State Street has been selected by the National Employment Savings Trust (NEST), the UK’s upcoming pension scheme for low-to-moderate earners, to provide a full range of fund administration, custody and related services.
Tim Jones, chief executive of NEST, said there was strong competition among administrators for the contract. Heather Tilston, a NEST spokesperson, would not identify the “competitors” but said eight, including “most of the major providers in the UK,” responded to a Pre-Qualification Questionnaire expressing interest in the contract; five were shortlisted by NEST and tendered bids.
Tilston said it was State Street’s impressive track record in fund administration that won it the contract.
Varying reports have stated the scheme is expected to grow to 100 billion to 200 billion in a few decades. However, Tilston says it is too early to place a figure on the scale of any potential custody assets: The government-backed NEST, one result of the UK Pensions Act of 2008 that requires employers to designate a pension scheme into which employees must be automatically enrolled, won’t launch until 2012. The eventual assets under management (AuM) will depend on the number of individuals who join the scheme and how much they contribute.
The UK’s Department for Work and Pensions expects contributions to increase by an additional 9 billion per year once automatic enrollment kicks in, although not all of that will go into the NEST fund.
For now, State Street’s main duty will be fund administration rather than custody. “Initially NEST will only utilize fund administration services as NEST will be investing in pooled funds,” Tilston says. “As asset values grow, NEST may require a comprehensive suite of global custody and related services for segregated assets in addition to fund administration.”
The 10-year contract is a big win for State Street, which has been embroiled in controversy with state-run pension schemes in the US recently. Last week, the custodian paid back $11.7 million to the Washington State Investment Board over a dispute on foreign exchange fees, and it is currently being sued by the state of California for $200 million in a similar conflict with the CalSTRS and CalPERS pensions. (For more on the California case, see “Conspiracy of Silence?” Global Custodian, Winter Plus 2010). Tilston would not say how, or if, the suits affected NEST’s decision to select State Street.
A State Street spokesperson would not disclose the fees the custodian expects to earn from the mandate.
According to NEST, the range of services State Street will provide include: processing investment data for each fund; administering a fund of funds structure; implementing and maintaining the asset allocation; calculating the net asset value and unit prices each working day for all funds; reporting unit pricing and unit transactions to the scheme administrator; trade settlement; daily reconciliations on fund figures; regular reporting to NEST Corporation; and providing custody services for NEST’s assets.
State Street will work alongside Tata Consultancy Services, which was chosen by NEST earlier this year, for administration of the scheme.
State Street provides administration services to at least 90 other pensions in the UK alone, including the schemes of 11 boroughs of London, according to a NEST statement. According to GC data, it has secured or renewed more than a dozen contracts in the UK in 2010, including five with AuM over 1 billion, more than any other custodian.
State Street came in second, behind Brown Brothers Harriman, in GC’s 2009 Global Custody Survey.