GLOBAL - Plan sponsors are in the midst of an unprecedented amount of custodian turnover, says J.P.Morgan Worldwide Securities Services managing director and head of pensions Benjie Fraser.
He said while the UK is leading the way in search activity, which is not unusual given the large size of the pension market, more and more interest has emerged in continental Europe, particularly in Sweden, the Netherlands, Germany and Switzerland.
"The bigger story is coming from continental Europe. There is serious action now considering how quiet it has been historically," he said.
Fraser said in each country, his firm has come across between one and three requests for proposals, up from "almost zero" in 2009.
The numbers in the UK, however, dwarf those on the continent. He said J.P.Morgan saw 25 RFPs in the country in 2009 and expects to see at least 50 by the end of 2010.
Among those with searches in progress are Swedish buffer fund AP1, which has SEK202bn ($28bn) in assets, and UK-based pension safety net Pension Protection Fund, which has nearly £4bn ($6bn) in assets.
He added another area of activity has been among multi-national companies looking to centralise their custody arrangement.
Fraser said the activity is partly driven by the increasing complexity of pension fund portfolios. The inclusion of investments like swaps and other derivatives, and an increase in alternative assets means pension funds are looking for custodians that can better help them value and keep track of their assets.
Pension funds are also moving towards more complex portfolio management techniques, like liability driven investment strategies, which require more administration and oversight.
"If custody was still supporting long-only, then we wouldn't necessarily be seeing such a higher turnover of RFPs," said Fraser.
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