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.
Solid half pushes custodians to $4.4t record
Record asset prices in major markets over the past six months have helped Australia’s asset servicing firms to a record level of assets under custody, rising to $4.4 trillion at the end of June.
The latest figures from the Australian Custodial Services Association, published last Friday (August 6), show J.P. Morgan consolidating its number one position for market share in Australian-owned assets, followed by Northern Trust in second and Citi in third position.
The only positional change of the six majors which provide complete master custody services, was State Street climbing above BNP Paribas into fifth spot, not far behind NAB Asset Servicing in fourth (see table).
With the total increase in Australian-held assets rising 10.9 per cent compared with the six months to December, the two that beat the average were Citi, with a 14.2 per cent rise and State Street with 18.2 per cent. Both Citi and State Street have had big wins in the past 12 months which are still being transitioned from other custodians.
HSBC, long-rumoured to be about to enter the master custody business – at least prior to covid-19 – is by far the largest operator in domestic or ‘sub’ custody, the figures for which are available in full on the ACSA website.
Rob Brown, ACSA’s chief executive, who has announced his intention to leave the organisation when a replacement is found, said the result also reflected ongoing confidence in the key services provided by the securities services industry.
He said: “Our members reported a bounce of 19 percent for assets held offshore for Australian investors, compared to an increase of only 7 percent for assets held onshore. While part of this differential is the result of currency valuation changes, it also reflects the long-term trend of institutional investors seeking returns beyond Australia.”
The statistics showed that asset servicing providers settled over 14 million trades during the six months to June. This equates to 110,000 settled trades per day on behalf of clients.
Brown said: “The new record of assets under custody, as well as significant trade and processing volumes, continue to be seamlessly supported by ACSA members on behalf of clients, and demonstrates continual efforts to improve efficiency across the service chain.”
The result will also ease the pain caused custodians because of continued low interest rates. A significant proportion of their revenue has traditionally come from their handling of transactional cash and cash reserves, particularly those with big super fund clients.
