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.
J.P. Morgan increases lead in custody share
Even though almost all asset services firms suffered declines in their assets under custody in Australia in the six months to June, J.P. Morgan managed to strengthen its position relative to the rest of the pack. It will increase this further soon when it implements the transfer of assets from new client CareSuper.
The latest market share figures from the Australian Custodial Services Association (ACSA) for Australian investors show J.P. Morgan assets under custody dipped 5.4 per cent, while numbers two and three – Northern Trust and Citi – were down by slightly less. The other majors were down by more, with the average decline across the 11 ACSA members surveys of 7.7 per cent in the six months.
As reported earlier this month, J.P. Morgan was awarded the custody contract from the $16 billion CareSuper, which will be implemented in the first half of next year, after a competitive tender overseen by Drew Vaughan of Dymond, Foulds & Vaughan. There are bound to be more tenders next year, though, because of all the proposed fund mergers. For instance, BNP Paribas is pitted against State Street for the merged Australian Catholic Super and NGS Super, which will become a $21 billion fund. Of course, someone new to both funds could also be the winner.
Rob Brown, ACSA’s chief executive, said the fall in total assets under custody was largely a result of market valuation impacts. The spike in transactions reflected the level of activity by underlying institutions adjusting their portfolios in response to the COVID-19 pandemic. “According to a recent ACSA member survey, 82 per cent of asset servicing professionals are working from home. At the same time, we have witnessed record volumes of transactions in the market. Despite the obvious challenges, there has been minimal disruption to service provision,” he said.
“Although our industry is highly automated, there are exceptions. Asset servicing providers have needed to adapt to the social distancing and movement restrictions under public health orders, and this has created challenges for handling physical documents. Mail room and vault access, support for transactions that require wet ink signatures and physical cheques all triggered changes to process for custodians, registries and other key players in the service chain”.
A full copy of the statistics can be found here:
– G.B.
