Canada
03 October 2012
As Canadian private-sector companies are attacked for sitting on ‘dead’ money, custodians are guarding assets that seem to be alive and kicking. AST finds out more
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Historically, Canadians have been encouraged to try to establish privately owned businesses to produce goods and services. Over time, as its population swelled, more and more private businesses were established and were able to earn a profit, with international trade also contributing to their success.
Recently, Canada’s finance minister, Jim Flaherty, added to comments from Bank of Canada governor Mark Carney, scolding Canadian companies in the private sector for sitting on “dead money” and urging them to use the billions of dollars cash to either invest more in the Canadian economy and create jobs, or return it to shareholders.
Flaherty stated in a speech that sovereign debt in Europe and the US fiscal cliff would prove pertinent to the Canadian economy in the near-future, and the country should respond to the ‘fundamental shift’ towards Asia.
“Our government cannot do this alone. Private-sector business investment must also help lay the foundation for a sustained, long-run expansion of Canada’s economy and job growth,” said Flaherty.
“Ultimately, it is up to you in the private sector to take advantage of all of these strengths and to invest, to create jobs and to grow our economy.”
A continuing headache
Sitting on money is neither here nor there for custodians; the phrase arguably encompasses their entire role. And it is a role that they are fulfilling well in recent years, with managing director of RBC Investor Services in Canada John Lockbaum describing the custody climate in Canada at the moment as remaining “strong and highly competitive.”
But he points to regulation as a continuing headache for clients and providers, not only in Canada, but globally.
“Clarity is needed. There needs to be a clear articulation of the costs of compliance as well as efficiencies to be gained and we continue to evaluate the impact of these new legislative measures. There also needs to be a deeper dive on who should share these costs as these regulatory requirements are here to stay.”
“Custodians need to be paid appropriately for managing the increased risk as well as for the seamless execution of all transactions. Custodians that enable clients with leading edge technology-based solutions, along with regular updates and insights are the ones who will differentiate themselves from the pack—allowing them to maintain and nurture existing clients and attract new ones.”
At the end of December 2010, the custody market had C$3.5 trillion AUA, and assets are continuing to grow overall as the rebound from the recent financial turmoil continues, albeit at a much slower rate.
In the Canadian mutual fund segment, AUM for August 2012 was $811.7 billion compared to $802.7 billion in the previous month, up 1.1 percent since August of 2011.
“So serviceable assets are slowly increasing, and as a dominant custodian in this segment, any growth is good news,” comments Lockbaum. “But in a low growth environment, asset managers and institutional investors are seeking to add different types of financial instruments to help grow their assets and gain returns.”
In a recent RBC Investor Services poll of Canadian pension plan sponsors, it was found that a significant number of plans are contemplating shifts in their allocation strategies within the next 12 months, with the majority of these plans shifting from developed market equities to alternatives such as real estate, infrastructure or private equity.
“The challenge for pension funds is the expertise required to carefully manage these investments taking into account language, tax, legal and cultural distinctions,” says Lockbaum. “This requires the support of service providers with a strong commitment in servicing these types of private assets combined with investment knowledge and expertise in a diverse range of markets.”
Recently, Canada’s finance minister, Jim Flaherty, added to comments from Bank of Canada governor Mark Carney, scolding Canadian companies in the private sector for sitting on “dead money” and urging them to use the billions of dollars cash to either invest more in the Canadian economy and create jobs, or return it to shareholders.
Flaherty stated in a speech that sovereign debt in Europe and the US fiscal cliff would prove pertinent to the Canadian economy in the near-future, and the country should respond to the ‘fundamental shift’ towards Asia.
“Our government cannot do this alone. Private-sector business investment must also help lay the foundation for a sustained, long-run expansion of Canada’s economy and job growth,” said Flaherty.
“Ultimately, it is up to you in the private sector to take advantage of all of these strengths and to invest, to create jobs and to grow our economy.”
A continuing headache
Sitting on money is neither here nor there for custodians; the phrase arguably encompasses their entire role. And it is a role that they are fulfilling well in recent years, with managing director of RBC Investor Services in Canada John Lockbaum describing the custody climate in Canada at the moment as remaining “strong and highly competitive.”
But he points to regulation as a continuing headache for clients and providers, not only in Canada, but globally.
“Clarity is needed. There needs to be a clear articulation of the costs of compliance as well as efficiencies to be gained and we continue to evaluate the impact of these new legislative measures. There also needs to be a deeper dive on who should share these costs as these regulatory requirements are here to stay.”
“Custodians need to be paid appropriately for managing the increased risk as well as for the seamless execution of all transactions. Custodians that enable clients with leading edge technology-based solutions, along with regular updates and insights are the ones who will differentiate themselves from the pack—allowing them to maintain and nurture existing clients and attract new ones.”
At the end of December 2010, the custody market had C$3.5 trillion AUA, and assets are continuing to grow overall as the rebound from the recent financial turmoil continues, albeit at a much slower rate.
In the Canadian mutual fund segment, AUM for August 2012 was $811.7 billion compared to $802.7 billion in the previous month, up 1.1 percent since August of 2011.
“So serviceable assets are slowly increasing, and as a dominant custodian in this segment, any growth is good news,” comments Lockbaum. “But in a low growth environment, asset managers and institutional investors are seeking to add different types of financial instruments to help grow their assets and gain returns.”
In a recent RBC Investor Services poll of Canadian pension plan sponsors, it was found that a significant number of plans are contemplating shifts in their allocation strategies within the next 12 months, with the majority of these plans shifting from developed market equities to alternatives such as real estate, infrastructure or private equity.
“The challenge for pension funds is the expertise required to carefully manage these investments taking into account language, tax, legal and cultural distinctions,” says Lockbaum. “This requires the support of service providers with a strong commitment in servicing these types of private assets combined with investment knowledge and expertise in a diverse range of markets.”
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