Northern Trust’s transition management business will continue to grow in Asia, even as rivals close or pare back operations in this area, says Steve Fradkin, president of the corporate and institutional business unit in Chicago.
Over the past 12 months, both investment banks and custodians – including BNY Mellon, Credit Suisse and JP Morgan – have decided to close their global transition management businesses.
ConvergEx and State Street were respectively fined by the US and UK regulators at the end of 2013 and early-2014, for charging unwarranted price mark-ups and hidden spreads related to portfolio transitions.
"Any time the industry goes through a period of a shift – in recent times this has been led by regulatory challenges and demise faced by the various service providers – it makes you inevitably rethink and ask whether transition management still makes sense for our entire business portfolio," says Fradkin.
However, transition management remains an important ancillary capability for Northern Trust, he says. This is partly because the reduced competition could create fresh business opportunities for the firm.
“So long as our clients need our custodial service everyday, they will need transition management services so that they can transition their portfolios from one manager to another in a cost-effective way," he says.
Fradkin declined to give specific figures when asked about the size of the firm’s transition business. He added however that over the last five years Northern Trust's global transition management has recorded transition volume growth of over 50 per cent.
As of March 31, the firm’s assets under custody were $5.8 trillion, and assets under investment management were $915.6 billion. It reported net income of $181.4 million in the first quarter, up 11% from $164.0 million in the fourth quarter of 2013, and up 7% from $169.7 million in the third quarter.
Its asset servicing business, which comprises custodial, securities lending, fund administration and others, made up of half of the group's total income of $731.3 million last year.