Common considerations include but are not limited to:
Within this context, deciding which part of the operational value chain to keep in-house or to outsource is a key decision – and deciding who your outsourcing partner will be is as important.
Custody banks play an increasingly important role for asset owners within the middle and front office. For the largest asset owners, the selection of a custody provider sometimes extends to deciding whether to adopt a single- or multi-custodial model. Some asset owners appoint multiple custodians to address specific objectives, including managing counterparty risk or accessing local expertise.
Asset owner clients globally are increasingly asking which model is best and until now, a lack of data-informed analysis has prevented clients from reaching a conclusion. Through a review of the top 50 global asset owners with which BNY Mellon engages, it is now evident that there is no “one size fits all” custodial model. The choice of adopting a single- or multi-custodial model is dependent on a range of factors, including local market differences and an organization’s own journey.
The top 50 organizations reviewed include three asset owner types: central banks, pensions and sovereign wealth funds across three regions, with a combined total of US$23 trillion AUM.
A review of the top 50 asset owners with which BNY Mellon engages uncovered five distinct custodial models and their corresponding adoption.
Looking across the five models, specific nuances at regional and segment levels can be observed:
The choice of a custodial model is often underpinned by five common objectives which can generally be achieved in both single- and multi-custodial configurations. Some objectives may be emphasized over others depending on organizational priorities or cultural preferences, but asset owners typically consider the following when making their choice:
“More than ever before, asset owners are facing a range of pressures impacting their outlook, priorities and decision making. They are increasingly looking at their service providers to help them orchestrate solutions and streamline information across investment and operational processes for richer insights and greater oversight to help meet their strategic priorities,” said Rohan Singh, Global Head of Asset Owners, Asset Servicing and Digital at BNY Mellon.
While most objectives can be achieved through any model, the choice of who to collaborate with and how to execute effectively is always a central component to determining success.