The industry is seeing a wave of new utilities to meet tough new rules on collateral, however in an overcrowded market, Darwin’s theory of “Survival of the Fittest” could come into play.
With centralized clearing in Europe for buy-side firms set to come into force in 2016, and international margin rules for uncleared derivatives, for many asset managers, collateral managements a completely new task, and an enormously complicated process.
This has led to a huge rise in the number of collateral management utilities being created, not only from banks and custodians, but also from software vendors, commercial ventures, and equity-backed start-ups.
However, according to David Fields, founder and managing director of The Field Effect (TFE), a clearing and collateral management consultancy, survival of the fittest could come into play.
“I liken it to an ecosystem with a real accelerated evolution; so some of the new species of outsourcers won’t survive, others may fall at the waist side, some may have a great offer but are not commercially viable etc.,” says Fields.
The wave of different utilities could also pose several headaches for asset managers, particularly those that are new to collateral management.
“With lots of new providers it’s difficult to know who will still be there in three years’ time. In some ways, it’s probably more difficult to make that choice than in a mature space where there are established providers and their abilities are well known,” says John Thompson, COO, Zurich Investment Services. “I will be more nervous betting in the new space than in the mature one.”
Editor’s Note: Global Custodian will have a more in-depth article in the Spring magazine on outsourcing collateral management to a utility.
'Survival of the Fittest' for Collateral Management Utilities, says Consultant
The industry is seeing a wave of new utilities to meet tough new rules on collateral, however in an overcrowded market, Darwin’s theory of “Survival of the Fittest” could come into play.