What do you believe are the most important traits and capabilities in an asset servicing partner for superannuation funds in 2022?
The super funds industry started 35 years ago, managing AUD$41 billion of assets and that has now grown to a staggering AUD$3.5 trillion in Australia. As assets under management have grown, so too have the needs of superannuation funds. These funds employ investment strategies that are increasingly global and span a wide range of asset classes managed both internally and with third party managers. They require services and expertise beyond traditional safekeeping and a strategic partner who is looking to nurture and grow their business.
I believe there are three important traits and capabilities: the ability to deliver scale and efficiency, the ability to support the fund’s strategic growth agenda and the ability to deliver actionable and timely data insights.
How do you think regulation and a consolidating superannuation fund space impacts how they view – and what they require from – custodians?
We are witnessing the biggest changes in the superannuation industry that we’ve seen for a long, long time. We are now all living in an environment of heightened regulation.
Superannuation for the most part is the second largest asset Australians own. They most probably have their home, and then it’s their superannuation funds, so it’s completely understandable that the superannuation industry is facing increased regulatory scrutiny. It’s really important then, that as a partner, we support our clients and work through these changes. There are greater demands on reporting and information, so as a custodian we support that through data and information.
Merging two businesses, whether it’s a super fund or a small corporate or multinational, is never going to be easy. Bringing two companies together is just the start of a story as you work through merging what might be complex operational models, teams and of course the cultures that different organisations bring.
Our most important role is to keep the transition moving and take care of the operational burden, to make it as seamless as possible.
At JP Morgan we were early to identify the importance of mergers and have a separate team solely focused on mergers and transition activity. We have supported a considerable number of mergers in the past 12-24 months and the model we have in place has proved to be very effective, with those transitions being recognised as very successful.
Early on, to have dedicated separate resources as a team working collectively and not being distracted by BAU activities or any other projects was so important. There’s one large client we have who has gone through a number of mergers and that team has rolled on to do the first, second and beyond, leveraging their in-depth knowledge and experience.
If the number of super funds continues to shrink and there’s a swell at the very top, how do you see the custody landscape shifting? Will there only be space for a handful of custodians?
Earlier in the year we saw some global players come together. As the industry consolidates there are going to be fewer service providers required to service the market. It’s a time-will-tell scenario, but just the size of the assets, growth in AUC and activity means there will still be a natural need for custodians.
When a merger takes place, is it as simple as going with the larger fund’s incumbent custodian?
Merging two businesses is never easy and comes with a lot of challenges, and to some degree, uncertainty. It would be naive to assume the merging entities would opt for the largest fund’s incumbent custodian. When it comes to evaluation, funds are looking at the strategic fit, so they need to go through a full evaluation process, also looking at the value adds and cultural fit.
How strong is the ESG trend among super funds and what is JP Morgan doing to cater for this demand?
ESG is increasingly prevalent among the superannuation funds; you just have to look at the current state of affairs to understand that climate, energy and the Russia/Ukraine conflict are all having considerable impacts on global markets.
The Australian super funds collectively hold one-third of the ASX listed companies (as of June 30, 2021) so many funds are using their influence to drive a more sustainable agenda.
Data is a good topic that comes up all the time and clients are wanting more frequent, more timely data and that’s the demand that we are seeing. A lot of our super funds are focused on getting the right data for ESG. It is a significant agenda item and there’s always the ongoing demand to get insights real-time into their investments and what their strategic partners are doing as well.
Your annual survey showed funds are facing a war on talent – and along with realising the importance of data and technology – could these trends lead to more outsourcing?
The competition for talent in Australia remains really fierce with the top firms really looking to attract talent. We continue to focus on our people, our most valued asset.
We believe there’s a place for outsourcing and internalisation. According to our recent Future of Superannuation report, almost two in three funds believe that the insourcing investment trend is being driven by cost reduction.
We have some funds that are focused on insourcing, but then other funds have a very different view. What is really common across both sides of the fence is that asset owners are evaluating the best operational models and how to drive efficiencies for their members, but also reduce cost and risk. Ultimately, there’s a common goal among everyone: efficiencies, looking at operating models and reducing costs.
Global Custodian’s superannuation fund special, produced in partnership with JP Morgan, will be available digitally from 11 July for subscribers. If you would like further information please get in touch with subscriptions@globalcustodian.com.