“Due to recent reform, assets management has now become more active, given that a broader and more complex range of underlying assets are contemplated,” says Gema Montoya, executive director, head of sales for domestic clients at Santander Investment. “This basically forces depository entities to provide a more specialised and amplified service and those that do not conform will fall by the wayside.”
Local banks dominate the Spanish market. Santander has a market share of more than 14% as a depository for local pension funds. It has a total of €10.3bn under deposit, in a market that at the end of the second quarter of 2006 was worth a total of about €73.5bn, according to Inverco, the pension fund industry association. In terms of the total mutual fund management market Santander has more than €60bn under deposit - around 22% of the market.
Santander acts as positing entity for Santander Asset Management and as a provider for third-party collective investment vehicles. The third party element of its business totals €15.5bn - a 56% share of the market.
The stronghold local banks have on the market has dampened competition from the large international global custodians. However, BNP Paribas Securities Services is making headway in providing services to local pension funds, and says Briz, with 150 people based in Madrid the French bank considers itself a local provider.
“Most of the asset management industry in Spain is dominated by the domestic banks. However, as investors begin to use more international and complex products, global custody, investment reporting and compliance monitoring are being outsourced to more specialist providers,” he says.
The recent reforms in hedge fund legislation are helping this trend. “Hedge funds are very complex to deal with and while domestic banks will still give custody and administration of traditional funds to their in-house suppliers. But I think for hedge funds they will outsource,” says Briz.
These specialist providers may not necessarily be international custodians. Santander’s Montoya says recent regulatory changes allowing investment managers to fully outsource the administration of collective investment vehicles have enabled Santander to offer a complete outsourcing solution to both domestic and global investment companies. Santander has more than 10 years’ experience in this business and fund administration plays an important role in the make-up of our curriculum. “More than €6.5bn in assets are currently under administration.”
International custodians have a long history in Spain and competition is fierce, but Montoya says, “as a depository of mutual and pension funds, national banks continue to be the reference point in the market”.
Santander aims to provide a truly global solution to its clients building on its strong presence in Portugal and Latin America as well as in the US and the UK.
One mandate that got away from the local providers was that of Lagun Aro a Basque country pension fund with €4bn in assets, which opted for BNP Paribas Securities Services. “Lagun Aro was a major win for us in the past year,” says Briz. “They are working with us because they felt we were superior to their previous local supplier for global custody, investment reporting and performance measurement. We have sophisticated products and services we can offer pension funds.
“The innovation that is occurring in the market in the hedge fund sector is opening the eyes of the Spanish asset management industry in general to the value of outsourcing custody and administration for more specialist providers.”
Spain’s neighbour, Portugal, is also a small pension fund market and an even smaller fund market overall. Alex Canadas, location head, BNP Paribas Securities Services in Lisbon says the funds market is not as important in Portugal as it is in Spain or in other European countries. “Portuguese investors also tend to be more conservative in their investment activity than those in the rest of Europe,” he says.
Most fund management activity in Portugal is directly linked to banks and there is “not much room for external servicing of funds”, says Canadas.
However, Canadas detects a change in the market: “We are seeing more of a trend for fund managers to look for alternatives to their in-house services providers. The main reason for this is that they are keen to access more international markets and as a result are looking for solutions from specialist providers rather than the ‘home made’ solutions.”