With recent market developments in the US regional banking sector, MUFG Investor Services sees an opportunity to expand the services offered to its fund administration clients. Global Custodian speaks to Dan McNamara, chief strategy officer, MUFG Investor Services.
In a nutshell, what is the link between bank consolidation and opportunities for fund administrators to offer banking services? Why is that a logical development?
It’s not so much linked to consolidation in general, but to the specific round of consolidation we’ve observed in regional bank activity in the US over the past year. When you have such events, managers and participants in the market start to think about counterparty risk, safety, credit risk exposures, etc.
When we started to see that, we proactively leaned in to remind the market that we are here. We’re an investor and asset services provider, but we also have within our division, a fully licensed bank in Cayman as well as a fully licensed bank in the European Union, in Luxembourg and banking branches in London, Singapore and New York.
As part of the Trust Bank division of a Japanese banking group – one of the biggest balance sheets in the world, we have one of the strongest credit ratings on the street, with a substantial amount of capital. We took the opportunity to remind firms who were reviewing their banking and liquidity decisions that there’s tremendous benefits to partnering with a bank that has significant capital and balance sheet strength.
On top of that, we have a broad range of services in addition to banking. We orchestrate scalable and flexible solutions across the entire investment value chain, so our asset manager, hedge fund and asset owner clients can focus on growth. We cover everything from fund administration, middle office operations, banking, FX currency overlay and more. When you put that all together you have a one-stop shop, that comes with a single client interface through our client-facing technology.
I think this is a key differentiator for us. If you look at the investor and asset services market broadly speaking, you have the large bank-owned investor services shops, who have a broad offering but are weighted towards traditional strategies, and then on the alternatives side, you have a lot of smaller independent and sponsor backed shops. Obviously, with the growth in private market assets, the bigger bank-owned shops have been getting into that alternative space, but traditionally, most of the assets they administer are long-only. That’s how their investment services franchises tilted. The independents, by contrast, are much more alt focused: real assets, hedge funds, etc.
We’re unique in the sense that we are bank-backed, with a great credit rating, balance sheet and banking products, but almost exclusively alternatives focused. Private markets, hedge funds and the alternative space generally, is really in our DNA.
Of those banking relationships or the services provided by the previous banks, whoever they happen to be, which of them are ‘no-brainers’ for you to take on for your fund admin clients and which are a bit of a challenge?
As a result of a tightening credit environment, we saw some pulling back in areas we’re active in, like lending to funds, subscription lines and NAV financing. That was a no-brainer for us, since we have already been aggressively growing this business for some time leveraging our balance sheet and cost of capital.
Another ‘no-brainer’ is foreign exchange, often linked to banking and administration services. As volatility increases in the FX market, managers increasingly see the operational side of managing FX exposure through share class hedging as a non-value add function that they can outsource to us – a global bank with a leading, fully automated service.
We are now growing a team to move more from providing banking associated with fund entities to servicing banking and liquidity needs of the manager directly. That’s where you will see us very active in the market and investing both in people and technology. We believe in long-term relationships that are stable and grow over time. The more solutions we provide clients, the more long-term the relationship is likely to be.
MUFG Investor Services has operational centres in numerous locations globally. What’s the rationale for your geographic spread?
Our philosophy on locations is we don’t want to go low cost. We want to be in high quality locations, with high quality infrastructure. The value of this strategy was proven during the peak of the Covid crisis. We are actively building out more operational centres, but you will always see that they are locations that fit this philosophy.
For example, we recently launched an operational centre in Cyprus, where we have had amazing growth, found excellent talent with appropriate experience, and a real enthusiasm for our business. This human element is also key – we have industry leading metrics on engagement and low attrition, and we seek to be present in areas where we can continue to grow this culture. We are in the process of launching another operational centre in Malaysia given our rapid growth in Asia, particularly in products like FX overlay and private credit. Regarding being closer to clients: we have recently incorporated an entity in Australia for the MUFG Investor Services business to be able to directly interface with clients onshore. High quality locations with high quality infrastructure and workforce are our gold standard.