Hedge fund and money managers, always looking to boost returns, are focusing on sophisticated investing products and strategies and more are beginning to outsource some complex support tasks. Reaping the benefits of this are globally equipped custody banks, according to The Wall Street Journal.
Typically, custody banks provide services such as trade processing and clearing. As trades have become more global, these banks have moved deeper into the asset-servicing business, adding higher-margin activities to their traditional lower-margin custodial services. This includes offerings like foreign-exchange trading, short-term securities lending and fund accounting, states Rob Lee, a banking analyst at Keefe, Bruyette & Woods of New York.
By outsourcing the complex responsibilities, asset mangers can shift their focus to investing and trading. The demand is for custody banks capable of dealing with varied regulation, currency conversion and accounting difference among countries. Banks with a scale and global footprint in the asset-servicing business increasingly stand to win.
At JP Morgan Chase, the bank’s worldwide securities-services business, which provides custody, processing and short-term securities lending to hedge funds and asset mangers, reported revenue of $2.48 billion in the first nine months, up 18% from the same period in 2005.