Broadened and fragmented Custody in 2011

The Australian custody and investment administration market will increasingly become one of global platforms and unbundled services. MICHAEL BAILEY reports. The days of selling funds managers the ‘securities services’ concept – which bundles investment administration and custody – could be numbered in Australia, according to the chief of a major domestic custodian. The business Andrew Bastow runs in Australia might be called HSBC Securities Services (HSBC SS), but unlike competitors with a similar moniker, HSBC SS offers domestic custody only in Australia, leaving it to others to run middleand front-office services. There is a good reason why HSBC SS has not entered the administration fray here – it is the Australian sub-custodian for a number of global custodians, most notably State Street, which is also in the investment administration and master custody businesses.

It would be rude to compete. HSBC SS does offer its global hedge fund administration platform to Australian absolute return managers, which generally have a global investment horizon, and therefore fit with Bastow’s wish for HSBC to be a “window to the world” for its clients here. But there are no plans to enter the broader investment administration market, which looks as if it might be starting to fragment in any case, according to Bastow. “We’re starting to see some examples where Australian funds managers are keeping one party as custodian, and selecting someone else to be their administrator. This is a very common model in Europe, but it’s not happened in Australia because ‘securities services’ has been sold as a bundle of both those things.

The question has to be asked whether that has diluted the value-add of both strands of the service,” Bastow says. The HSBC SS executive did not name any names, but presumably when he says this he is thinking about Queensland Investment Corporation (QIC), which during 2010, while retaining National Asset Servicing as its core custodian, investigated the outsourcing of middle-office risk measurement and portfolio valuation services, as well as unit registry and unit-pricing functions. QIC has never announced anything formally, but it’s believed that Northern Trust, which last October announced it had added an Australian investment accounting capability to its global operating platform, was the beneficiary of this move to break up ‘securities services’ as we’ve come to know it. Northern Trust’s roll-out of a platform palatable to Australian taxpayers, and therefore closer to becoming truly ‘global’, was part of an industry-wide trend to players broadening out their offerings.

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