Originally published in Global Custodian.
In the last two decades, one thing that has not been in short supply for the investment industry is cash. Persistent low interest rates have created conditions whereby the biggest borrowers can borrow for virtually nothing and depositing cash in developed market currencies has yielded non-existent or even negative returns. The lack of scarcity of cash for the biggest players has indeed brought its price near zero.
However, while returns to be gained from cash deposits and overnights are minimal, investment managers and their technical platforms have become far more savvy and demanding in their handling of cash and cash-relevant information intraday. Though custodians remain firmly in the settlement space, providing—among many other services—the previous day’s cash balances and activity, managers have sought to integrate this information in a more dynamic, intraday framework. Order management systems no longer spend the business day cast adrift from account activity as reflected at the bank.
Although single-market, long-only funds still exist, the search for yield has driven clients and managers into a multi-asset mindset. Investment managers have needed to be ready with front-office expertise in all instrument classes and prepared to support more complex instruments’ lifecycles. For this, visibility on intraday cash is essential. Although there may not be a lot of changes to the products and services provided by a custodian to an investment manager, there are notable drivers that may change the type of support required:
As technology and investments become more sophisticated, the investment management industry would be well-served by custodians prepared to support clients and managers that will not stop searching for excess returns in a world where cash remains plentiful, but markets remain volatile.
Greg is a Director with over 25 years’ experience in senior project management, business analysis and solutions architecture roles at investment firms in Europe and the Asia Pacific region. Greg’s areas of business expertise include target operating models, business strategy, portfolio management and trading systems, data management, middle office, fund accounting and administration, business process outsourcing, investment performance and risk analysis, vendor/service management and post-merger/post-acquisition integration. Prior to joining Citisoft, Greg spent 10 years as a freelance consultant on implementations of major enterprise front office technology.