While mergers and acquisitions have been two-a-penny within the custody sphere in recent years, partnerships between global custodians are a far rarer beast. Despite the very public scepticism of many of its fellow custodians, however, Mellon Trust has chosen to forge not one but three strategic alliances: its recent link-up with Clydesdale Bank, the UK arm of National Australia bank, complementing both its 1996 joint venture with CIBC in Canada and the partnership established in 1998 with Dutch bank ABN Amro, which begat ABN Amro Mellon Global Securities Services.
Having grappled for the better part of two years with the onerous task of merging its systems, processes and personnel, over the past year the ABN Amro Mellon alliance has emerged as a bona fide contender in the European pensions servicing arena, winning a string of high profile mandates. These have included the £1.6bn Hertfordshire County Council pension fund – its first UK local authority client – and a $1.5bn master custody mandate for 3M’s worldwide DB pension plan assets.
In May ABP Investments, the asset management division of Stichting Pensioenfonds ABP – the world’s third largest pension fund – awarded ABN Amro Mellon the European custody mandate for E50bn in assets. And while it would not disclose further details, the custodian recently replaced three incumbents as custodian to a further $2.7bn (E2.9bn) in pension assets belonging to a prominent European multinational. All in all, it now boasts 101 pension clients with almost $315bn in assets, up from some $200bn a year ago.
The success of the joint venture was always predicated on Mellon’s ability to combine its reputation as a leading-edge technology shop and fund administrator – a reputation it is looking to further enhance through its acquisition in September of Web-based investment management software solutions provider Eagle – with ABN Amro’s extensive international branch network, which covers no less than 79 markets and is fully licensed in every EU state.
“We fully appreciate that you cannot expect to pick up business in Peterborough or Paris if you are over in Pittsburgh – you’ve got to be on the ground and that is mirrored in both the investment in the business and physical relocation of the processing infrastructure,” says Dean Handley, who recently joined ABN Amro Mellon from HSBC as sales manager for UK pension funds.
“We won one of our first mandates – 3M – on the basis of our ability to provide effective custody in many different markets around the world, and since then we have built a strong track record not just in terms of our pension fund expertise but also our ability to service large, multinational corporate clients.”
Handley sees the Hertfordshire County Council mandate as a critical win as far as the UK pensions sector is concerned. “Not only it is one of the bigger funds, but prior to the win this was very much a closed shop, as county councils tend to take a more cautious approach to new providers,” he says. “It also means that, looking at it from a consultants’ perspective, we are now very much on their radar and hence are being taken that much more seriously when it comes to future mandates.
Similarly, the ABP win is also seen by Handley as a huge feather in the custodian’s cap. “The fact that the fund is based in ABN Amro’s home market is irrelevant,” he stresses. “The alliance was able to punch its weight amongst the big boys for that size of fund, which showed that we had really arrived.”
ABN Amro Mellon is now looking to use its successes in the UK and the Netherlands as a springboard into the rest of Continental Europe, with Germany, France and Switzerland as the prime targets. In particular, Handley is confident that the custodian’s Executive WorkBench product, which combines a comprehensive information delivery and reporting package with Web access, will prove very attractive to pension funds across the region.
“There is a move towards the US investment model within the funded pensions markets within Europe,” says Handley. “Instead of having one or two balanced managers, clients are diversifying to use a wide array of specialist asset managers in an effort to enhance performance – and that leaves them grappling with a multiplicity of information streams. It is the ability to bring that information together, collate it in accounting terms and report back to the clients where we believe we can make a difference.”
Tim Steele is a freelance editor and consultant timjsteele@btinternet.com