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Equity Trustees’ plan to ‘pound the pavements’ and seize the mid custody opportunity
Winning market share in custody is no easy feat, mostly because of how rarely you get the chance to do so. Anybody will tell you that changing custodians is annoying – to put it lightly – and at the big end of town the only pressing reason to do so seems to be a merger or the complete exit of your provider from the market.
In the mid custody space, Equity Trustees (EQT) might have a unique problem: its name. Despite doing a significant sideline in custody and fund services, it’s better known as a responsible entity and trustee business – Australia’s largest, and oldest. But Johnny Francis, EQT general manager for fund services, thinks that ‘problem’ might also be its own solution.
“When I joined (three years ago), custody wasn’t the focus… and there probably wasn’t a lot of spotlight put on the business in terms of capability and getting our name out there. But we’re fortunate that on the trustee side of the business we have 500 funds and $120 billion from huge, global names,” Francis tells ISN.
“So we’re leveraging those relationships to offer a custody opportunity. We’re growing that adjacent business: one less provider to talk to, economies of scale in terms of fees, people who understand your product. There’s a lot of benefit to having one provider.”
The mid custody market is roughly 90 per cent owned by Perpetual, Francis says; then there’s EQT, and the likes of One Investment Group and MSC, competing for the other 10 per cent. Big custodians – the State Streets and BNPs of the world chasing multi-hundred-billion super mandates – stay away. The work is fiddly, and “quite manual”; in asset classes like private equity and venture capital, that can mean physically signing shareholder agreements and storing them in a safe. But with the private credit boom, and the growth of other niche asset classes and vehicles, there’s going to be more of that fiddly, manual work to do.
“All of those managers are looking to do more in this space; all of these managers will need a licenced custodian. They don’t want to do it themselves and get all the bells and whistles and overheads to do it so they may as well just outsource it… Investors want independence; they want the optics of it.”
Perpetual is still in the throes of a takeover and demerger at the hands of private equity giant KKR, which is particularly interested in the wealth and corporate trust units. But for many of Perpetual’s clients, new ownership could be a trigger to search for a new custodian.
“There’s also Foreign Investment Review Board implications; some assets actually can’t be owned by a foreign trustee and the custodian is legally on title,” Francis says. “(Managers of) important pieces of infrastructure in Australia have to find an independent custodian/trustee because they can’t be owned by a foreign entity.”
Still, it’s hard to dislodge any group that owns 90 per cent of a market.
“It’s just about building our presence,” Francis says. “And responsiveness, flexibility, being more nimble and agile and having good systems. We’re investing in people, we’re investing in our technology, and we’re out there pounding the pavements and working on the existing book of clients we have in the trustee space… I’d like to be in the conversation every time somebody is looking for an independent custodian.”
