Tim Smollen Dan McNamara MUFG Investor Services

By Drew Nichol

MUFG has set itself the mission of becoming the preeminent Asian bank in the global securities financing market. It has begun with a series of senior hires and plans for a brand new technology framework to reinforce its global growth plans. Drew Nicol reports

View original article

This year, MUFG Investor Services declared its aim is to focus on building out its securities lending offering. Why now and what are you looking to achieve?

Dan McNamara: MUFG Group has put a huge focus on its investor services franchise in recent years and there’s a genuine commitment to growing this area. We’ve already seen it in our fund administration and fund financing solutions and we see the enhancement of our securities lending proposition as a continuation of that mission. Clients and the industry know that MUFG is committed to this space, we have a longer investment and commitment horizon than many other banks, so a move like this has resonated with the market.

We are the fifth-largest bank in the world by balance sheet, we have a stable brand and we see agency securities lending sitting very well alongside our portfolio of products. You could say we were a little underweight in this area even though we have been here for 20 years, but now it is an area where we can grow dramatically.

We are making this move at a point in time where a lot of regulatory change has been introduced and bedded down; yes changes will continue but we are in a prime position to build a platform for the future that already incorporates many of the post-crisis regulatory requirements in its core DNA. In this sense it’s the perfect time to re-start with our new programme.

What opportunities are you looking to leverage to jump-start your new lending offering?

McNamara: First of all, we’re really excited about the team we have built, including Tim Smollen as the global head of securities lending solutions. This is a team that has a lot of experience with managing clients who have large portfolios and expect a very high-end service in terms of the provision of necessary information, transparency, data and adapting to regulations and clients’ changing needs.

We also believe that buy-side clients are looking for another option in this market and we see a space for another truly global programme, especially one run by an Asian bank. The actors in the industry we’ve spoken to are very interested in what we’ve showcased so far and given the current market environment we see now as the right time to do this.

Tim Smollen: The new regulatory environment also creates opportunities and not every programme out there can take advantage of that. We look to be nimble and responsive to changing market dynamics.

Crucially, we are not going to be a programme that’s struggling with what to do with general collateral. That said, we want to be selective in our marketing and work with clients where we can offer value and something they aren’t getting elsewhere.

Where are you starting on this mission? How will the new global programme be structured and where is your team based?

Smollen: So far we have Jay Schreyer, based in London, who will focus on Europe, the Middle East and Africa, along with Asia Pacific.

Additionally, we now have Anthony Toscano, in New York, who is responsible for building out the business in North America.

Both these gentlemen have experience in working with custodial and non-custodial programmes. They are both traders and risk managers, and client-focused as well, so they have the perfect skill set for our new model.

This is a global business and our clients need and demand continuity when interacting with each of our desks, so the fact that Jay and Tony have worked together before and understand each other is going to be critical.

McNamara: Asia is obviously an important market for us as well and we plan to set up a desk there the future. In the meantime, we will continue to engage with Asian clients, but it’s just a matter of building that physical presence.

We are satisfied with the team we have right now and we’re not planning any further hires for the moment. We have very high expectations for how this business will grow in the coming years and we will take on new hires to support that as needed.

Becoming arguably the first Asian bank to take a leading role in this space would be a major accolade, Tim, is that what drew you and your team’s attention to MUFG?

Smollen: Yes. We love a challenge and we love to build. This business requires long-term commitment and not every bank out there is ready to do that – MUFG is. When I get a client I expect them to be with me for 10 to 20 years, and that’s our goal. There’s also obviously something to be said for working with the fifth-largest bank in the world. We have a strong capital base and a great credit rating and that resonates with clients. I could build the best mousetrap in the world, but, in the end, clients buy the bank, so it’s important to have that rock-solid foundation.

The world’s best mouse trap will require some heavyweight technology to back it up. Can we expect to see some investment in this area for MUFG Investor Services?

McNamara: Technology is at the core of our proposition. Our wider investor services franchise made some acquisitions in 2019. These include Point Nine, a post-trade start-up now re-branded as MUFG Investor Services FinTech, and certain divisions of the fund administration business of Maitland, a global advisory, administration and family office firm.

We’ve done this because we need to own and develop our key technology functions, such as client interface and data management and analytics to continue being a provider of choice.

The acceleration of our agency lending programme will follow a similar strategy. We will take inputs and feeds from market data sources and leverage some other in-house data systems but it will always be in a way that fits within our existing ecosystems. Tim and the team have always been major users of data and data analytics and so our aim now is to take that to the next level. You’ll hear more about all this in the next six to 12 months.

In terms of our in-house builds, we have an opportunity to focus on new market trends such as environmental, social and corporate governance, which we know our clients care about and work with them during the process to know what they needed.

Speaking of clients, where are you going first in search of new lending clients?

Smollen: Primarily, we are hoping to tap into additional supply in Japan by offering a new programme which helps those clients get more comfortable. A number of large clients already lend—and have for years—but most really limit what they do and others have remained on the sideline for years.

Elsewhere, we also fully expect to win business from clients who are already with other lending agents by offering a better option.

We are looking for clients that have large, global portfolios that are diversified across asset types. In turn, we are avoiding clients that only have large general collateral holdings such as corporate bonds or only UK stocks. In terms of clients, generally we are looking to partner with asset gathers. Not surprisingly, that means asset managers and sovereign wealth funds that are chasing yields and own assets that tend to be more attractive in the securities lending markets.

MUFG also has a long history of working with central banks and even though the asset classes they tend to buy are not always the most exciting we can always find value in high-quality liquid assets such as US, German and French government bonds.

Clients who come to us tend to be the ones who want information, who want to be engaged with our traders and our desks on a regular basis.

They are looking for more than a behind-the-scenes programme that generates some alpha and covers costs – they want a proactive management tool where they can find innovation.

And what feedback have you got from the borrowers?

Smollen: It’s actually from the borrowers that we’ve seen the most excitement so far because they have their own challenges and we’re solutions-oriented. We have worked with counterparts on capital and regulatory solutions for many years and we’ve had great feedback when they’ve heard our plans to expand our service for both sides of the trade.

This year’s Pan Asian Securities Lending Association conference is in Tokyo and we’re viewing that as our coming-out party. We know borrowers that will be attending that are especially keen to hear more about what we have planned.

Are you concerned by the fact that the biggest Japanese lender partially pulled out of the market last year?

Smollen: If a client like Japan’s Government Pension Investment Fund was in our programme, I am pretty confident that we would have been able to build a solution to meet their needs and keep them lending. And that’s one of the opportunities we are looking to tap into. Those big, sophisticated investors that need and crave more transparency and information, and a more client-focused service that we can provide. I was disappointed to read about the fund’s decision but I also see it as an opportunity.

It’s undeniable that Asia is the future. There are huge opportunities there and we will be ready to take advantage of them.

By Jonathan Watkins

View original article

Acquisitions, high-profile hires and a new securities lending offering have been among the highlights of MUFG’s first year under investor services chief John Sergides

In just over a year as permanent CEO of MUFG’s investor services business, John Sergides has hired, acquired and built from the ground-up, with the latest move coming in the form of a new securities finance team to start 2020.

Sergides’ ascent to the helm started in 2015 with the role of global head of sales and marketing, before he assumed the deputy CEO position and was then subsequently appointed as chief executive in January 2019.

Given his experience in the industry, and within MUFG itself, Sergides wasted no time at the start of his tenure, making moves to hire sales experts with geographical and product expertise in burgeoning sectors such as private equity, real estate and mutual fund administration.

His ability to hit the ground running in the role has also seen it acquire both Maitland’s hedge fund administration business and post-trade firm Point Nine, which gave MUFG an all-important FinTech arm.

The fund administration move increased MUFG’s total assets under administration (AUA) to over $600 billion, and marked the firm’s first acquisition in three years.

With an eye on covering the wide spectrum of securities services from fund admin and trustee services to lending, custody and subscription financing, Sergides said he is thankful to have the support of MUFG’s top brass in realising his vision.

“Investment and autonomy are for me the most important things,” Sergides told Global Custodian, when asked about his first year at the helm. “You need to have the right amount of autonomy but with controls as well.

“A lot of these decisions take a lot of patience and you need a long-term view. A lot of firms are boom and bust, but being able to commit to the space is really one of the strengths of a Japanese firm.”

The appointment of Deutsche Bank’s long-serving head of agency securities lending in New York at the start of 2020 gave MUFG’s clients a clear message that the bank was committing to this space. Tim Smollen was appointed as global head of global securities lending solutions and was joined by eight additional hires who will support the growth and development of its securities finance franchise.

The move is intriguing given the headwinds securities lending faces as a global function, with revenues declining 13% to $8.66 billion in 2019, according to research from DataLend, the market data arm of securities finance specialist EquiLend.

Meanwhile, Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, suspended its securities lending programme over transparency issues at the end of 2019,  and the impending rollout of regulations in Europe could undoubtedly have a global impact on activity.

Sergides however, believes it’s the right time to bolster its offering given the fit within its other services and the appetite of clients.

“We’ve been looking at all the products out there, what’s out there, what’s needed, where is there white space, and some is from a geographical perspective and some is from a product perspective,” he said. “Some of the larger players have de-focused on lending, so it’s become a natural partnership with people to grow this space.

“Japanese institutions who were not involved in the space now have a bank they are familiar with to participate.”

On the fund administration side, MUFG made two major acquisitions in 2015 and 2016, through UBS Global Asset Management’s Alternative Fund Services business and Rydex Fund Services respectively.

The Maitland deal, which was announced in October 2019, added only $20 billion in AUA, but much more on the technology capability front. It also gave hedge fund clients of Maitland access to banking and treasury solutions of Mitsubishi UFJ, MUFG’s Japanese parent bank.

“Given our size, you can see that when you add $20 billion that it’s not an AUA play. Maitland gives us an excellent group of people in a specific location and they are innovative because of their size. We can develop cutting edge technology that the industry is not ready for just yet, and develop these solutions with clients that can later be used for the wider industry.”

On any possibly future deals, Sergides pointed out that with the shrinking number of administrators and demand from the buyers in the market to add complimentary services to their offerings, that opportunities may be sparse.

“There’s not that many acquisition targets left,” he explained. “The multiples have nearly doubled so the cost base has doubled. The bigger trend right now is buying the technology stacks around the business.”

Moving forward, Sergides highlights regional expansion in Australia and the Middle-East as geographies with potential, before adding “there’s more hay to be made” across its range of services.

He also places importance on retaining clients, something MUFG prides itself on, particularly in the fund administration space. This is another reason why any future acquisitions will have to be carefully thought out and truly complimentary. The prioritising of client service and keeping customers happy could certainly stem from Sergides experience as a previous head of sales and markets, turned CEO.

“For me the greatest achievement is that we have not lost a client on the fund admin side for a number of years,” he said. “Ultimately, the loss rate shows you listen to your clients.”