[Banking] - Global Custody

什么是Custody?
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Asset servicing for institutional investors.

The European Central bank describes custody as the service of holding and administering securities on behalf of third parties. Custody, it says, has evolved into a complex industry no longer characterised by physical safekeeping but by a range of information and banking services.

Custodians merely look after this money – they don’t earn it in revenues. Instead, they levy a fee (typically up to 0.08%) on the assets they’re managing.

There are three types of custody, says Peter Snodgrass, head of securities services at HSBC in Australia: sub or domestic, master, and global.

Sub-custody looks after the local investments of offshore institutions, while domestic manages the keeping and settlement of securities for local wholesale clients such as asset managers and insurance companies.

Master custodians tend the administration, book-keeping and accounting for large asset managers such as superannuation funds. They are the ‘source of truth’ about the fund and its value, Snodgrass says.

Global custodians manage offshore investments for local funds.

Most custodial work in Australia is of the first two kinds. Bradley Kelly, vice-president, product and strategy for JPMorgan Worldwide Securities Services Australia, says, “Global custody in Australia is predominantly driven by our superannuation system. Australia effectively has ‘legislated growth’ – and that is very attractive to the global firms, and the reason why we are often seen as the ‘poster child’ of the global pensions industry.

“The large super funds are very sophisticated. They’re behaving like asset managers. As they become more massive, the influence they can have on the market is huge,” Kelly says. “They are creative and innovative. The best new ideas I have seen have all come from pension funds.”

Trends

Global custody once had a reputation for being administrative and repetitive, but the role of custodian has widened to include many other services – performance and attribution, OTC derivative lifecycle management, hedge fund servicing, private equity administration, transfer agency, securities lending and transition management.

Global custody is a big business. In March 2008, the total value of worldwide custody assets was more than US$109 trillion, according to globalcustody.net, a specialist website. The bad news is that custody fees are under pressure as everyone competes for the same business. Worse, turmoil in global markets saw total global assets lose US$3 trillion between August 2007 and March 2008.

Key players

In 2008, the world’s five top players were Bank of New York Mellon, JPMorgan, State Street, Citi and HSBC, with NAB putting in a respectable global appearance at 24th in the top 50, according to globalcustody.net. Locally, JPMorgan and State Street, and the big Australian banks (especially NAB) dominate the field. ANZ, RBC Dexia Investor Services and BNP Paribas Securities also offer custodial services.

In the past decade, the industry has invested serious money in updating technology, and large firms were the only ones with budgets big enough to do this. “JPMorgan Worldwide Securities Services invests more than US$600m each year on its securities services technology alone,” says Kelly.

Small custodians lack the manpower and technological wizardry for these higher margin activities and are gradually being subsumed into bigger players. But Australia also has a robust niche and boutique sector that is too small to interest the globals but whose members are extremely viable in themselves.

Roles and career paths

Employees typically specialise, but talented individuals can diversify into a broad range of careers outside basic operations – product, sales, technology, risk management, relationship management, marketing and communications, client service, finance, legal and compliance. Custodians also need people with business analysis and project management skills.

“Custody is often seen as a stepping stone or way to get to the front office,” Snodgrass says, “because it provides an insight into back office operations of the finance industry and the life-cycle of a securities transaction. Expertise in custody can open doors to asset management, broking/trading and treasury.”

Global custody is not well understood by the financial services industry, and is certainly is not taught in university courses, according to Snodgrass. This, combined with the old notion that it was a dull field, has tended to put graduates off. But Kelly says any graduate joining such a team “is in a select band, which gets fantastic exposure to all sectors of the market, visibility to executive management, an opportunity to effect real business change, and an exclusivity that they don’t get elsewhere.”

Few global custodians offer graduate training programs, so you need to send in your CV speculatively. However, JPMorgan has an 18-month graduate rotation program, which recruited its third intake in March 2008.

Pay

Global custody pays less than investment banking or asset management and rates vary depending on whether you work for a retail or an investment bank. But the pay is rising. Entry-level roles start at around AU$45k-$55k plus superannuation, with bonuses of 5-15%.

At three to five years, pay ranges from AU$60k-$75k, with bonuses again of 5-15%, though these can be as high as 30% depending on the bank. An assistant manager would earn up to AU$80k, a manager in an operational position AU$90k-$110k, and a senior manager AU$130k-$160k, all with bonuses generally of 5-30% – though these can be as high as 50% for operational positions in investment banks, according to Lee Humphrey at Derwent Executive.

Matthew Gowan, of recruiter Hays Banking Australia, says there is potential to earn bigger money once custodians are more experienced. “The senior end is work that involves consulting to corporates, and you can get paid big dollars for that, but you would need to progress though the ranks first.”

Skills

• Team skills: these are “paramount”, says HSBC’s Snodgrass, as is absolute attention to detail. “Sub and global custody are mainly operational whereas master custody is more slanted towards accounting disciplines. Accountancy and finance degrees are common but we recruit from other fields. Yes, we look for scrupulous exactitude, but we also need people who are articulate and can communicate, because custody is about client service and the custodian’s relationship with each client is of paramount importance.”

• The right background experience helps: according to Jason Bohringer at recruiter Robert Walters, “Experience in banking administration, reconciliations, registry or unit trust work is a great help if one is seeking an entry level position in custody. Accounting or retail banking experience is also highly regarded. Custody has very similar operational positions to the wider banking world, and it is a fitting area to gain experience that is very sought after in the market.”

• Analytical ability: Matthew Gowan from Hays says that custody can be a challenging field for graduates. “It’s an area that’s not covered in any great depth at the tertiary level here, so it’s harder to get graduates. You really need a brain for analysing risk and dealing with large corporates,” he says. “It may not be as glamorous, but it’s an extremely challenging analytical area.