If Dutch pension funds and asset managers appear to be feeling their way through an unexpectedly turbulent post-euro period, it is little compared to the battlelines being drawn in the country’s custody market.
The liberal and lucrative nature of the Dutch custody environment has ensured a strong local presence for most of the big global players for a number of years now.
Penetration has been good, certainly for provision with the larger Dutch funds, as a result of the shrinking number of custodians around offering value-added products alongside attractively priced core custody on a global basis.
Says Jan Koghee, vice president and branch manager at State Street in Amsterdam: “The Netherlands is historically a trading nation and open to the wider picture. And the only custody requirement here is to be a bank regulated by the country’s banking authorities. Pressure on costs, and of course the issues of ensuring up-to-date presentation and information technology have slashed business margins and led to a number of operators stepping out of the market.”
Koghee says that the majority of the Dutch institutional business is still with local providers, but questions whether they can keep up with the systems levels, straight-through processing capacities and constant requests for new value-added products that he says define custody today. Here, the tie up between ABN Amro and Mellon underscores the point.
“At present custody is still a ‘people’ field, but a more pressing issue is the rationale of remaining in a market fast becoming a commodity sector where it is a necessity to have the critical mass to face up to increasing systems costs and absorption of new assets, whilst retaining flexible custody systems,” he adds. “I can certainly foresee the reduction of the market to a handful of players.”
Laurent Vis, assistant managing director at KAS Associates, which provides custody for around 35% of the Dutch institutional market covering Dfl250bn (e113bn) in the Netherlands and a further Dfl100m for Dutch assets abroad, principally in Frankfurt, Zurich, London and New York, concedes areas where the large US players do possess advantages, but believes they are minimal enough to ensure Dutch custodians carry on capturing good business.
“We do all the value-added custody services in the market, with the highest demand coming for investment reporting – particularly as a result of the new quarterly asset returns submission demanded from funds with investment risk by the VZK supervisory body for pension funds and insurers. There is a slight advantage for the US groups in terms of the continued outsourcing of specialist mandates to foreign managers, because, for example, at KAS we don’t have such a broad global custody coverage.
“We also only have one operational centre, in the Amsterdam time zone, whereas the portfolios may be with managers in other time zones. To our advantage though, we are seen very much as a Dutch market specialist, not a custody factory and so can tune our electronic administration to client needs.”
Vis says KAS and the other Dutch custodians will have to box clever though to keep up with the ‘automation race’ gripping the market. “Consolidation is only natural in the market to combine forces on the passive custody side. There are also going to be fewer exchanges as a result of Emu, and the virtual index for the 300–400 European blue chips is becoming a reality – so technological preparation and flexibility is going to be vital.”
Fred Dellemijn, director global custody management sales and marketing at MeesPierson, the former subsidiary of ABN Amro sold to the Fortis group in 1997, believes the Dutch custodians are capable of holding their own. “The large global custodians have marketed themselves aggressively here, but I don’t believe Dutch institutions are swayed. When it comes to the products themselves I don’t believe they are always as comprehensive and user-friendly as they claim.
“Attracting a client is one thing, but servicing that client exactly to its needs is another. Institutional in-vestors still like to speak in their native tongues, and they appreciate an un-derstanding of their cultural and business backgrounds when doing business. The competition is fierce, but here at MeesPierson we are using our strong Benelux foothold through Fortis/Générale to make gains in Europe.”
Dellemijn says one product in demand from institutions is comprehensive asset monitoring – enabling examination of stock holdings, individual transactions and prices, and potential profit and loss accounting on positions.
MeesPierson amalgamated its securities services into what is now called the Information Bank in 1998, with the idea of providing combined products to clients with integrated data and coverage of risk management.
Dellemijn adds that this has proved to be a very profitable part of Fortis’ overall investment operations, despite the thinning of custody business margins. “I think that for custody on a global basis there will always be a strong number of niche players, although niche certainly will not mean focusing on a single country. It is more likely to mean operating on a regional basis.
Dellemijn also believes the expanding derivatives and securities lending markets will continue to be a good business prospect for MeesPierson. “We possess all the affiliate custody services – and in terms of reporting it is optimal to have full investment and custody with one provider.”
Peter Verouin, head of securities services at Citibank, Amsterdam, believes the custody arm of the group’s activities fits both the local criteria and the need for global reach. “Our strategy is to offer an international network and capabilities combined with local support and interfacing, which I believe makes us a Dutch international bank in the Netherlands. There is a definite need for this global capacity when dealing with the international portfolios of Dutch institutions. At Citibank therefore we are principally targeting the larger Dutch institutions for custody, where the advantages of our global added-value products can be fully realised.”
However, an important factor in European custody is the role of the Central Securities Depositories (CSD’s). The belief is that they may begin collectively to climb the custody value chain and attract more business as fully fledged custodians, although the consensus is that this will take time.
But Dellemijn at MeesPierson believes the market could become harder for the larger US custodians as a result: “The large players are volume-driven, but their core services can increasingly be provided by CSDs. In fact, clients are looking for additional services, which are traditionally provided by the smaller custodians.”
Lucille Knapp, responsible for European business development at global custodian Northern Trust, believes that the liberal Dutch attitude towards quality foreign custody provision means they are out to get the best deal possible. “The majority of our custody is carried out for pension funds, so our products tend to be tailored toward demand from this market. Since we captured our first client in 1994, I believe we have seen Dutch funds recognising the economies of scale and product that this sort of local/global approach entails.”
Rabobank Nederland Securities Services (RNSS) is one new name in the market, operating since 1998. Gerard Fransen, head of custody at RNSS, says: “We saw a need to consolidate custody within the group into a single recognisable entity and so RNSS came into being. Second, we wanted to service parts of the group such as Robeco and Schretlen private_banking that have been attracting business in the market, as well as the investment bank being set up in London and Interpolis, the insurance arm of the group, which are generating clearing, custody and securities lending activities for assets of around Dfl200bn.
Fransen explains that the next stage was to offer custody and value-added services to Dutch pension funds on the back of the ability to service such visible entities as Robeco, whilst filling a gap in the group’s business line.
“One of the important issues here I believe is that the advent of technology is on our side, because it means we have less to catch up on after every new development. For example, we are one of the first banks to offer electronic banking to institutions via our intranet and extranet IT links. And we are finding synergies here within our own business to take wholesale products into the market, which now include securities lending and custody possibilities.”
Fransen adds that Rabobank is picking up business in the mid to small fund range, whereas competition is undoubtedly fiercer for the large fund business where the foreign custodians have traditionally pitched their products. “With all due respect to Dutch custodians, I feel this is where the market competition lies, because we will never have the capacity of the larger players.”
Fransen believes one of the next hot custody issues will be what can be offered for private equity business, which although not complicated is another string to add to the custody bow.
“There is all to play for in Dutch custody, and you certainly won’t find the Dutch players getting complacent as things start to hot up,” concludes Fransen.

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