Alan Brint, Head of Relationship Management, Corporate and Institutional, Royal Bank of Canada (Channels Islands), outlines changes in the custody business.
The global custody and fund administration industry is undergoing a period of profound transformation. In the past decade, custodians have evolved from their settlement and safekeeping roots to become full service providers of integrated alternative investments, performance measurement and analytical solutions - adding value to client relationships and increasing their relevance in the world's financial landscape.
Historically, one of the greatest challenges for a custodian has been to remain relevant to its clients, and to the marketplace. Those that did not innovate or adapt have tended to falter, exit the business or be acquired.
Today's custodians represent the development and maturity of an industry. The two primary drivers of changes in the custody market have been institutional clients demanding new solutions for a myriad of complex business issues, and the global custodian's need to diversify and expand its business mix away from core services.
There is very little competitive differentiation around basic custody services, so providers must continue to find new ways to add value to their client relationships. Value-added services are of critical importance to the development of long-term client partnerships.
Another indication of the industry's changing face is the extent to which custodians and their clients are working together in strategic, mutually beneficial partnerships. No longer relegated to backroom supplier status, custodians today have a seat at the table, helping to develop customised solutions that make their clients more efficient, effective and profitable.
Channel Islands-based custodians and fund administrators have also seen significant change in recent years. To remain in this evolving and dynamic industry, participants must demonstrate commitment to investing in both people and technology.
While technology is a vital component of any servicing arrangement, fund management remains a relationship business. For custodians and administrators, it has always been about listening to clients and understanding their business needs rather than trying to guess what they want or, worse, shoehorning them into a pre-existing service template.
A dedicated relationship manager is a prerequisite to ensure a one-face relationship on behalf of the administrator, custodian, or bank; corporate clients can benefit from the integration of all these services through a single interface. By avoiding the use of separate providers and finance lenders, clients can ensure that the service and reporting they receive is accurate and exactly what they require. Centralised client servicing brings core facilities together and raises the overall quality of service.
Royal Bank of Canada (Channel Islands) is seeing many of its institutional clients allocate between two and five per cent of their investments into hedge fund strategies, moving money away from traditional beta strategies into the alpha offerings of alternative strategy funds.
RBCCI is seeing sustained demand from alternative investment managers for a truly integrated custody, fund administration and banking credit/foreign exchange hedging capability. In addition, these service offerings are expected to be global in nature, spanning structures domiciled in the Caribbean, Europe and the Channel Islands.
RBCCI is focusing on servicing this niche through a relationship that combines flexibility and scalability with an intimate understanding of clients' special needs.