J.P. Morgan Securities has renewed its relationship with Schroder Investment Management, and will provide fund accounting, OTC derivatives services and compliance reporting to the investment managers UK range of retail funds.
The initial relationship, named Project Symphony, collapsed in 2005. Project Symphony started in 2000, and contracted J.P. Morgan as the fund administrator and custodian for Schroders GBP75 billion UK assets. The deal was also one of the biggest of its kind at the time.
However, Project Symphony was known to be years behind schedule, and had become a source of friction between the US custodian and the fund manager. It came under rigorous scrutiny after Markus Ruetimann, the former head of technology and portfolio services at UBS Asset Management in London, took over as head of IT, operations and facilities at Schroders in 2004.
After five years, J.P.Morgan eventually ended the outsourcing deal, paying back GBP20 million to Schroders.
In an official announcement published in 2005, J.P. Morgan stated, “after a rigorous review, the firms concluded that their individual operating models are no longer sufficiently aligned to continue the investment operations outsourcing project effectively.”
After the termination of the UK outsourcing project in 2005, Schroders successfully completed an extensive three-year legacy system replacement programme in London in Q3 2008, and continued working with J.P. Morgan in other areas. According to Markus Ruetimann: Despite the discontinuation of Project Symphony in 2005, Schroders continued expanding its operational footprint with J.P. Morgan. The latter provides various administrative services, such as custody, fund accounting, fund administration, fiduciary services and securities lending for many funds and locations of Schroders worldwide.
The intervening years has given J.P. Morgan time to develop their outsourcing platform. Talking to GlobalCustodian.com at Fund Forum, Francis Jackson, head of business development and relationship management in EMEA for J.P. Morgan Worldwide Securities Services, said: Schroders saw clear operational benefits internally in having custody and accounting together. As a result they have given us a mandate that brings us full circle with Schroders. 2005 was a watershed, and we have come to a point where we see this as a stable and growing relationship.
I think that the outsourcing platform, particularly in relation to accounting, has particularly matured over the past four years, Jackson continued. What made Schroders choose us was that we could now truly scale the business, and provide a pricing point that was appropriate to Schroders.
In 2005, many in the business media, including GlobalCustodian.com, questioned the strength of the fund management outsourcing industry as a whole. But in 2009, according to Jackson: Schroders saw the large investment was are making in accounting and broader outsourcing platforms, and they recognized in this volatile market that it was more appropriate for us to invest in that infrastructure than them.
This ties in with Ruetimanns vision. Schroders follows a component-based sourcing approach in which it supplements specialist in-house teams with the functional capacity and technological capabilities of external providers. This approach aims to diversify operating risks, costs and external dependencies across all operating units of Schroders worldwide. Schroders’ operating model embraces four core hubs in London, Luxembourg, Singapore and Zurich, he explains.