It will take quite a while to rebuild trust amongst the investor community, not just in the market, but in the institutions that underpin them. So says Laurence Bailey, Asia Pacific chief executive officer for J.P. Morgan Worldwide Securities Services. At a time when his company is busy positioning itself strategically for growth across Asia Pacific, he says a major part of the job in the current environment is reassurance.
“Clients have been asking a lot of ‘what will happen if’ questions. It’s hard to answer sometimes, because no one quite knows. People are asking a lot more about compliance monitoring, and what happens if their sub-custodian becomes insolvent. What people are worried about is having their assets tied up. When a liquidation occurs, they tend to put a net over everything, even though your assets will be in a separate nominee account. We have speeded up our procedures in this regard and if we feel uncomfortable with any of our sub-custodial relationships, we have the ability to move very quickly.”
The trust factor is critical though and Bailey says, “I think it will take a lot longer for normality to return. People will have much longer memories this time. Certainly, exotic products are over, for a while anyway.”
Rebuilding trust - one of the key lessons in this new environment is that communication is very important. People just want to know you have thought through the problems, even if you can’t give them the complete answer.
“The pressure that corporations and pension funds are put under to outperform means they are encouraged to take risk. This got out of control and now, what we are being asked most of all is to help our clients understand what their exposure is. No one thought when the Dow was at 13, that it would go below 7. But now people are looking at the stresses and the what-ifs. They now realize it can be worse than they imagined.”
Business tends to flow in cycles in the custody and administration business. In the current environment, Bailey says it is only natural that “they are asking, am I with the right provider? So we will see more of this as people review their custody arrangements.” J.P. Morgan has has been selected by Government Services Insurance System (GSIS) of the Philippines to serve as custodian for its US$1 billion overseas investment programme. GSIS provides and administers social security benefits for government employees and offers insurance coverage to assets and properties having government insurable interests. J.P. Morgan will provide custody and fund reporting, compliance monitoring and performance measurement services to GSIS, with both local client support from Manila and regional management support from Hong Kong.
J.P. Morgan in Asia has just created a new position of head of Worldwide Securities Services, Asia ex Japan. Shaun Parkes relocates to Hong Kong from London to take up the role. He joins the existing regional management team comprising three sub-regional heads: Jane Perry in Australia, Roger Brown in Japan, and Ravikanth Konteti in India, all reporting to Laurence Bailey. “We have structured the senior regional management team to serve the evolving needs of our growing Asian client base.” says Bailey, who spent 12 years in Australia building J.P. Morgan’s business there.
The current head count is 700 in Australia where J. P. Morgan has 50% of the market for custody of superannuation fund assets. “In Australia, the market is so far ahead of the rest of Asia, it is not just a custody business any more. They want the whole range of services, so we do everything for everybody. In Australia, in order to see the institutional business, you have got to be a good local player.”
By contrast, in Japan, where the big players are all Japanese banks, J.P.Morgan has just 30 people and plays more of a traditional global custody role. Bailey says J.P. Morgan has no Asia-wide strategy - “our sweet spot is the central bank, sovereign fund, insurance company, mutual fund client. We are looking to see who is investing outside their home country.”
One mistake Bailey observes of service providers in the region is they offer too much in the way of product which makes it too expensive for the needs and expectations of the market. “So there’s a bit of a back to basics ethos going on now, with more dialogue as to what the client actually wants when they go cross border. If the client goes into it with their eyes open, they will choose a custodian and transfer agent on their merits, not because it’s a bundled unit.” He believes Asian institutions will begin investing more across Asia after the disappointments of recent forays in developed markets.