Aassets under custody for Australian investors grew in 2013.

The Australian Custodial Services Association (ACSA)  released its half yearly industry statistics showing continued growth in Australia’s custodian and administration sector.

The latest research from ACSA – the peak industry body for Australia’s custody and asset administration sector – revealed total assets under custody for Australian investors grew by 6.7% to $2.16 trillion for the first half of the year to 30 June 2013.

Every major player in the custody market saw an increase in Assets under Custody during the six months, largely driven by a rising global and local market.

Helped by the falling Australian dollar and rising global equity markets, the period also saw continued strong growth for non-Australian assets under custody for Australian investors (up 10.2% to just over $600 billion); with Australian Assets under custody for Australian investors also rising strongly (up 5.5% to $1.56 trillion).

Australian Assets under Custody for foreign clients (sub custody) rose only 0.1%; reflecting slowing foreign appetite for Australian assets as the commodity boom slowed and interest rates were cut to historic lows.

Published biannually, the industry statistics show the size of assets under custody and administration in Australia – largely reflecting Australia’s growing superannuation and institutional investment base. As well as providing insights into settlement transaction volumes, the statistics are a league table of major custody, sub-custody and asset administers in Australia, recording major mandate wins and losses.

A closer look at the numbers

Local player NAB Asset Servicing retained its position as the largest overall player with $556 billion in total assets under custody for Australian investors (up 2.2% for the six months), followed by J.P. Morgan ($394 billion, up 5%) and BNP Paribas ($313 billion, up 5.7%).

Citigroup recorded a 21% increase in total assets under custody to $213 billion, reaching 10% market share

The other big mover over the past six months was Bond Street, with asset growth up 31% to $63.7 billion.

Total local assets held under custody increased by 5.5% over the past six months with NAB Asset Servicing, BNP Paribas and J.P. Morgan the leading holders of Australian assets under custody.

J.P. Morgan remains the largest custodian of non-Australian assets for Australian investors ($137 billion, up 25.8%), followed by State Street ($87 billion, up 2.8%) and Nab Asset Servicing ($86 billion, up 15.8%).

HSBC Bank remains the dominant sub-custodian in Australia with $576 billion in sub-custody assets.

Assets held under administration (not held in custody but administered by custodians) were up 14.5% to $245 billion. BNP Paribas took top spot as the largest administrator in Australia with $407 billion in assets under administration, followed by NAB Asset Servicing ($369 billion) and State Street ($208 billion).

Click here for a copy of the latest ACSA custody industry statistics.

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The research from ACSA – the peak industry body for Australia’s custody and asset administration sector – showed stronger growth in non-Australian assets under custody (14.5%) compared to Australian assets under custody (6.7%) for Australian investors. 

Australian assets under custody for foreign investors (sub-custody) also grew by 13.5% indicating a strong rebound in local markets and global demand for custody and administration services.

Published biannually, the industry statistics show the size of assets under custody and administration in Australia – largely reflecting Australia’s growing superannuation and institutional investment base. As well as providing insights into settlement transaction volumes, the statistics are a league table of major custody, sub-custody and asset administers in Australia, recording major mandate wins and losses. 

Mr Pierre Jond, Chair of ACSA, said players in the custody and asset administration space were seeing renewed confidence from their institutional clients such as asset managers, insurance groups and superannuation funds. 

“The latest ACSA statistics show positive broader market sentiment and strong growth across the board in the custody and administration community,” Mr Jond said. “The current data and industry feeling is that we will see sustained growth in 2013 rather than a temporary rebound,” he said.
 
Key players 

Local player NAB Asset Servicing remains the largest overall player in the custody market with $554 billion in total assets under custody for Australian investors (up 1.0% for the six months), followed by J.P. Morgan ($376 billion, up 11.8%), BNP Paribas ($296 billion, down 6.6%). Both Citigroup ($177 billion) and State Street ($171 billion) saw significant growth of their total assets under custody of 40.5% and 56.1%, driven by operational insourcing and client acquisitions.

Total local assets held under custody increased by 6.7% over the past six months with NAB Asset Servicing, J.P. Morgan and BNP Paribas the leading holders of Australian assets under custody. 
J.P. Morgan remains the largest custodian of non-Australian assets for Australian investors ($109 billion, up 13.6%), followed by Northern Trust ($86 billion, up 7.0%) and State Street ($85 billion, up 150.3%). 
 
HSBC Bank remains the dominant sub-custodian in Australia with $571 billion in sub-custody assets. 
 
Assets held under administration (not held in custody but administered by custodians) were down 10.5%, as low cash rates drive investors to move cash and fixed income assets into equity markets. NAB Asset Servicing remains the largest administrator in Australia with $379 billion in assets under administration, followed by BNP Paribas ($357 billion) and State Street ($182 billion).

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City Super, the superannuation fund for current and former employees of Brisbane City Council, has appointed J.P. Morgan Treasury & Securities Services (TSS) as custodian and administration provider.

Bryan Gray, Head of Treasury & Securities Services Sales and Client Management said the new $1.5 billion mandate further strengthened J.P. Morgan’s position in the investment and administration sector.

“Although custody and administration is increasingly becoming a scale driven business, clients are continually seeking tailored solutions. As a provider, we are constantly looking for ways to meet these needs and believe this was a determining factor in winning the mandate,” he said.

City Super has already announced it will merge with an existing client of J.P. Morgan, Local Government Super (LG Super), on 30 June 2011 and therefore will require an investment administration provider with a strong transition management offering. J.P. Morgan was able to demonstrate its substantial experience in executing large scale transition management projects, including those driven by fund mergers or by major changes to a fund’s asset allocations.

Our previous experience with fund mergers definitely worked in our favour, as we could show real world examples of our discipline in this area. With industry consolidation expected to continue, J.P. Morgan’s fund merger experience will continue to position us as a leading service provider,” Mr Gray said.

Once the two funds are merged, J.P. Morgan will also look at ways of optimising the custody and administration process.

“We are currently in discussions with LG Super and City Super to find ways to optimise the custody and administration offering. We are committed to ensuring our services are the best possible fit for the new fund including providing tax propagation, currency overlay and securities lending services,” he said.

The mandate win reinforces J.P. Morgan Treasury & Security Services’ commitment to the Australian & New Zealand market after hiring more than 100 additional employees during 2010, many in senior positions. The hires were not only in line with increased growth expectations but also to better service existing clients.

“Our prospects in 2011 are strong and we have the right team in place to continue the growth we have seen locally and in Asia Pacific. We will continue to develop strong partnerships, elevate our client service offering and enhance our range of market leading products,” Mr Gray concluded.

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Opening the annual ACSA conference in Sydney today, themed Investment Opportunities in a Rebalancing World, ACSA Chair Paul Cutts said Australian institutions while enjoying improved investment conditions continued to face a significant change agenda.

“Institutions and indeed economies around the world are rebalancing as markets seek new equilibrium. Regulatory change, especially in Australia’s superannuation and tax policies, is an additional source of challenge, as will be the likely entry this year of at least one new securities exchange to the local market. ACSA expects that the custody community will be working closely with institutional clients to reshape business models and increase efficiencies in response to these shifting priorities,” he said.

At the same time, institutions are facing other, sometimes competing factors, including growing attention to after tax returns, monitoring and management of risk and improved transparency.

“All these factors are testing the suitability of existing operating models and sometimes the boundaries between internally managed and outsourced services. While we expect to see improved efficiency through the industry’s ongoing commitment to standards and automation in key areas of investment infrastructure, at the same time the needs of our clients to differentiate and to adapt to external change imply demands for new and extended services,” said Mr Cutts.

“The constantly changing information requirements of clients are an area where custodians can add value. For instance, environmental and social governance information is becoming a more prevalent theme. Clients are constantly looking for more detailed, accurate and timely information to aid their decision making process,” he said.

ACSA also released today an update on key industry statistics. The past year witnessed further growth in the industry with total assets in custody now $1.85 trillion as at December 2010, up nearly 8.5 percent from the end of 2009.

In highlighting achievements of the Association in the last year, Mr Cutts referred to the proactive work undertaken by ACSA in 2010 to consult with the Board of Taxation on the implementation of a new tax system for managed investment trusts. He also mentioned the significant level of engagement expected within the custody industry arising from the entry of an additional securities exchange later this year.

In explaining ACSA’s approach as an industry body, Mr Cutts observed “ACSA will maintain a firm core philosophy of, on one hand, working enthusiastically with policy makers to share opinion, experience and ideas; and on the other, to pragmatically embrace change with a clear line of sight to the needs of end investors.”

“Although the Australian custody industry is highly competitive, it is a testament to the professionalism of ACSA members that we can work together as an Association on the raft of common issues that matter to members and benefit our clients,” Mr Cutts concluded.

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