no longer ‘why did you do it?’ or specifically for insurance in ‘did you pay too much?’ It is, ‘how EMEA.” much is this propelling revenue growth?’. Now we are showing Collaboration and regulation them what is occurring because of Along with increasing revenues, THE ALPHA BET: front-to-back.” reducing costs is also on the mind Investment Servicing mandates of many custodians, and the notion announced during the quarter of collaboration to achieve that totalled $249 billion, with goal is once again picking up pace How State Street is approximately one-third of wins within the industry. driven by State Street Alpha. The Speaking at the recent virtual custodian added that quarter-end Sibos 2020 event, panellists from servicing assets remaining to be across the securities services silencing the doubters of its installed in future periods totalled spectrum highlighted that utilities $486 billion. have been proven to reduce costs O’Hanley says that virtual and can add value to the rest of meetings haven’t slowed the pace the industry. They highlighted Charles River acquisition of Alpha’s new mandates, and also how the utility model could be added that the offering is taking off used as a way to mutualise costly, with asset owners and sovereign Ron O’Hanley, CEO, State Street unprofitable functions despite wealth funds, in addition to its years of failure to bring a solution Two years after the $2.6bn acquisition of Charles River, State Street CEO Ron asset management clients. introduced services – including front-to- to market. O’Hanley tells Global Custodian that the asset servicer’s front-to-back strategy is back offerings. State Street, like many of “We think this focus on cost and speed, Starting a trend its peers, appears to be faring well despite often times they are one and the same, will paying off, and also discusses growth areas, competition and collaboration. Since State Street’s acquisition of Charles the headwinds created by the pandemic. be unrelenting and it’s on all of us to do River in 2018, its custody rivals – Citi, JP Among its highlights have been new what we can to lower that cost,” O’Hanley Morgan, Northern Trust, BNY Mellon and deals, regional expansion, and success adds. “I think the move to digital assets BNP Paribas Securities Services – have in the exchange traded fund (ETF) asset will also help that too. Less about moving “If I were them, I would have had the same and while the intentions were clear, Management – while we were told each signed their own variation of an servicing business line. the asset itself and more moving the concerns, it was an extremely dilutive deal the industry hardly saw a slew of deals that a handful of other mandates had alliance with BlackRock’s Aladdin business O’Hanley explains that there is still record around.” to shareholders,” says State Street chief announced in the first 12 months. been won, but not disclosed. Then, in in response to the trend. room to grow both regionally and in terms He continued by challenging regulators executive Ron O’Hanley, referring to the “What we saw happening from within State Street’s third-quarter results, the Each custodian is looking at front-to- of clients, such as insurance companies to intervene in order to increase the critics who questioned the custodian’s almost a quarter of us acquiring Charles custodian announced – very high up on back offerings with an open architecture where it recently partnered with SimCorp efficiency of some processes, giving the purchase of Charles River in 2018. “But River and conceptualising the Alpha its presentation – that Alpha had been model for maximum benefit. However, to deliver a front-to-back service for them settlement times for syndicated bank loans what is playing out, well, it’s going just as platform – because in 2018 it was just a responsible for one-third of new mandates State Street has always been adamant that in Europe. as an example. O’Hanley explains that we all internally believed it would.” concept – was the pipeline started building won over the past three months. its ownership of the front-office aspect of “For us, we have a global footprint, in some market process changes are beyond It was 20 July 2018 when State Street and we were doing a lot of development,” Its recent deal makings during the third the offering sets it apart. terms of our room to grow we see lots of the power of one single organisation. announced it would buy front-office adds O’Hanley. quarter included mandate renewals with “They can talk all they want about their room in Europe, there are still entrenched “I do think one of the things that might order management system provider “The pipeline was getting bigger with US asset manager William Blair, insurance various partnerships, but nobody can European competitors that we feel we can be required at some point to move things Charles River for $2.6 billion. The move every quarter, and sure enough, what you firm Protective Life, and Aberdeen actually put it all together,” says O’Hanley. go head to head against, just because we’re along will be some regulation,” O’Hanley was questioned by analysts from both are seeing now is that these mandates Standard Life. “It’s not to say that everybody is going bringing better capabilities,” he explains. says. “Think about what the authorities a strategy and price perspective, with are coming to fruition and we are able to On top of that, O’Hanley tells Global to want it put together, but to have that “Similarly in Asia, we have a footprint and various regulators have accomplished criticism and scepticism showing both in announce them. Custodian that we can expect even more optionality and having that platform there already, and it’s about 15-20% of our in terms of lowering settlement times for the media and the custodian’s share price. “The big difference between this and impressive figures in the next three built with that mindset of front, middle, investor servicing revenue; we tend to be equity trades, it was five days, but there The move, which saw one of the sleeping a typical custody mandate is obviously months. back, reused, is entirely State Street. It’s focused on a relatively small number of hasn’t been that same push in other asset giants of the M&A world come out of the length. People are saying ‘why is this “This is a big development year. So just a different and more comprehensive large institutions. As we’ve got capabilities classes. hibernation to make the deal, sparked a sales cycle so long?’ and my answer would far so good, and the biggest quarter for offering.” on the ground, we can move to the next “Traded bank loans can take 18 business movement among its peers and also the be that this is not a typical sales cycle. deliverables is the fourth quarter,” he State Street’s overall revenues are defying tier which today are typically served by days to settle. There’s always someone start of an ambitious new strategy, one There is a fair amount of problem solving explains. “From a pure deal synergy predictions of a tough year for securities the large regionals and we think we’ve making money off that, the same way which has come to fruition two years later. and work shopping that is underway, perspective and what we said we would services providers. The custodian built on got a better proposition. The good news is someone was making money off equity As the traditional custody model has because in effect, we are outsourcing or deliver, we are exceeding what we laid out similar results from the second quarter as that the product has universal application, settlement taking five days as opposed to evolved, asset servicers have moved consolidating ops and technology that back in 2018. But more importantly, we are assets under custody and administration so it’s not like we have to do something three. For regulators to basically say that from the back-office, to the middle and resides and injecting new stuff. It’s not like positioning ourselves for the ability to shift (AUC/A) rose 11% and asset servicing different. for some of these instruments they are not now all the way to the front, to meet buying a car and checking off a list of all our strategy and not to move away from income rose 2.3%, both year-on-year. “The place where that’s less so is in going to tolerate those kind of settlement all the needs of their respective clients. the options you want, it’s figuring out what fund servicing but to add to what we can Following the outbreak of COVID-19, insurance, because that tends to be periods, that would force innovation. Underpinning the ambitions has been an is going to change and what isn’t.” do in the front- and middle-office.” Oliver Wyman estimated that custody super-regional, meaning with the rules “We’ve run a blockchain pilot on offering combining data and analytics with As for how critics have altered their view, revenues would drop between 10-15% – there’s enough difference in them so syndicated loans, and it wasn’t just us, but the custodian’s traditional asset services. Big Q4 on the horizon O’Hanley says the tone of conversations during 2020, due to the reduction in the that you need to have a fair amount of it’s only going to happen if exchanges and State Street’s own version – Alpha – was Up until recently, only one Alpha deal has changed. value of assets under custody combined customisation in the product. That’s regulators back it and say ‘if you’re going created following the Charles River deal, had been made public – Lazard Asset “You can see it in the questions; they are with commercial pressure on newly why we signed the deal with SimCorp, to trade it, here are the rules’.” Reprinted from Global Custodian 2020. © 1989-2020 Tungsten Publishing Inc. All Rights Reserved. No reproduction without prior authorisation. For further information email [email protected] Global Custodian globalcustodian.com