The trend towards appointing a third-party custodian is increasing according to investment consultant William M Mercer. But for the bulk of pension plan sponsors, custody arrangements are normally provided through an associate of the plans’ investment managers.
In the European Pension Fund Managers Guide (see page 24), it comments that the changes are being fuelled by the desire for greater transparency in the investment industry and to separate custody from existing arrangements. The moves to appoint a master custodian and put in place multi-manager structures are seen as another development propelling the role of the independent custodian.
The consultants point to the effect this is having on investment managers’ fees: “There is increasing pressure to reduce their fees as the traditional incentive of using the associated custodian continues to become less attractive.”
Another observation by Mercer is that while the larger pension funds, with more complex structures, are dominating the moves to “single independent external custodians”, the smaller funds are also moving towards increasing use of custodians.
The table shows managers covered in the guide who manage pension assets in Europe and who provide custodial services to these funds. The consultants point out that the basis for inclusion is the management operations and that banks which primarily act as global or specialist custodians are not included. Fennell Betson