Home / State Street picks up VFMC after 15-month review

The $50 billion Victorian Funds Management Corporation is about to end a long relationship with National Australia Bank for custody and investment administration, following a review which extended from March last year.
VFMC is expected to announce within the next week the appointment of State Street Australia as its new securities servicing provider. The Victorian Government-owned manager, which employs mainly external funds management capabilities, has used NAB (now NAB Asset Servicing) since the 1990s, not long after the manager’s inception in 1994, when master custody was taking off in Australia.
It is a big win for State Street, Australia’s fifth largest custodian after NAB, JP Morgan, BNP Paribas and Citi and just ahead of Northern Trust and BNY Mellon. BNY Mellon is NAB’s global custody partner.
However, in the past month, BNP and Northern Trust have both had big wins at the expense of NAB: Northern picking up the backoffice of the $70 billion QIC to complement its middle-office services and BNP picking up the $50 billion UniSuper.
VFMC’s review started in March last year with the appointment of Morse Consulting to assist in advising the manager on the review process. Brett Elvish, of Financial Viewpoint, was appointed to run the tender, with Morse continuing to be involved through some advice on middle-office and IT functionality.
Interestingly, Elvish was working in the NAB custody business around the time that it introduced a master custody service in the early 1990s. State Street, which was VFMC’s first custodian, is generally regarded as having brought master custody to Australia in the mid-1980s. Elvish later set up the specialist custody consulting arm of asset consultant Intech (now part of Morningstar) and then became chief executive of Intech prior to its sale. He started Financial Viewpoint in 2007.
One of the attractions of VFMC as a client to any of the major custodians in the Australian market is its simplicity. It is a sophisticated manager operating globally and with the full range of mainstream and alternative asset classes, but it has only 17 underlying (Victorian Government) clients and has relatively few investment “products” (choices) compared with, say, a similarly sized public offer industry fund.
It was always going to be an uphill battle for NAB to save VFMC as a client after the bank announced last July that it was reviewing its future in custody and is known to have considered a couple of bids in that process. However, with new management, the bank reconsidered its position and, last November, recommitted to custody.
NAB has managed to re-sign a number of clients during the uncertainty of the past 12 months and win a couple of new ones, remaining by far the largest, and only Australian-owned, custodian.
The recent big losses, however, probably mean that the new chief executive of NAB Asset Servicing, Matt Brown, an experienced custody recruit from Citi, has to reconfigure the business to get it back on track. Brown replaced Christine Bartlett, who has retired from executive roles, in February.
He could, for instance, look at a new global partner which has more skin in the game in Australia to replace BNY Mellon. Citi and HSBC spring to mind.
Neither VFMC nor State Street would comment on the new contract last week.
NOTE: an earlier version of this report incorrectly stated NAB was VFMC’s first custodian.
– Greg Bright