Mandate Watch: Citi, SGSS and BNY Mellon win mandates

Outsourcing, especially amongst asset owners, is driving mandate growth. Citi, SGSS and BNY Mellon among those to win mandates in the first few months of 2013, finds Luke Clancy

The financial industry has to adapt to a period of real uncertainty, both in the immediate future and over the longer term. The environment is encouraging some tough decisions and innovative thinking. In particular, asset owners are increasingly looking to review their operating models to take out fixed costs and improve their agility.

It is on the back of such sentiment that Société Générale Securities Services (SGSS) says it has won 20 new mandates for its fund distribution services in Europe since July 2012 and has posted three new mandate wins in the past quarter.

With a gloomier environment, clients are “questioning the way they process things”, says Mathieu Maurier, global head of sales and relationship management at SGSS in Paris. “When resources are scarcest, the requirement for additional investment accelerates the need for organisations to review their operating models and question if it is efficient for them to run a number of middle-office functions – such as collateral management, processing margin calls and confirming credit support annex agreements – or whether to outsource this to an asset service provider,” he says.

European asset managers are also increasingly likely to consider outsourcing their fund administration functions to third-party providers, Maurier says. Pension funds and insurance companies are another subset looking to revamp operating models, he adds.

Increasingly, asset managers and insurance companies are looking to streamline their outsourcing to use just one asset service provider, says Maurier. Previously, they may have used more than one provider due to legacy merger and acquisition issues, often across multiple countries.

Asset management firms are also keen to re-engage in the process of lending their securities to add additional returns in a difficult environment, he says – although there is less re-engagement in securities lending by pension funds.

Meanwhile, BNY Mellon, which historically has been highly US-centric, has focused more recently on expanding its horizons geographically. This was evidenced in Europe by a Ucits fund administration win for client Coutts.

For a European administrator, the old standards of consistent and accurate net asset value calculations and trading-activity processing are no longer sufficient, says Rachel Turner, head of offshore at Dublin-based BNY Mellon Asset Servicing. While that remains important, an administrator now needs to ensure it can also provide data to meet the myriad tax and regulatory reporting requirements in Europe and elsewhere.

As a result, a greater proportion of time is being spent on technology, interfaces and data delivery, says Turner. Risk and compliance is also important. “From my vantage point, I believe managers are reflecting on their administrators, and in some cases choosing providers with greater breadth of product,” she says.

As well as looking beyond the shores of the US, BNY Mellon has aspired to win over more demanding clients, most notably becoming Bridgewater’s primary provider of middle and back-office services at the end of 2011. However, it was subsequently announced this year that Northern Trust had been selected by the hedge fund to independently replicate and back up certain services provided by BNY Mellon (www.risk.net/2236339).

CIBC Mellon, part of the BNY Mellon network, also registered two mandate wins in the past quarter, for clients in Canada. David Linds, senior vice-president, business development and relationship management at the Toronto-based firm, says: “The custody industry continues to be driven by three main factors – scale, technology investment and regulation.” But he also warns that “expanded regulatory demands and vastly increased client appetite for sophisticated reporting are driving custodians’ costs up”.

State Street registered two wins over the period, one of which was for the pension fund of a former Netherlands Antilles island that is likely to adopt the Dutch regulatory framework for pension funds. A recent study conducted by State Street found that pension funds in the Netherlands rated risk management, regulation and compliance and market volatility among the most important challenges faced. With the likelihood of Aruban pension funds moving towards the Dutch framework, it expects these issues will be crucial for them as well.

Peter O’Neill, executive vice-president and head of State Street across Europe, the Middle East and Africa, says data is one area in particular where asset owners are looking for custodians to help, against a backdrop of globalisation, regulation and more complex investment strategies. Recent research it carried out in Europe, a survey of 150 pension funds, showed that only 60% of defined benefit schemes feel they have access to portfolio data that allows them to understand their total risk exposure.

Citi notched up a number of client wins, including a $1.6 billion mandate for fund administration, custody, trustee, fund accounting, transfer agency and foreign exchange solutions for global investment bank and asset manager William Blair. Pervaiz Panjwani, head of Citi’s securities and fund services in Luxembourg, is upbeat on continued prospects for the coming year, pointing to the European funds industry experiencing a more than €300 billion increase in net sales in Ucits and non-Ucits funds in 2012 compared with 2011. “Luxembourg contributes a substantial share of the net sales number, both for Ucits and non-Ucits. Hence, this is a positive trend for the market despite the difficult market conditions,” he says.

In the wake of various regulatory changes in Europe and more specifically with regards to alternative investment fund managers (AIFM) directive, the Luxembourg Funds Industry Association (Alfi), in conjunction with market participants and regulators, continues to keep an edge in adapting the law and ensuring market readiness ahead of other countries, claims Panjwani.

“Luxembourg is much better prepared to adapt the AIFM directive into local legislation in March,” he says. “Luxembourg legislation has also made the right changes in the limited partnership law to promote the private equity business in Luxembourg in line with Alfi’s objectives.”

Please send your mandates to the editor, Luke Clancy, and see the top 50 mandates of 2012.