In terms of its activities in the global custody sphere, HSBC is something of an odd fish. On the one hand, its London-based custody arm, Global Investor Services (GIS) – as the only indigenous UK custodian since Lloyds TSB and Royal Bank of Scotland followed Barclays and Nat West out of the business a couple of year back – has the lion’s share of both the domestic institutional and local sub-custody businesses in the UK. The establishment in 1998 of an investment administration and performance measurement consultancy, Edinburgh-based Global Fund Services, has also proved quite a success, accruing over 30 clients, among them Gartmore, Swiss Life and the Philips UK Pension Fund.
At the same time, despite HSBC being one of the few custodians to maintain its own ‘bricks and mortar’ network – with 32 offices around the globe, it is second only to Citibank, which has 52 – its custody and clearing capabilities are essentially fragmented across three regions, with GIS very much ploughing its own furrow in isolation to the bank’s other operations in the Middle East and Far East. As such, HSBC’s status as a ‘global’ provider remains somewhat nebulous.
All of which suggests that GIS itself is best characterised as a European contender. Yet, so far at least, the custodian by its own admission has made no great headway in respect of continental Europe. Fair enough, in that regard it is not alone – despite all the hype issuing from marketing departments over the past couple of years, it can be argued that none of the global custodians have as yet fully got to grips with what is fancifully termed the ‘European marketplace’.
If there is a problem, it is that GIS does not – as yet – seem to have successfully articulated a compelling strategy for expansion into the region. And it is a problem, because at home GIS is now coming under pressure from new entrants looking to fill the void left by Lloyds et al. Nowhere is this more true than in the pensions arena, with both Clydesdale and KAS Bank currently gearing up to woo UK trustees; at the same time, GIS faces competition from a resurgent ABN AMRO Mellon, which has picked up a number of significant mandates over the past year.
Nonetheless, Allen Harris, GIS head of product management is confident that the bank can more than hold its own going forward. He stresses that the GIS offering is “not just what comes from the global custody division, it is far more broad-based”. “While we at GIS can offer cash management, stock lending and reporting services, as far as pension funds are concerned we can deliver portfolio reporting and valuation, consolidated reporting and increasingly performance measurement services via GFS, as well as foreign exchange through our treasury operations, money transmission services, private equity products and quite sophisticated cash management products,” says Harris.
“We also need to nurture very good relationships, not least with the external advisers and fund managers – the Watson Wyatts, the Bacon & Woodrows – who are acting in a consultancy role for the pension fund trustees,” he adds. “Similarly, we have seen a growing trend towards trustees being quite ambitious, spreading their investment mandates across a widening spectrum of specialist managers and we are also interacting with them.”
GIS has recently expanded its stock lending capabilities, its long-established indemnified gilt lending programme being bolstered by the addition of an indemnified UK equity lending offering. The bank is currently looking at extending this new facility to encompass overseas equities, Harris says.
With one eye firmly on the Myners review and its subsequent recommendations, GIS has broken new ground in the UK with the launch late last year of a transaction cost measurement service (TCMS). At the end of January, Wolverhampton City Council, which acts as administrator to the West Midlands Pension Fund, became the first client to sign up for the service. GIS has developed the new offering in conjunction with securities consultancy GSCS Ltd., which has been offering international TCMSs to investment companies for over a decade.
“The Myners recommendations mean that trustees have to be better educated about what is going on –– they can no longer simply rely on fund managers or other advisers to deal with those ‘difficult’ areas, but rather need to be equipped to ask the right questions,” says Harris. “With TCMS we can deliver the information reports which will provide them with the data they require to be able to ask those questions.
“The TCMS reports provide a relativity measure against a statistically very meaningful universe of client trades done by GIS, and so allow the client to see how their managers are shaping up and thus to identify areas where they can contain or reduce costs.”

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