Custody and Trustee Services

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Custody and trustee services are solutions mainly intended for asset managers. Since asset managers are entrusted with the investments of third parties, regulators require them to ensure a  clear separation between the assets belonging the management company and those that belong to its clients.  This is a safeguard to prevent client assets from being stolen, misappropriated or lost.  Whenever they create a fund, portfolio managers must therefore arrange for a custodian for any assets that they manage for their clients.

Whenever the asset manager buys or sells securities belonging to the client, the custodian is in charge of the settlement and/or delivery of these securities to the client. Custodians are also responsible for managing the life of the security. For example, during the holding period of a security, there could be a dividend on a share, or a coupon on a bond. It is the role of the custodian to verify that the manager will receive the dividend or the coupon. We will talk later about securities transactions and the different operations that can impact a security during its life.

To summarize, the custodian will take care of:
-    settlement / delivery;
-    custody;
-    managing securities transactions.

Now when the manager creates a fund or UCI (Undertaking for Collective Investment), he or she will describe the fund’s strategy in a legal document called a prospectus. For example, the strategy may be to outperform a benchmark index or to invest in shares of Japanese automakers. The manager is obliged to respect this strategy as well as the regulations that apply to the fund. Of course, there are risk departments within the management company that ensure that the strategy described in the prospectus and the regulations are respected, but the regulator imposes an external control. It is the role of the custodian to verify the regularity of management decisions. 
It will check, for example, that the fund manager:
-    is adhering to portfolio diversification rules
-    monitoring the liquidity of the UCI
-    controlling the minimum value of the UCI
-    controlling the risk ratios