After years of drift, few would dispute that Global Investor Services, HSBC’s global custody division, is now on something of a roll. The custodian’s ranking as the number one player in R&M Consultants recent UK trustee and depository survey will certainly have come as a welcome fillip to Mike Martin as he looks back on his first 18 months in charge of GIS.
The results of the R&M survey – which canvassed investment managers within the UK’s £200bn (E bn) authorised funds market and saw the market’s biggest trustee, JPMorgan, relegated to sixth place – will be seen as confirmation that, in revamping GIS’ business model, personnel and operational strategy, Martin has avoided throwing the baby out with the bathwater.
He has gathered around him a number of new faces, not least Paul Stillabower, who joined as head of business development having run RBC Global Services’ London operation for a number of years. Stillabower has since made a number of significant hires: Richard Hale, another former RBC man and a former colleague of Stillabower, quit BISYS to head the European sales push, while Graeme McCallum and Michael Slater took the opportunity to leave the Deutsche Global Securities Services ship to become sales and relationship managers for Middle East and Africa.
Martin has sought to capitalise upon the corporate reorganisation within the wider bank, which saw HSBC’s wholesale businesses aligned with the Corporate Investment Banking & Markets division in a far more cohesive manner.
Given Martin’s former role as deputy head of Global Fund Services (GFS), the Edinburgh-based investment administration and performance measurement consultancy established by GIS in 1998, it is fitting that he has sought to strengthen the ties between the two organisations. Some 50% of GFS clients already use GIS for their custody needs GIS and, while GFS can accommodate multiple custodians, thanks to internal efficiencies and the ability to bundle products a potential client should profit from clear economic benefits when sourcing both products from HSBC.
Over the past year, the groundbreaking transaction cost measurement service (TCMS) introduced by GIS in conjunction with global securities consultancy GSCS towards the end of 2001 has been expanded. A significant factor in the overall performance of pension fund portfolios, the measurement of transaction costs can be a frustratingly complex undertaking. In light of both the Myners Report recommendations and the Financial Services Act consultation (CP176) on soft and bundled commissions, the GIS/GSCS service allows trustees and other parties wanting best execution to better control and monitor costs while achieving compliance across their entire investment portfolio.
Having initially covered just UK equities, TCMS was first extended at the beginning of 2003 to cover international equities and then again this past October to include fixed income securities. Furthermore, following feedback from clients, the original focus on market impact cost and commissions has been enlarged to incorporate an implementation shortfall measure of execution performance.
November saw another new addition to the armoury in the shape of a Continuous Linked Settlement service to support the settlement of underlying forex deals initiated by GIS’s custody clients. Next on the agenda is the launch of a web-based reporting tool – due to be rolled out early in 2004, the new offering seeks to address the bank’s perceived weakness when it comes to the sort of real-time functionality demanded by fund managers.
By far the most significant development during Martin’s time at the helm, however, is HSBC’s late October acquisition of Bank of Bermuda (BoB). The $1.3bn (E bn) deal will see the bank taking on not only significant private client, community banking and corporate banking businesses – comprising a total of some 66,500 clients – but also BoB’s Global Fund Services (BoBGFS) operation. With 1100 institutional clients and some $113bn under administration, BoBGFS offers offshore trust, custody and administration services to the investment funds industry and – crucially – is one of the last remaining independent hedge fund administrators.
In this last respect, the acquisition sees HSBC following in the footsteps of other custodians – BISYS taking over Hemisphere, State Street and The Bank of New York buying International Fund Services and International Fund Administration respectively, while most recently Citigroup bought Maine-based Forum Financial Group.
The ability to service hedge funds is becoming increasingly de rigueur amongst custodians. That said, they are merely following the money – given the threadbare performance of mainstream funds, more and more of the custodian banks’ franchise clients, the traditional long-only investment management companies, are setting up shop in the alternative investment space.
However, while an increasing number of custodians are looking to exploit this shift, the build option is generally seen as too costly, the associated return on investment too long term – hence the current uptick in acquisitions.
The challenge now for Martin and his team is to ensure that GIS doesn’t get bogged down in a lengthy integration process as the two organisations are merged. It would be a bitter irony indeed if the BoB acquisition, with its promise of new product lines and fresh prospects, were it to put the brakes on the impressive momentum GIS has built up over the past year or so.
timjsteele@btinternet.com

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