Middle-office outsourcing and providing services for passive investing will be a key battleground for custodians, according to BNY Mellon’s asset servicing head.

Custodians are seeing new demands from asset managers clients that have shifted their investment strategies from active to passive investing, such as exchange traded funds (ETFs). This has resulted in custodians, such as BNY Mellon, creating new alternatives investment services divisions to meet this demand.

“For asset servicing, as clients shift to passive investing and look at their technology stack, that is creating opportunities in outsourcing in new assets classes, such as hedge funds, private equity, real estate and ETFs,” said Samir Pandiri, chief executive of asset servicing, BNY Mellon at Sibos 2017.

Under Pandiri’s leadership, BNY Mellon has stepped up its capabilities in servicing passive fund managers and increased its recruitment drive in the sector. It most recently promoted Chandresh Iyer as its new CEO of alternative investment services.

It also hired Jeffery McCarthy into a newly created ETF leadership role, and Rob Rushe as a European ETF executive. Rushe joins from State Street where he was previously EMEA head of ETF fund servicing.

BNY Mellon has also expanded its middle-office outsourcing services, which Pandiri said will be another key battleground for custodians to compete on going forward.

“One battleground is on the passive side, another is in middle-office outsourcing and that will create a lot of opportunities,” Pandiri added.

Middle-office outsourcing is increasing, with more custodians and asset service providers taking on more mandates in the face margin pressures from asset managers.

A recent survey at an event hosted by SS&C Technologies showed that between 70-80% of clients had moved towards some type of outsourcing their middle office processes.