Alternative-asset servicing "catching fire", says JP Morgan

Asset-servicing capabilities for derivatives, collateral management, hedge funds and private equity are becoming more sought after than traditional custody offerings for the first time, says Shaun Parkes, head of worldwide securities services for Asia ex-Japan at JP Morgan in Hong Kong.

Colin Lunn, head of business development for Asia-Pacific fund services at HSBC Securities Services in Hong Kong, also reports increasing interest in derivatives-processing products, and says the UK bank is looking to expand its offering in that area. There has also been an increased demand for middle-office services, particularly from hedge funds, he adds.

No longer is custody the "lead product" or primary sales entry point, says Parkes. Instead, new clients are seeking innovative ways to add value to portfolios through derivatives and managed risk by employing collateral management, and that has become the primary buying decision for many new names, he says.

Custody remains a key component, adds Parkes, but it is becoming less and less the primary product conversation. That is a very recent change in the industry -- as recently as last year, it was the other way around, he says.

Another core theme to emerge in recent months is that clients are increasingly looking for support from custodians for market-opening and entry strategies, particularly for emerging markets. 

A series of workshop events hosted by JP Morgan on new market entry attracted very strong attendance in every location, says Parkes, and the firm expects this to be the dominant theme through the end of 2010.

Additionally, JP Morgan reports core global business is up by 20% since September, which Parkes says is a strong performance in dislocated markets. The business has come from new clients as well as existing clients, and from many client types, from central banks and sovereign wealth funds to private-equity and hedge-fund managers.

"We expect to see continued growth in the traditional market space, and, if anything, we will start to see changing investment destinations," says Parkes.

"Emerging markets account for most of this change, and the non-traditional space, especially alternatives and collateral [management], is really starting to catch fire now," he adds.

So far, 2010 has been a mixed bag for HSBC. "Subscriptions and redemptions into hedge funds have remained flat for the last six months or so," says Lunn, "while most institutional investors are focusing on the larger funds that have big operational infrastructures."

Meanwhile, there has been an increase in passive investing, he says, and so demand for exchange-traded funds and other index-tracking products has been rising, which also require specialised servicing.