19APR21: Oops – something went wrong! Surely it wasn’t meant to be like this. After three years of its competitors claiming that State Street’s acquisition of Charles River meant that it was no longer committed to open architecture, an inconvenient truth emerged: State Street can walk and chew gum at the same time.
The evidence came with the announcement that M&G plc, the UK-based asset manager with >GBP367bn (>USD500bn) AuM, had appointed State Street to provide outsourced middle office services, including portfolio services, reference data, cash reporting, transaction management, asset servicing and recordkeeping. Nothing exceptional in that, except…State Street will perform these services largely relying upon BlackRock’s Aladdin® platform licensed by M&G. State Street emphasised its commitment to Aladdin, noting that it was “one of the founding partners of Aladdin Provider and is a leader in the adoption of Aladdin data exchange (PDX) and the Aladdin middle office model. By leveraging the Aladdin experience and knowledge from M&G, State Street will administer middle office services on Aladdin, exemplifying how State Street offers clients the benefit of choice regarding their front and middle-office systems”.
This does not fit the prevailing narrative. State Street, so it goes, made a USD2.6bn commitment to Charles River, locking itself into a front, middle and back office continuum that would effectively disqualify it from deals like…well, like M&G. Yet here it is, winning those deals as well as the recent mandate from Invesco to convert to the front-to-back Alpha package.
It’s time for a healthy dose of reality here. No one likes dealing with the big beasts like Aladdin and Bloomberg. Everyone has night terrors wondering if these, and others, have ambitions that take them further into the middle office in an attempt to relegate inserv providers to the low-value, low-margin end of the business. The best way to fight this? Prove to BlackRock and the like that the existing providers are much better at running the middle office, and it simply isn’t worth the time, money and effort to try and replicate what they do.
Joining the Aladdin Provider Network is a first step – but if you’re not completely committed to being the best provider on that network, and investing the resources to make that happen, it will be nothing more than media relations flute music. State Street understood that before any of its competitors, which explains why it will continue to win mandates like M&G.
Sceptics (like me) will say that we’ve seen this all before, going back to the days when some believed that market utilities like Euroclear, Cedel and SWIFT were ready to disintermediate the custodians, whilst information providers like Reuters and, yes, Bloomberg, were viewed with equal suspicion. It didn’t happen, but that doesn’t mean it never will. The best defence is service excellence across the board – and it is far from clear that all the providers have yet got that message.