An increasing demand for lower costs and more effective administration is leading pension funds to look towards banks for administration functions, according to Charl Bruyns, head of investor services in South Africa for Standard Bank.
Bruyns suggested that the role of custodians is evolving beyond traditional functions, that is, safeguarding assets and settling trades, and that custodians are becoming more involved in the administration of pension fund investments.
Banks that have scale and market penetration can help to bring costs down by integrating functions that would usually have been outsourced.
Bruyns said: “It is important to take costs out of the value chain. The cost of service has come down and in the next five years we will see more consolidation from providers.”
Traditionally, pension funds tend to have several segregated investment mandates across the asset management industry, meaning it can be difficult for funds to view all of their assets.
“By reducing the layers in the administration process, it allows for a decrease in the number of parties involved in the management of the funds,” said Bruyns.
There is also an increased focus on asset safety, meaning that providers with a full suite of service offerings are becoming more popular. Processing transactions through a master custodian can also lead to improved administration services and lower costs, according to Bruyns.
There is also a move towards technology solutions that can help funds to stay up-to-date with increasingly complex investments, and lead to more consistency across portfolios.
“It’s the right shift as it’s all about safety. The custodian protects you when the asset manager trades. Asset safety is the number one priority,” said Bruyns.
“Being able to adequately monitor investments is important and we are already seeing this consolidation taking place globally, where administrators are collapsing into the banks, which then become the record keeper and ensure compliance functions are met.”
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