It's all about data. And for asset servicing firms, not only is the volume of data growing, but the complexity of that data is increasing too.
As institutional investors scour the globe for new and improved investments, they continue to land in alternative areas such as hedge funds, derivatives and private equity. While these investments might provide better returns than, say, stocks and bonds, they come loaded with more complex valuation schemes and complicated accounting requirements as well as more difficult trading and reporting trails.
"Our clients — both pension funds and investment managers — are trying to find new and different ways to invest, and typically they're investing in products that don't have a lot of transparency," said Serge Boccassini, head of global product development at Northern Trust Corp., Chicago. "People are investing in all kinds of derivatives — OTC (over-the-counter) and exchange-traded derivatives — and everybody's investing in hedge funds and private equity. People are also looking at real estate again."
As a result, asset servicers have been working feverishly to figure out how to get critical data from these types of investments to their clients. Most of them are enlisting prime brokers, clearing and settlement firms, as well as software developers and, in the case of private equity, general partners, to solve the problem.
Bo Abesamis, senior vice president at investment consultant Callan Associates Inc., San Francisco, said the firms are not equally competent at dealing with alternative investments and the added layer of information inefficiencies that accompany them.
"Custodian banks are adapting to reality not only to capture business opportunities but to bridge the intellectual gap," Mr. Abesamis explained. "They're in different stages of the game as far as a service solution goes. The major players are way ahead of regional or smaller custodian institutions in this arena in terms of a deliverable service offering or just sheer capability."