Some members are excited for retirement, while others approach it with a “real sense of shame and fear”. Funds are going to have to figure out how to cater to both groups or risk failing them all.
If there’s one lesson for investors from the past five years, it’s that chopping and changing their strategy – even in the face of massive market turmoil – doesn’t always pay.
… and ‘recalibrates’ global custody in US$1 trillion shift
There will be little-to-no change in BlackRock’s arrangements in Australia and New Zealand, but the news of JP Morgan’s $1 trillion new securities services mandate shocked the custody and administration world last week.
BlackRock has reassigned about 20 per cent of its US$5 trillion in assets under management and administration to JP Morgan and away, largely, from State Street, which has been BlackRock’s custodian since 1988. The complex transition will take about 18 months to complete.
Jay Hooley, State Street Corporation’s chairman and chief executive, described the BackRock change as a “one-time recalibration of their service providers”, although he admitted to have been “disappointed” by it. “Our relationship with BlackRock is still very global and growth orientated,” he told Reuters.
State Street shares fell 3.4 per cent on the news, which will cost the firm tens of millions of dollars annually. However, spokespeople in Boston said that the firm had gained about US$1.3 trillion in new custody and admin mandates in the past 12 months.
State Street, the world’s second-largest custodian after BNY Mellon, has about US$29 trillion under custody and admin. JP Morgan, the third largest, has about US$20 trillion.
In Australia, JP Morgan is already the largest custodian, a mantle which it only recently regained from NAB Asset Servicing after a long period further down the list.
Most of BlackRock’s Australian assets, which total about A$74 billion, are already in JP Morgan’s care, although the big manager also uses several other custodians.
BlackRock said in a statement from Hong Kong on Friday: “We are expanding our fund accounting, fund administration, and custodial relationship with JPMorgan Chase, while maintaining strong partnerships with State Street, Bank of New York Mellon, and others. As a fiduciary, we work with a diverse group of global custody providers for the benefit of our clients.”
While the assets to be redeployed from an admin point of view have not yet been specified publicly, it is understood they will likely be split off on product rather than regional lines.
The interesting question is ‘why?’. According to ‘Global Custodian’ newsletter BlackRock will be able to reduce its costs through a new fee structure with JP Morgan and also diversify its counter-party risk.
Notwithstanding those good reasons, the industry sector will be keen to see whether the move will have proved worth it. Not many big custody customers wish to use two main custodians, although it has been more common in the US than elsewhere.
In New Zealand, for instance, the NZ$35 billion Accident Commission fund culled its custodians from two to one (JP Morgan) last year after having used another for domestic custody only.
In Australia, the people involved in last year’s T-Corp custody tender are said to have considered the use of two custodians at an early stage of their work, but in the end decided on just one – also JP Morgan.
- Greg Bright
