Celent estimates global custodians will invest US$12 billion through 2005 in order to finalize straight through processing initiatives, bolster their sub-custodian networks, and augment outsourcing capabilities.
In a new report “Global Custody Operations – Real Service or Lip Service?” Celent Communications examines the technology and operational initiatives undertaken by leading global custodians in order to position themselves as world-class contenders in the US$41 trillion global custody marketplace. Topics covered include: preparation for straight through processing, platform integration, workflow solutions, and Internet capabilities. In addition, the report looks at organizational changes being made to improve customer service and reduce staff turnover.
“By and large clients are pleased with the steps being taken by their custodians,” says Pamela Brewster, Celent analyst and author of the report. “In fact, asset managers have been so impressed by the upgrades in their custodians’ reporting and processing systems that they are increasingly outsourcing activities such as fund accounting and reporting.
According to the report, outsourcing represent a US$25 billion revenue opportunity. However, internal resource constraints and client control issues may dampen prospects.
Europe will be a major playing field for global custodians during the decade driven by a projected €5 trillion increase in European-based assets due to pension privatization efforts. Pan-European firms such as HSBC, BNP Paribas, and Deutsche Bank are well positioned to capture some of these flows. However, they will likely face competition from US-based custodians who will either acquire or form partnerships with smaller European custodians.
“With so many initiatives before them, perhaps the greatest challenge for global custodians will be the realization that they can’t be all things to all people,” adds Pamela Brewster. “To that end, we believe the leading custodians will make strategic decisions about the mix of services and products they offer and the clients they serve.”