In the evolution of securities servicing over the past 30-or-so years three things have proved constant: fees keep going down; services get more and more complex, as do the securities themselves; and, everything gets faster and more automated.
In fact, according to Madeleine (Maddy) Senior, the new head of Australia and New Zealand for Northern Trust: “It’s not actually about custody any more – that’s a given. It’s about the data and its aggregation. Data is the new oil.”
With the inexorable downward pressure on fees and charges and with the commoditisation of core traditional custody services, the big global firms continue to commit more and more to IT spending. In Northern Trust’s case, the latest commitment is about US$2 billion over the next three years across the company.
“Technology is key,” Senior says. “And the other thing that’s important is that our focus is only on two core businesses: asset management and asset servicing.” (Most of the big custodian banks also have various investment banking lines, markets and treasury businesses as well as asset management.)
With fierce competition, especially in Australia and New Zealand, and a record level of mandate activity over the past 18 months custodians are being asked to maintain a disciplined and responsible approach with any extra work they decide to take on.
Senior says that Northern Trust has declined to bid on a large number of deals in the U.K. – where she has spent a lot of her career – so far this year, either because of price or the product to be serviced.
“Our approach is always to partner with our clients and ensure we can work together on solutions that support their needs – and we do sometimes turn away deals,” she says.
“Across the globe we have determined it is sometimes better to decline to bid on deals where culture, product expectations or timeline to implementation is not aligned to both parties requirements. We have declined to bid on a large number of deals because of this.”
This is not her first stint in Australia. She moved from her native England in the early 1990s and worked with the old Bankers Trust investment operations business, which was acquired by Deutsche. She then went back to the UK in 1995, joined Northern Trust and was sent to the US, at first to train staff and clients on the euro conversion and then to run the firm’s “Y2K” project at Chicago headquarters. She went on to lead client and business relationships with the top 15 fund managers in the US before she moved back to London and then went on to run the firm’s Nordic business, based in Stockholm. She moved to Australia again and took up the new job in Melbourne from September 1.
Northern Trust has been, without a doubt, the most successful securities servicing business in Australia and New Zealand over the past three years at least, in terms of winning new business. But financial services providers, as in many industries, have a tendency to enjoy good runs only to be followed by bad. At least on the asset servicing side you don’t hear the maxim ‘past performance is no guide to future performance’ – that’s only for the asset managers.
A couple of points of differentiation for Northern Trust, compared with the other majors locally, at least in perceptions, have been its unified global platform and its early commitment to middle-office servicing.
The platform was the main driver in Northern Trust’s entry to Australia because of the decision by, first, NZ Super and then the Future Fund – both tax-exempt – to appoint the firm as global custodian. Both funds had, as luck would have it, the same chief executive, Paul Costello, and the same consultant, Thomas Murray.
The platform has recently been strengthened through the integration of the Citadel alternatives technology platform, called Omnium, which Northern Trust acquired in 2011 and renamed Northern Trust Hedge Fund Services.
The platform now houses the Bridgewater investment book of records solution..
Northern Trust Hedge Fund Services assists both back-office and middle-office operations of hedge funds and big institutional investors that have complex portfolios.
Middle-office outsourcing is a recent and rapidly growing area in which Northern Trust has taken a foothold in Australia by, at first, winning the middle-office outsourcing contract for QIC and then taking over the back-office too.
But Senior says that, most often, clients come to Northern Trust with specific questions to do with middle-office functions, such as compliance and performance monitoring or SRI. Some of the functions outsourced may be quite simple but still a distraction from the client’s main game.
– Greg Bright
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