predictable ancillary revenue streams from areas like investment of client cash, foreign exchange, and securities lending. Today there is significant scrutiny on revenue from these activities and on unbundling, which has led to a renewed focus on identifying new ways to create product differentiation.
Investing in Collateral Management
This report provides investors and users with a framework for understanding the services offered and investment opportunities in collateral management. Collateral management is often discussed in today’s financial markets, and there are still expectations of large new amounts of collateral necessary for investors to post on central counterparties (CCPs) and for non- cleared, bilateral transactions. As firms prepare for this new reality, a wave of infrastructure has emerged to support their needs. Collateral service providers include banks, technology providers and market infrastructures including central securities depositories (CSDs).
This report presents the different players in the collateral management space, the services they provide and how each generates revenues. We offer a market sizing for the collateral management universe by product and who manages collateral on a geographic basis. For users including operations and technology teams, the document summarizes various options for accessing technology, operations and services. For asset managers and private equity firms looking at collateral management as an investment opportunity, the report presents possible entry points into the market.
Finadium subscribers with Finadium.com logins can log in to access these two reports.
For non-subscribers, more information on both reports is available on the Finadium reports home page.