The security of assets is one of the biggest issues facing superannuation funds and according to BNP Paribas, custodians will play an increasingly key role in guaranteeing the safety of assets and their independent valuation.
"The importance of asset security was highlighted in the Lehman Brothers and Madoff cases, both of whom had no custodian," BNP Paribas Securities Services Asia-Pacific managing director Jean-Marc Pasquet said.
Statistics released this week by the peak industry body for Australia's custody and asset administration sector, the Australian Custodial Services Association (ACSA), certainly seem to support this.
After a period of significant decline, the total assets under custody for Australian investors grew by 3 per cent in the first half of the year to 30 June 2009.
Custodians now manage around $1.69 trillion on behalf of Australian investors.
National Custodian Services remained the largest player in the custody market with $552.9 billion in assets under management, followed by JP Morgan ($272.3 billion), BNP Paribas ($198.5 billion) and State Street ($147.8 billion).
ACSA chair Bryan Gray said the rally in global equity markets in 2009 had a large impact on the increase in total assets under custody in Australia.
"During this period we have experienced better market performance and investor confidence," Gray said.
A recent article in The Australian Financial Review also pointed to further movement in the sector.
QSuper had put out a tender for the custodianship of its $23 billion portfolio, with National Custodian Services, State Street and JP Morgan all throwing their hats into the ring, the article said.
Coal industry fund Auscoal and ING Australia had also put their portfolios out for tender, according to the article.
For custodians then, the Australian institutional market remains a prime focus.
"Our strategy is a growth strategy in Australia. We strongly believe that the Australian market will continue to grow faster than the overall global financial market. This is why we have invested heavily in our infrastructure for the past three years," Pasquet said.
State Street vice president Gregory O'Sullivan said that as funds shifted back from cash and started to invest in the market, the sector would further expand for custodians.
"In terms of criticality for State Street, the institutional market is what our strategy and services and future products are built around," O'Sullivan said.
The ACSA statistics also revealed the total assets under custody increased by 1.83 per cent in the six months to 30 June 2009. This is in comparison to a decline of 2.68 per cent in local assets held in the six months to 31 December 2008.
"Superannuation is a strong foundation in the Australian financial services industry. Australia is the fourth largest superannuation pension fund market in the world, which makes superannuation critical for our business in Australia, directly with our clients or through investment managers who manage themselves on behalf of superannuation funds," Pasquet said.
