Speaking at a recent BNY Mellon event in Tokyo, Emily Portney, Global Head of Client Coverage for Asset Servicing at BNY Mellon, highlighted three trends affecting the global asset servicing sector: consolidation, outsourcing and investment strategy “barbelling”.
Consolidation can be seen through merger and acquisition (M&A) activities, particularly in the asset manager segment, which she said often leads to a consolidation or integration of service providers. But even without M&As, there is also a real desire from clients to consolidate service providers for efficiency and pricing power.
“Many clients are looking to, perhaps, go from 10 custodians down to five, or they are looking to take their fund administration, transfer agency and custody services and bundle them with one service provider to gain efficiency,” Portney said.
Outsourcing has long been present, but the trend points to it encompassing a broader range of capabilities. “Even some of the larger players who are performing fund accounting or transfer agency in-house are starting to feel the pressure and are looking to outsource,” she said, adding that it includes middle office activities, such as trade support, loan administration, derivative support and collateral management. “That is certainly the next frontier.”
Yoshio Okubo, Chairman of the International Advisory Committee at the Japan Securities Dealers Association, reinforced this point, noting that asset management goes beyond purely investing. “Asset Management consists of custodian services, legal and accounting services, tax, distribution and administration for clients,” he said. Scope for consolidation and outsourcing is clear. “We need to look at each individual component to integrate the business and offer a total solution.”
“Barbelling” of investment strategies is where institutional investors allocate at both ends of the risk spectrum—concentrating assets in passive investments, as well as higher margin alternative products, such as private equity, private credit and real estate – for better, more cost-efficient returns over the long run.