Content area
Full Text
GUIDES
A REPORT BY THE NORTHERN TRUST COMPANY
Global custody as we know it today has evolved as a discreet product only over the past 25 years or so. In reality, financial institutions of the major trading nations have been involved in roughly similar activities for centuries. In its simplest term, global custody is the settlement and safekeeping of financial assets on behalf of global investors.
The industry is evolving rapidly. Investor sophistication, new and emerging technologies, and industry consolidation have changed the face of global custody. New entrants have come and gone. Venerable institutions with long and respected histories have been acquired or chosen to exit the business. In a marketplace demanding more options, the choice of providers is contracting.
The relationships between investor, investment manager and global custodian are the building blocks of the structure. One way to think of the structure is to visualise a traditional corporate structure with the global investor heading the organisation chart (Diagram 1).
Working for the investor is the investment managers) and global custodian(s). There will typically be multiple investment managers in this structure. In some instances, the global investor may also choose to employ multiple global custodians. For the purpose of our example, let us assume a single investment manager and a single global custodian.
The global investor employs the investment manager and global custodian to optimise the stockholder's return. I emphasise the term optimise as opposed to maximise, for maximise may imply an element of risk that is unacceptable to the global investor. The investment manager and global custodian are engaged to mutually work toward achieving the goals and objectives of the global investor.
One final note before we look more closely at the role the global custodian is expected to fulfill. As the number of capital markets open to foreign investment expands, investment managers and global custodians are expected to offer the global investor access to these markets. To properly execute in an efficient, effective and secure manner, investment managers and global custodians will build an extensive network of broker relationships and subcustodians,...