HESTA's extension of its longstanding relationship with JP Morgan for custodial services has revealed insights into the wants and needs of super funds in a shifting regulatory climate.
The $21 billion fund announced the reappointment this week, with HESTA executive manager of investments and governance Rob Fowler pointing to satisfaction with the work the US-based bank has provided in helping to "keep pace with industry change in this increasingly competitive member environment," according to a statement issued on 29 January.
Speaking to InvestorWeekly, Bryan Gray, head of client relationship management at JP Morgan Investor Services Australia & New Zealand, said he was pleased with the announcement and is "looking forward to helping HESTA through the challenges ahead."
Indeed, it is to these apparently looming challenges that JP Morgan can largely attribute its successful reappointment. Mr Gray singles out the "strength and depth" of his employer's 18-year relationship with HESTA. "We really understand their business and the challenges they're going through," he said.
The most pressing challenges are coming from government, Mr Gray said, describing the slated Stronger Super reforms as the "biggest regulatory changes affecting industry super funds in years," and identifying the enhanced disclosure requirements as particularly problematic.
While the regulatory sea-change may be potentially challenging for super funds, it is potentially expensive for custodians. JP Morgan is in the process of investing $30 million in new technology platforms to support its custodial services.
However, it is seemingly an investment already paying dividends. "We were able to demonstrate how this investment in our technology would be of benefit to HESTA going forward," Mr Gray said, listing it as a key selling point accounting for the successful reappointment.
In addition to compliance, the enhanced technological capabilities at JP Morgan will allow it to expand its services to HESTA beyond the custodial stalwarts of fund accounting and valuation - an outcome Mr Gray said is increasingly in demand from super funds.
"We're finding that as superannuation funds grow larger, they are relying on custodians more and more for services outside our traditional role, such as reporting on collateral arrangements and managing more effectively collateral pools that they and their fund managers have," he said.
"For example, providing derivatives clearing and private equity administration, or even providing access to investment expertise or ideas, particularly in Asia, enabled by our global presence," he added.
The demand for broader custodial services is being driven by the trend towards cost-reduction and consolidation. "Many of the super funds we work with are implementing systems that streamline their business and improve efficiencies, and we have worked with the funds and their member administrators to streamline processes and communication," Mr Gray explained.
As seen by the example of AustralianSuper in September 2012, superannuation funds are also looking closely at bringing elements of its portfolio management in-house. This has created greater demand for "middle-office services," Mr Gray said.
With $336 million in assets under custody from Australian institutions [according to ASX figures as of June 2012] already under its belt and an increasing appetite for a broad suite of services emerging from super funds, chances are JP Morgan - and its custodial competitors - will be more than happy to oblige.
