In December 2013, Citi formed a new unit following the realignment of its prime finance, OTC clearing & futures divisions, along with parts of its securities and fund services business, combined under a new single business line called Investor Services.
The business was created across four broad pillars: traditional fund services including accounting and middle office; global custody and alternative investor services; prime finance including securities lending; and futures & OTC clearing. Against that background, the bank has been trying to simplify the organization construct for institutional clients so that they have a single touch point into the organization and a broader suite of capabilities available to them as a result. The sales and client facing teams span across all the pillars to provide a single point of contact.
Citi says the reorganization would place the bank in a better position to provide a more efficient and integrated offering to its clients who are facing many challenges in an increasingly complex industry landscape.
One of the clients’ challenges, says Sanjiv Sawhney, head of global custody and alternative investor service, is that they are looking at ways of generating more alpha, as well as a better and more predictable returns for investors. “The market dynamics are proving more difficult than a few years ago,” he says. “A key theme we are seeing with asset managers is the need for more direct access to local market information, as they try to keep very close to what is happening globally, and in order to quickly and effectively adapt their investment style and product offering based on how the landscape is changing.” To meet this demand, Citi leverages its proprietary custody network in 62 markets globally, to provide access to on the ground knowledge and real-time information around local developments.
Secondly, notes Sawhney, regulatory change is impacting clients in every region. “While the end context of these changes are similar, the way they are being interpreted and implemented in certain markets is often different. To that end, clients need an increased level of support to effectively navigate the regulatory environment across jurisdictions,” he says.
“In terms of regulatory changes, we continue to upgrade our capabilities on many fronts, including what we have done with our derivative servicing capabilities, collateral services and depositary bank capabilities for AIFMD or UCITS V. It is about ensuring we continuously upgrade our infrastructure to meet client’s needs.”
The reorganization aims to deliver value where regulation is driving client demand. For example, with AIFMD, hedge funds are responsible for appointing a depository. “A fund needs to appoint service providers including a depository, a fund administrator, a prime broker, a custodian/ sub custodian, and an OTC clearer,” says Sawhney. With our new structure, Citi can tick those boxes and offer a plug and play approach, or an end-to-end solution across the full value chain.”
Thirdly, Citi is living up to the transparency demands that end-investors are placing on asset managers, including the demand for data on investment styles, fees and performance. “Investors are asking the asset managers for more transparency and that has a cascade effect on service providers who need to support that need,” says. Sawhney.
And fourth, the regulatory change is forcing asset managers to look at their costs, and in some cases relook at their distribution approach.
“They are reviewing options of selling cross-border products into multiple countries, or of setting up local products in different markets, for example using an Asian passport versus UCITS,” says Sawhney.
“A lot of our clients are also setting up operations in multiple markets around the world. We can support them in the local language and time zones to help them extend their reach and business.”
Citi is also continuously looking at what it can do to become more optimal on the service it provides. “Investor Services is a very operationally intense business,” says Sawhney. “We started the journey some years ago to optimize that through moving some activities to scaled, low-cost domiciles and more importantly to add value to clients to provide a 24/7 servicing capability.
“We have sufficient, but finite, resources, and need to find ways of servicing clients more efficiently. As a technology driven business, we need to ensure that our infrastructure is top class and continuously optimized so if we consolidate at the back end we can invest more effectively.”
“The idea is not having one team working 24/7 but rather leveraging our global footprint, and sharing industry leading platforms across jurisdictions. For example this allows us to support a Luxembourg or Jersey-domiciled fund where the fund manager is in California and selling products in Japan.”
To address the globalizing nature of client’s businesses, Citi’s integrated custody and Network 3.0 platform looks to collapse the global and local infrastructures, thereby providing a single and flat custody window across multiple global markets. “This gives our clients more timely and accurate information and direct access into our local markets,” says Sawhney.
The integrated custody infrastructure leverages Citi’s focus on the continuous improvement of its custody platform. “We are committed to having industry leading technology,” says Sawhney.
Going forward, Sawhney believes a successful service provider will be one which can put themselves in the client shoes, focus on services that add most value to them, provides answers to their challenges and helps grow their businesses.
“Consistent focus and efforts on building the optimal operating model and platforms to help clients grow their business is what is going to make a successful service provider. Obviously you need to have the basics right – you have to have the appropriate settlement rates, ensuring NAV timeliness, meet regulatory changes: those are givens. The winning players will be those who can provide the right scale, level of partnership as well and the subject matter expertise in global markets.”
The Future of Custody: Sanjiv Sawhney on Citi’s New Investor Services Group
In December 2013, Citi formed a new unit following the realignment of its prime finance, OTC clearing & futures divisions, along with parts of its securities and fund services business, combined under a new single business line called Investor Services. Sanjiv Sawhney talks to Global Custodian about the driving force behind the reorganization and why Citi is now better-placed meet the requirements of institutional clients’ as they face off to the many challenges in an increasingly complex industry landscape.