On a tour of Asia, State Street's Robert Williams and John Fiore spoke to FinanceAsia about the technology intensive business of providing custodian services to Asia's institutional investors. Williams is executive vice president of State Street Investment Services for Asia Pacific based in Boston, while Fiore is the firm's chief information officer.
FinanceAsia: Explain the reason behind your current trip to Asia?
Williams: We like our senior managers to be as knowledgeable as possible about our different country operations and to be abreast of the different products and geographies we cover. That involves regular trips to Asia during the year to visit clients and look at what's happening in the marketplace. This trip we're also visiting China where we run a technology centre in conjunction with Zhejiang University in Hangzhou.
FA: Tell us about the technology centre?
Fiore: We utilize this as a research centre for us to scope out IT projects. We run pilot projects from there and use it to test the transfer of business applications from one platform to another. When we want to prototype something we use the technology center.
FA: How is your approach to Asia changing?
Williams: There is a geographic approach to our business and a strategic one. Geographically we look at Japan, ex-Japan Asia and Australia and New Zealand separately - as semi-autonomous regions. But at a strategic level we're servicing clients, particularly fund mangers, that are going global and have global needs. That means treating our product offering in a holistic way as clients expand their presence in other markets and demand cross border capabilities from our systems. For example a firm that has an office in London wants to process a trade that has been executed in Japan without duplicating the process two or three times. We can help them to implement multiple steps in their internal systems without initiating the trade several times.
FA: Are you referring to the straight through processing of trades?
Williams: Yes. We are increasingly involved in the straight through processing of trades which requires a process management very different from what we did two to three years ago. As T+1 is deployed, there's a trend towards dematerialization and centralized depositories. Custodians will be asked to provide services that help cross border transactions such as account consolidation and multiple book of record services. In Asia, indigenous and foreign institutional investors have not been very good at cross border trade up until now but this is changing rapidly and with this change comes the opportunity for State Street to step in and help. Real straight through processing where a trade is handled completely electronically on systems that talk to each other without human intervention is still some time away
FA: What opportunities does China present?
Williams: Our presence is minimal there because the market is still evolving and a lot of our foreign clients have not yet entered the market. But as more and more of them take up the challenge we will need to develop local products to support their performance reporting, cash reporting and risk management needs.
FA: Japan's institutional market is slowly opening up to foreign investors. What challenges does this present?
Williams: In Japan pension funds must be structured as a trust, which means fund accounting rules are very specific and require us to customize internal reporting. We believe that a lot of what we are working on in Japan will apply to other markets in Asia as they open up.
FA: What type of clients do you work for in Japan?
Williams: Most of our clients are indigenous firms that are developing new products for investments. These firms are pulling back from their global aspirations to focus locally. We are working with those that are servicing defined contribution plans.
FA: What about other Asian markets?
Williams: In 1994 we had nine Asian markets on our list that we considered strategic in terms of the development of the pensions and capital markets. China was not one of those because we believed the future was too far out. In 1998 and 1999 we reviewed this list and came up with five markets of which China was one. But that doesn't mean we have dismissed some of these markets hardest hit by the economic downturn. Malaysia, Thailand and Indonesia are certainly coming back in terms of the appetite for cross border investments and we're now considering re-expanding our coverage.
FA: Do you develop technology platforms that are specific to Asia?
Fiore: We have a core technology platform that's used on a global basis and we add a layer of local capabilities on to this. This might include specific accounting overlays or regulatory overlays. Though in Hong Kong we have recently finished building a compliance platform that is specific to this market and interfaces with the global platform. The local team developed a compliance reporting, performance reporting and risk management platform that helps clients track the level of efficiency in their trades.