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"CUSTODY IS AN industry that everyone wants to work but not have to hear about." This description by one industry veteran may be based in truth, but has most definitely not been the case over the past few years. The systemic stresses wrought by the credit crisis have ripped open the black box of how the industry operates and not everyone is happy with what has come to light. "If I was a stakeholder in a large pension plan I would be furious," says one expert. "I would have been ripped off for years. There have been sweetheart deals between mutual funds and custodians, and the stakeholders have been ripped off."
During the boom years before 2007, some custodians developed an almost bipolar personality: on the one hand presenting themselves as a purely fiduciary business simply holding assets on behalf of clients, and on the other hand creating capital markets divisions that traded like banks. "The industry has been driven by the US model, which is centred around a sales drive for assets under custody, which doesn’t correlate to profitability or capability. The custody business became all about assets under management," says Paul Stillabower, global head of business development, fund services, at HSBC in London.
