Do you really know where your assets are, and if they are safe?
The 2008 financial crisis has changed the rules of the game for global custodians. Asset owners are now asking questions they would not have done previously, especially in an increasingly volatile and globalised world.
Until October 2008, most of the focus of institutional investors when appointing global custodians was on enabling - enabling global investments across all markets, enabling performance measurement and, last but not least, enabling performance-enhancing services such as securities lending and active cash management.
That focus has now changed. The discovery of ‘black swans’ (a disastrous but supposedly rare occurrence) and ‘fat tails’ (abnormal statistical behaviour) has forced investors with a liability horizon of 30-plus years to reconsider. What would have happened to my assets if Barings had not been quickly taken over by ING? What is the impact of assets being ‘frozen’ for six months until final ownership has been established? What is the impact of Madoff itself acting as asset manager, custodian and transfer agent?
More importantly, do I really know who keeps my assets safe and where they are? What is my legal position? How can I minimise the likelihood of asset loss? Do I really understand the risk being run by my managers: investment risk and systemic risk? What is the systemic legal difference between investing in UK, German and Asian assets?
Performance magazine issue 17, May 2015
Performance is a triannual digest, dedicated to investment management professionals, which brings you the latest articles, news and market developments from Deloitte’s professionals and clients.