Sponsored by Natwest Trustee and Depositary Services
GC: How do you view the current trustee and depositary landscape when it comes to governance?
Mark Crathern: It’s at an inflection point, but we have a choice. Depositaries can simply respond to regulation and be along for the ride, and therefore arguably not give the best governance at the earliest opportunity to investors; or can shape it. I’d far rather be there shaping it, working with regulators and the fund boards to come up with best-in-class solutions that actually put protections around investors – including addressing the illiquid assets and daily dealing nature of those funds – to see if we’re going to bring some more orderly function into the market place and avoid the duplication that exists across the industry at the moment, thereby bringing better value and returns for investors.
It’s just a question of whether depositaries will be active or proactive. That’s where NatWest is aiming for, the proactive side. We’re not aiming to be the biggest; our ambition is to be the market leader in offering best in class governance and depositary services in the markets we operate in.
We’re going to need to break the mould where the bundled solution is perceived by many to be king in Europe and provide that independent lens in the same way as we do in the UK, where we’ve got many of the biggest fund managers as our clients. Ultimately, depositary becomes a meaningless cost to a business if not done properly. It’s about best-in-class governance at a realistic price to give clients and investors the best outcome.
GC: During your time at the helm of the business, what changes have you made to be proactive in providing best-in-class governance?
MC: A lot of depositaries do not appear prepared to proactively say, ‘invite us to the board’. We used to go to a board once a year if we were lucky. Now we go to pretty much all of our clients’ board meetings and we are given a voice in those meetings to talk about the challenges, thematics and efficiencies we are seeing. When we go to these board meetings we don’t just present and talk over facts, we provide them with insightful data. That transformation is really starting to gain momentum.
You have to bear in mind that what is cheapest and easiest for the fund manager isn’t necessarily best for investors. As INED’s have come in and seen what’s going on they are challenging the executives. The conversations are around whether a bundled proposition is still appropriate from a governance perspective. In the old days you would say it’s cheaper so it’s better for the fund, but that’s increasingly not the fashion today. Now it is about where you can get best-in-class governance, and asking, ‘Is my custodian or fund accountant making errors?’. You can’t do that months after the event when it’s too late, you have to do it in real-time and that’s the important part technology plays in the process that needs investment. That’s the investment we’re making at the Bank.
GC: Why is data such an integral part of what you’re trying to achieve?
MC: The aim is to go beyond regulatory reporting and provide independent insights that are complimentary to those the fund manager is producing to their end investor community. Having an independent lens on the verification of the reports investors are seeing is paramount – so it’s not just the fund manager’s version of ESG, liquidity or performance –there’s an independent partner that is verifying this data and standing behind the output.
One of the things we’re looking at is that the buy-side spends $9 billion a year on data and there is an awful lot of overlap. If you think about it from a fund manager perspective, they are getting reports from their transfer agents, third party administrators, fund accountants and custodians, but they don’t need to. They can get their report from their depositary as we are the central hub sourcing and reviewing all of that data.