“It is hard to be completely revolutionary in custody,” says Nick Rudenstine, global head of custody and fund services at J.P. Morgan. “Everything is an extension; everything is about safekeeping the assets, servicing the assets, reporting on the assets, and then the edges of that set of activities grow ever outward—partly because of regulatory change and [because] of capital markets innovation.”
While custody may not be evolving rapidly, J.P. Morgan is approaching the future with a focus on technology, making investments now in the hopes that the improved capabilities will provide a better experience and value for clients.
“I would say the big areas of investment for us tie in largely to what we think of as a value proposition for clients across Investor Services (IS) within the Corporate & Investment Bank (CIB),” he says. “So we’re focused on a couple of big chunks that we think are going to make a big difference in how clients run their own businesses. One of those is reporting. We have a good set of reporting capabilities today and we believe our offering is highly competitive, but we’re investing in an integrated front end for clients that captures all the IS activities and also extends out into the CIB. Whether you use a lot or not very much of our products and services, we want it to be easy to see the range of activities that you do with the firm. Some of that is on the front end—figuring out what the right dashboards are—but over time we’re going to drive that back into the systems, so people can transact more easily. It’s a holistic experience for the client for whatever they’re doing with J.P. Morgan.”
And in addition to creating to new types of offerings, the firm is investing in upgrading their systems to meet modern demands.
“We’re doing a lot in terms of core processing efficiency. There is a significant investment in the basic infrastructure of the business,” says Rudenstine. “Some of that is generational upgrades…About three years ago we embarked on a program to rebuild the core custody infrastructure. We’re in the midst of that now. We think that will deliver a ton of value to clients—partly because the next generation will allow us to turn product development around much faster, and partly because today’s technology obviously is much more flexible.”
Aside from technology, the firm is also focusing on working with clients who are interested or ready to set up funds such as Luxembourg. In addition to the usual locales, the firm is also preparing for the possibility of an offshore fund center emerging in Asia such as in Hong Kong or Singapore. “Does that come about? Some people say yes, unquestionably. Some people say it will never happen,” he says. “If it does come together, I think there would be an enormous shift in the market. Think about the pools of capital in Asia and the folks out there who could be interested in buying those funds. There are some big strategic questions. We try to stay ahead in terms of investment, but also in terms of talking to clients.”
Rudenstine also sees opportunity in Asia for a trend already under way, tying in to their investments in technology. “Some of the very large asset owners are in-sourcing asset management in Asia—a trend that could grow,” he says. “As they do that, they are looking to their custodian providers to support them through middle-office, help to get organized so that they can take on that new activity as seamlessly as possible. That also requires more reporting and different kinds of reporting, which is an area we think is interesting.”
Technology is also likely to tie into asset owners’ more complex portfolios going forward. “As people hunt for more yield through the cycle, we’re going to see a larger number of entities with a broader set of asset classes that they invest in. For us that means we have to continue to ensure that our bandwidth, capacity and systems are able to facilitate the clients process and service that broader range of asset classes.”
But whereas BNY Mellon’s Tim Keaney was vocal in last week’s Future of Custody series that custodians aren’t charging enough for their services, Rudenstine is less revealing about whether these changes mean that J.P. Morgan will reprice their services.
“We are focused on pricing appropriately for the bundle of products and services that our clients purchase; it is determined by what that bundle looks like and what the total scope of activities is,” he says. “It may or may not mean we have to reprice some activities. It is really taking a look at the total economics of whatever the bundle is for that client.”
Regardless of what the pricing will look like in the future, Rudenstine is confident that the custody business is a viable one, despite the challenges the industry has faced in recent years.
“We will continue to see that there is a huge amount of value in the core business. I think that was the case and will continue to be the case.
“There was a lot of news about the demise of securities lending and the end of foreign exchange as a source of profits. For the shops that are well managed—meaning they invest heavily and have good expense discipline—I think the fluctuations in the securities lending business and FX business were noticeable, but it wasn’t franchise altering. Now, people are coming back into the market. We continue to feel like the core business is a great business…I don’t see that changing.”
The Future of Custody: J.P. Morgan's Nick Rudenstine on Investing in Technology
While custody may not be evolving rapidly, J.P. Morgan is approaching the future with a focus on technology, making investments now in the hopes that the improved capabilities will provide a better experience and value for clients.