Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
State Street confirmed as Perpetual’s new custodian
After a review which took just over a year, State Street has been awarded the challenging asset servicing task of transitioning Perpetual Investment Management’s Australian funds management business. The ultimate prize may be to also take on the bigger asset base from the Perpetual group’s new US fund management subsidiaries.
The announcement last week (January 20) was no surprise, especially following the decision by Citi to not contest last year’s tender process. Mercer Sentinel was appointed to advise on the selection of a new provider early in 2020 and State Street had actually started work on the project in the third quarter of the calendar year.
The fact that Citi did not contest the tender was primarily because of new additional work it had taken on following the takeover of Comminsure, a former Citi client, by AIA, resulting in the physical merger of the two which was completed only last week. It was also influenced by winning a number of other new clients as part of its deal with the outgoing RBC Treasury and Investor Services.
RBC announced in 2019, after almost 20 years here, that it was exiting Australia and reached a deal with Citi to facilitate the transition of its client base. Some of RBC’s larger clients, such as Perpetual, decided on formal review processes. But Perpetual, with about $30 billion of Australian assets ($20 billion in funds and $10 billion in mandates), was not only fairly large, it was also complex in terms of number of products and their sophistication. From State Street’s perspective, their new client has about 125 funds and about 200 inter-funding portfolios.
As Martin Carpenter, Citi’s asset servicing head in Australia, said last year, Perpetual was “rusted on” to RBC. RBC acquired the former Perpetual Fund Services when it opened its office in Australia in 2001. And Perpetual is home to Australia’s oldest local Aussie equities investment trust.
Potentially sweetening the deal for State Street is Perpetual’s trajectory as a truly global manager following the dual purchases last year of the US$4 billion Trillium Asset Management and the US$46 billion Barrow, Hanley, Mewhinney & Strauss, both global managers. Perpetual restructured its senior management to cater for the leverage of the three entities through beefed up distribution, both in Australia and North America.
Rob Adams, Perpetual’s managing director, said last week: “In our search for a new custodian and administrator, we were looking for a provider who could offer a high-calibre service, as well as a breadth of solutions that were both innovative and customisable to support our strong product offering and our clients… In addition to the back and middle office services, Perpetual will leverage State Street’s enterprise data platform to manage data across the investment cycle more seamlessly.”
While all the major custodians provide middle as well as traditional backoffice services, State Street has made a particular emphasis on developing its middle-office services through its subsidiary provider, Charles River Development, acquired in 2018. Daniel Cheever, the head of State Street institutional services for Australia, said State Street would “go live” with Perpetual in early May for both back and middle-office services. It would be running a “parallel” portfolio as a test from early April. The process was generally referred to as a “big bang”, although it reflected about nine months of solid work.
He said that Perpetual was a “premium funds management brand” and State Street was “incredibly excited” about the deal. On the possibility of US-based assets coming across down the track, Cheever said: “We are focussed on phase one, the Australian business. We hope we will have the opportunity to talk about Barrow Hanley and Trillium after that… Perpetual is still an attractive client for us even without the US businesses.”
He noted, though, that Barrow Hanley was already a Charles River client, which might help State Street in discussions on a wider brief in the future. The main services being provided cover: core custody, middle office, administration, valuation, accounting and tax reporting.
Overseeing the project at Perpetual is Amanda Gazal, the firm’s COO. She is being assisted by two former State Street executives who are already working at Perpetual: Bernadette Ryan, who will be managing the project on a day-to-day basis, and Daren or Donnellan, general manager operations.
Cheever said that State Street did not intend to employ any former RBC staff for the new assignment.
