WHAT ARE ASSET MANAGERS LOOKING TO THEIR CUSTODIANS FOR TODAY?
Asset managers are having to provide a different, more responsive, more customised set of products from those they once offered to institutional and retail investors.
The days of one-size fits all are behind us; managers must fight hard to find their niche in the sector where they can prosper.
The questions of investment, domicile, distribution and regulation provide continued challenges.
Add in the focus on costs and you can see that adapting to this brave new world is no easy task.
We are looking to make the life of our customers as easy as we can. It’s a given that this means being able to settle trades, perform safe-keeping, calculate NAVs, settle corporate actions and provide support for distribution.
Increasingly, it also means several other things, too.
Firstly, clients need help future-proofing their business model, for the time when they will launch new products in new markets.
When this day happens, they want the option to do so with their existing provider – preferably one that can facilitate the shift quickly and with minimum disruption to their existing operation – rather than have to search for an alternative partner.
Secondly, they are looking to custodians to provide tools to enhance fund performance and facilitate their growth.
This could be anything from improving portfolio return to liquidity management and collateral optimisation.
For us, this means supplementing custody with Citi’s other core service offerings – in particular, a strong agency lending business and an integrated FX service.
Our agency lending network spans 76 markets; in many of these our competitors are not even present.
Wherever clients want to invest, to sell and to domicile, they know we will be there, with a local team versed in domestic regulations, operating in the same time zone and in the same language (factors that are especially valuable when clients are looking for help with services provided to end investors).
HOW WOULD YOU SAY THAT CITI IS DISTINCTIVE IN THIS MARKET?
Certainly, our global reach is one of the things that picks us out. We provide our clients with a network of 105 markets, of which 62 are proprietary Citi sub-custody branches.
Our custody network covers approximately 97% of the world’s market capitalisation. In 80 markets we provide FX services; in 76 we are, as I say, agent lenders.
This footprint means that, when our customers want to expand geographically, they know the process will be quick, efficient and smooth.
Our global custody contracts provide the means for clients to reach into any of those 105 markets quickly (subject to the account opening rules and the local regulatory requirements, of course).
For example, we are seeing a lot of interest in Asian-domiciled products lately. Managers who have seen considerable success in European domiciled funds are keen to replicate their strategies leveraging Asian domiciled vehicles.
In these cases, our familiarity with the holdings and strategy of the manager coupled with our consistent global platforms ensures that the setup process can proceed very quickly.
WHAT ARE THE BENEFITS OF BEING A FULL-SERVICE BANK?
When you overlay these technical benefits onto the diversity and financial strength of our bank, you can achieve considerable added benefits.
The fact that we are a full-service bank means that we will often find ourselves providing a multitude of products and services to a client, from core banking and execution through to M&A and capital markets activity.
The more that we do with a client, the better we get to know their business and the more we are able to develop it with the range of services we have access to.
The more long standing and deeper the relationship across Citi, the better placed we are to do this. It helps us to understand the DNA of the client – how the firm runs, how its strategies are constructed and so on.
In addition, other areas of the bank, such as the private bank, or the distribution network, provide a wealth of information and experience that will typically benefit asset manager clients.
Often we see the custody services we provide as the foundation upon which we can explore the provision of other services the client may benefit from.
CAN YOU DETAIL THE BENEFITS OF A GLOBAL CUSTODY NETWORK FOR CLIENTS?
One of the legacies of the financial crisis has been a marked increase in the focus on ensuring the safety of assets especially in times of market stress.
When you look at the recent major regulatory initiatives, such as AIFMD or UCITS 5, there is almost always a provision for resolution and recovery planning.
The most effective way that this can be provided is if the custodian can segregate assets in the name of the beneficial owner throughout the custody structure, at every layer of the chain.
In this respect, our infrastructure of proprietary sub-custodians across the world gives us an unmatchable capacity to provide this consistent level of segregation regardless of the asset type or location.
This integrated custody overlay, which collapses the layer between the global custodian and the sub-custodian, produces a number of benefits.
In the first case, it removes not only the risk but also the latency associated with a transaction, meaning better cut -off times. It also provides more transparency, which is a cornerstone of stronger, more consistent reporting.
A related benefit that arises from having a global network concerns the improved service associated with having a local team on the ground doing the sub-custody.
This familiarity with the local market has proven particularly valuable in times of stress – through the Arab spring for markets in the Middle East, and during the ensuing political crisis in Egypt, or in Latin America, where our clients were presented with questions during the debt resolution issues in Argentina.
It is when times get particularly tough that the benefits of a local presence may become more visible.
CAN YOU EXPLAIN HOW YOU ARE USING BIG DATA TOOLS TO IMPROVE THE SERVICES AVAILABLE TO CLIENTS?
We have spent considerable time and money recently on refining our data products, producing an intelligent data engine over the last year and we are currently in the process of rolling it out to our larger clients.
Effective, timely and manageable access to data concerning asset managers’ portfolio has a material impact on the speed and ease with which they can provide this information to regulators and to their own clients.
It thereby has a big influence on how well they are able to perform their responsibilities, duties and services.
Unfortunately many of the existing tools in the marketplace associated with providing data to clients, or giving them the means to mine it themselves, continue to be slow and archaic.
How does our engine work to overcome the obstacles associated with these more traditional tools?
It allows clients to query their data and return results in an adaptable and user-friendly way and provides them with the means to investigate their exposure to specific variables, such as a single holding across the full range of funds, geographies or markets.
The engine also provides for the full gamut of a client’s standard reporting needs: from the generation of NAV reports to the provision of corporate action information and supply of a settlement report.
The interface for the new data engine is available across multiple devices, including mobile phones.
Equally, it provides the data in the format the clients need to feed it into their own back and middle office systems in order to process it further, enhanced with their own data. This process of data supplementation is becoming increasingly valuable to our clients.
This process of data supplementation is becoming increasingly valuable to our clients.
Consider cases where asset managers conduct one or more elements of their asset servicing themselves – here, clearly there is a need to supplement our data with their own.
Another example is the regular one-page monthly fact sheets that asset managers provide to their clients, which typically include information about the index performance, key holdings and a quote from a portfolio manager.
These are often outputs where considerable adjustments must be made to the raw data to assimilate the look and feel of the asset manager’s brand – ensuring graphs appear in the house style and featuring the livery, fonts and style particular to that company.
This means combining data from the custodian with data and formatting from the asset manager.
WHERE ELSE HAVE YOU BEEN FOCUSSING YOUR EFFORTS RECENTLY?
Another target of our recent work has been improving our services around funds and instrument types that are growing to be particularly popular in the market at the moment.
The most striking example here is the growing use of passive funds such as ETFs, which have now moved beyond their beginnings in the US and Europe and are becoming established at the heart of the Asian investment landscape.
We are upgrading our infrastructure to accommodate this global growth in ETFs.
Traditional managers, meanwhile, are using OTC instruments in ever greater numbers; many employ OTCs as much as their hedge fund peers now. Here, again, our capabilities are among the best in the market.
And finally, a critical focus for us has been the time, effort and resources that we have spent on securing our platforms from cyber-attacks.
We have an established expertise in this area that has grown out of our global experience. It has spawned technology that can interrogate the source of instructions received online – by examining the IP address – and match them against previous sources for the client in question.
It has spawned technology that can interrogate the source of instructions received online – by examining the IP address – and match them against previous sources for the client in question.
It also provides the means for timely and accurate examination of the destination of a client’s transactions – again, comparing these with the historical behaviour of that client – in order to detect and respond to fraudulent instructions.
In an STP world, where transactions increasingly occur from end-to-end without manual input, these detections systems become essential.