Megafunds are set to control trillions in member savings, but there’s still more questions than answers about the future direction and shape of the superannuation system.
The circa $350 billion AustralianSuper has appointed its first chief liquidity officer to drive the development and implementation of its liquidity strategy as it tries to “get ahead of the curve” of risk management across its portfolios.
Why the Great Southern Land is custody’s land of opportunity
Speaking with visiting executives from the international custody banks, you always get the feeling that Australia might be one of their favourite places in the whole world. It’s not just that the weather compares favourably to say, New York or Boston, but that our highly sophisticated pension fund market is to them a source of endless fascination – and opportunity.
“We like the dynamics and the size of the market,” Patrick Colle, the global head of BNP Paribas Securities Services (pictured), tells ISN. “It’s the fastest-growing pension market in the world, and very sophisticated in the way it manages assets and data… Some of our closest and most innovative client partnerships are here in Melbourne – It’s really telling.”
A good thing too. Because as the super funds get even bigger and wander further from home they’ll require more and more from their custodians. It is, after all, those custodians that will provide them visibility over assets in the far-flung locales, or help them better understand (and reduce) risky exposures when geopolitical tensions flare.
And that means the antipodean securities services divisions of the big custody banks will become increasingly important to the global businesses they sit inside of, essentially acting as the local mouth of an international sales funnel aimed at asset owners that will – in the next 15 or so years – control as much as $1 trillion apiece.
“We’re talking more and more about how we can support them, not only on the custody side but as a bank; things like private capital come with financing needs,” says Franck Dubois, the APAC head of BNP’s securities services division. “Clients are looking for a one stop shop. When we talk with big asset owners and pension funds, we talk to them with a full suite of solutions that custody is just one part of.”
But the size and sophistication of the super fund market also make it the perfect “laboratory” for new asset servicing solutions that BNP can then scale and export around the world. Many of those solutions are tailored for specific clients and revolve around data, which funds need more and more of as they grow and internalise and which they’re getting either by breaking open the silos it languishes in or taking a magnifying glass to what they already have.
“Some of these things are running live in Melbourne, but they’re not yet scalable. We need to move from a very innovative data management experiment – a live experiment – to an industrialised version. And that’s the version we’ll export to asset owners and sovereign wealth funds in Asia, America, the Middle East and Europe.”
Those local innovations feed into a model that BNP and other custody banks are pursuing that Colle calls “master data custodian”, with the custodian aggregating and digesting not only information from the fund and its external managers, but many different providers beyond them – accounting firms or other specialist service providers.
“Everybody’s investing in that space,” Dubois says. “But not everybody is doing the same thing; some bundle this with their front-to-back solution or investment tools, and some are trying to build a solution that’s agnostic to any front-to-middle tools.”
There are, of course, plenty of more mundane reasons for BNP Paribas to like Australia. It’s recently become a much hotter market for mandates with the exit of NAB Asset Servicing, and BNP has done well for itself out of that, nabbing Insignia Financial from the jaws of J.P. Morgan. But there’s likely more to come.
“We particularly like the Australian market,” Colle says. “It has all the ingredients we like… and we have a nice prospect of further improving our position in it.”
