HostPlus gives its verdict on the Citi custody transition

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(Pictured: Sam Sicilia)

When Citi won its first industry fund securities servicing client, HostPlus, in 2013 that whole sector of the funds management industry sat up and took notice. According to Sam Sicilia, Host’s CIO, not many funds would have made the same decision. It was a bit of a gamble, he admits, but he is “elated” that he and his colleagues did what they did.

Citi had been a big provider of global custody and domestic sub custody in Australia for years, with its biggest client being the Colonial group. But it had resisted the temptation to enter the master custody area, which requires a lot more work on tax accounting and value-add reporting until the local client demand warranted it. The trend had been for a reduction in the number of suppliers of master custody due to thin margins and intense competition. Three of the four Australian banks, for instance, had exited, along with AMP and Perpetual. Only Northern Trust had entered the market in the past 20 years – a period when total assets under custody more than tripled. Prior to winning Host, Citi’s only master custody super fund client was the Commonwealth Bank Staff fund.

For the part of the industry which focuses on operational issues, the Host tender, initiated about a year earlier and involving what seemed to be an excruciating level of questioning, was a big deal. Citi’s technology was seen as untried and its commitment to this market needed to be taken at face value.

Eighteen months since Host made the move from incumbent JP Morgan to Citi, Sicilia says: “Different organisations react differently to the same risks. Host is not afraid to be a first mover. Some organisations wouldn’t have made the leap first.” That is true. Big super funds are conservative, especially when it comes to operational change, and the industry has been watching Host’s experience.

“With the co-operation of JP Morgan, without which the transition would have been a lot harder, it all happened on time and with no issues. Citi threw the right resources at it, recruiting some new people,” he says. “Was it a fluke? We’ve passed our 18-month anniversary and along the way we converted the whole fund to a PST. Every account had to be re-opened in a stamp-duty-efficient way. Today, we have the fund we anticipated without batting an eyelid.”

Citi also shifted some more of its backoffice functions to Kuala Lumpur last year, and made some Melbourne positions redundant, but this, too, appears to have gone smoothly. Host has about one million members, primarily in the hospitality industry, and more than $15 billion under management.

Sicilia adds: “I don’t want to trivialize the work of our own people, though. The people at Host also worked very hard and I’ve been ecstatic with the whole process.”

An unusual aspect about Host’s selection of a new custodian was that both Sicilia, the CIO, and David Elia, the CEO, were actively involved in the selection and transition process. Normally with a custody tender it’s left to the CFO or COO – in this case Stephen Rowbottom, now the CFO at AusCoal – to do the heavy lifting. Both Sicilia and Elia got involved in the due diligence part of the process and Elia, in particular, drove the assessment of the technological change.

An aspect of what Host could provide which was important in Elia’s eyes was the ability to convert from a desktop to iPad system, which is appealing to the senior executives and trustee directors, Sicilia says, because they tend to travel a lot. “They should be able to respond to a query within 10 minutes on something like ‘what are our exposures to oil stocks?’ I expect the others [master custodians]have caught up in the past 18 months. But as far as we’re concerned, overall, the Citi technology has delivered exactly what we wanted.”

Additional services provided by Citi, apart from the technology, include a quarterly phone/video hook-up with other Citi pension fund clients around the world, enabling Host’s investment team to discuss all sorts of matters with other big funds they would not normally have made contact with.

On a more quantifiable level, Sicilia says, the fund’s cash management, FX and securities lending programs overlayed with investment analytics are all running more efficiently and therefore delivering more profit to members.

On the future, he says: “It’s inevitable that issues will arise. The question is whether our partners will do the right thing and fix whatever goes wrong.”

From Citi’s point of view, working with HostPlus has been a fantastic example of what can be achieved when clients and custodians work together to innovate and create benefits for members, according to David Edwards, Citi’s director of sales.

He said: “HostPlus is the ideal super client – an organisation willing to look past our lack of super fund experience and assess us on our capability, commitment, strategic outlook and partnership approach.”

Citi has invested heavily in its custody business growth, which has meant a lot of resources going into the HostPlus transition process.

Martin Carpenter, Citi’s head of securities services, said: “We were able to ensure we had the right service model from the outset which has also allowed us to deliver the best global innovation to HostPlus. The fund is a real leader in the industry and we are excited to see where this partnership will take both organisations.”

– Greg Bright

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