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Impact Investing

IPE special report May 2018

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A time for specialists

Global custody may today enjoy a far higher profile than was once the case, but it will nonetheless strike some as incongruous to talk about ‘superstars’ in connection with the often prosaic business of securities servicing. But such rare and fabulous creatures do nonetheless exist, and few would dispute that Benjie Fraser well deserves his place among such exalted company.
Fraser has 16 years of pensions industry experience under his belt, during which time he has built up a stellar reputation through stints at Mellon, State Street and most recently The Bank of New York, where he took over as managing director for European pensions back in October 2000. Accordingly, his decision to move to JPMorgan Worldwide Securities Services (WSS) to take on the newly created role of head of business development for European pension funds qualifies as a bona fide coup for his new employer.
While five years in any job is likely to prompt hankerings after new challenges and horizons, it is clear that Fraser sees WSS as a real opportunity to move the pension fund servicing game forward. “Ultimately pension funds will want to access a full set of services which, in addition to custody, may include asset management and investment banking. JPMorgan potentially has that ability to offer that one-stop shop experience and, at the same time, to fulfil the role of trusted adviser.”
Trustee governance is a key consideration at this time, Fraser continues, and that requires custodians to draw closer to their clients and establish relationships which are equal partnerships. “Custodians need to be transparent in the services they deliver, and the trustees need to be reasonable in understanding that the role the custodian fulfils, not least the fundamental responsibility of guarding the pension fund’s assets, is totally non-negotiable. In the very distant past, the custodian might have made up the numbers in terms of the suppliers a pension fund used, but now they are absolutely central.”
Accordingly, Fraser will be looking to ensure the bank does more to communicate with clients about where they are going strategically via a two-pronged strategy. On the one hand it will continue to develop and refine the advisory board system it has already in place, whereby clients are directly quizzed about the bank’s future plans. “We really value that feedback, and at the same time it is a channel for us to talk to them about where we believe the market is going,” says Fraser.
The other point of focus will be on consultants. “As has already happened in other market segments, consultants are coming to play a much more important role – go back three years and perhaps four out of every 10 pension fund RFPs came via a consultant, whereas 10 out of 10 now do so ,” he adds.
Looking at the European picture, UK pension funds remain the biggest buyers of custodians’ services, but Fraser stresses the importance of other sophisticated and liquid markets on the continent when it comes to forging partnerships with trustees.
“The Dutch and Irish markets have similar issues to the UK, and remain very important markets to us,” he says. Switzerland is another promising territory, as is the Nordic region, he adds. In both those cases, trustees’ need for transparency and asset protection is supplemented by a desire for enhanced summary reporting, particularly in terms of performance measurement.
“The other thing to note about the spurt of RFPs coming out of Nordic markets is that in many cases it is specialist custodians that are being selected,” says Fraser. “There is a definite move away from the local champions with whom most middle market pension funds have historically placed their business. At the moment we are in a very strong position to grow our business, but most of that growth will not be at the expense of other specialist custodians, but rather from local players that lack the technology that the next generation of pension funds will demand.
“The number of local banks now going into alliances shows they recognise that they can no longer maintain their traditional franchises by going it alone.”
While there has been much excitement and hype building around the concept of multinational pooling over the past year or so, Fraser feels that some perspective is called for. “There are a number of very large pension funds which are actively looking at executing a multinational pooling arrangement, and for such funds that could be a very attractive solution in light of the pressures imposed by Sarbanes-Oxley and the need for global multinational companies to have a fully audited view of their liabilities,” he says.
“But while we are certainly actively talking to large clients about pooling, we do not feel it is a mass market phenomenon at the moment.”
timsteele@btinternet.com

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