Streets ahead

Providing institutional investors with investment servicing, investment management and investment research and trading services, State Street now employs more than 20,000 people worldwide and has $12.3 trillion assets under custody. FST approached Jane Conway, SVP, Investors Services Division at State Street, to discover how the firm gears its efforts towards its clients’ demanding needs.

FST. In terms of State Street’s operations, do you have any major projects that you’re working on and/or any specific initiatives that you’ve undertaken that are the main focus of your attention right now?
JC. A main focus for the company as a whole, and for our product group, has been around the whole alternative investment space. So it’s our opinion and the opinion of our customers that the processing of complex asset classes like real estate and private equity and hedge funds and derivatives, is a real pain point for all the players in the industry.

From the sell side and origination side, it’s a complex undertaking to describe these kinds of asset classes and contracts. From the buy side, from our plan sponsors and our endowments, it’s challenging because these types of asset classes are perceived to be risky. They’re very complex to describe, to value, to price, and to report out on because there’s not a lot of market data available to support the description and evaluation of these kinds of asset classes. And for us, the provider, and similar firms in our space, the whole capture, evaluation, pricing, the collateral management, and cash projections and reporting around these types of classes and the traditional class to be in accounting space, are also challenging. So all the players are experiencing the same kind of pain.

So the opportunity in the industry is really threefold. Where I’ve been spending a lot of time focusing on is really building up a large-scale capability to capture and process these kinds of asset classes for both asset managers and asset owners. Our belief is if you get the backbone right, then the opportunity for additional value can be realized. So the backbone is really about how you get all of the information about the transaction, the contractual information, the trade order, the rules around how the trade will settle, and the terms and conditions around these complex contracts, particularly in the derivative space, is first and foremost.

The second is around how you capture all of the information that needs to be associated with these complex asset classes. So as you know, a lot of these kinds of asset classes are unregulated; they’re emerging; they’re new. There, in some cases, may not be precedence for it; there may not be benchmarks; there may not be market data available in the classical sense. So how you source and collect that information and how you associate it with the contracts and the asset classes is very, very challenging. We’re spending a lot of time focusing on our data strategy around these complex asset types.

The third is what I mentioned before. What does the value add? We have been working aggressively in the derivative space for many years as you know, very, very successfully. So we have great backbone from which we could expand and get quickly to the value add and look for ways for our clients to be more productive, mitigate their risks, maximize their overall reward, and give them the tools and information to be able to make decisions quickly. So over the next year and a half we’ll be releasing to market a number of capabilities that will enable our clients to do that.

FST. In regards to your success in the derivative space, do you feel that some of your success has to do with the aligned focus of your executives in keeping everyone educated and working well together?
JC. Yes. The overall executive group is very focused on coordinated activities between the business units, our customers, our service teams, our IT groups, and the regulators of course. But even beyond that, I think our success has been that we have always taken a customer-centric view on how we service our clients. It’s easy to lose focus when you’re dealing with complex asset types.

And for us, we believe our competitive advantage is to extend and enhance our customer centric approach. So what that means is the people, the process, and the technology are all aligned around the customer. So for example, more and more complexities emerge. A global asset manager, for example, does business in multiple countries, has multiple asset classes within their portfolio and a service for multiple locations.

Our approach is to take one single view of the customer, understand their overall strategic intentions, and to be able to align in centers of excellence so that the best people are servicing their client’s portfolio. We have the best match, the best people, the best expertise, servicing the client’s portfolio or the client’s overall book of business. So we have particular quantitive experts, right, modelling experts, pricing experts, accounting experts, transaction processing experts, reconciliation experts, and reporting and regulatory experts. And the plan is to be able to enable that expertise in a service model, globally, in a consolidated and cohesive fashion to our clients so that their experience with us is maximized. It’s then easy for them to do business with us and easy for them to look at their whole book of business; it’s easy for them to investigate their risks and understand how to mitigate those risks. I would say it is a customer-centric view.

FST. In regards to the whole customer experience, it really boils down to customer experience management. How do you really architect something like that?
JC. That’s a very good question because everybody is trying to achieve the same end state, right, which is to service complex asset classes. So the real differentiator is to make that feel personal, directed and focused to the customer’s overall means. So it’s about understanding what their risk appetite is. It’s about understanding what tools and information they need at what point in time. It’s about understanding who in their shop needs to have particular bundles of information and particular tools available to them and to be able to drive that set of information and tools to the customer.

If you start with a customer, we take an outside-in point of view. Start from the customer, understand who in their organization needs which information, which toolsets, understanding how to enable the architecture using things like smart technologies, right, to bundle and deliver those information packets and expose those toolsets so that they can do their work more productively just in time is the goal. So you have to think about that up front and then do the technology overlay, not think about leading with the technology. And that’s a
difference.

FST. If you take yourself outside your job right now in your company, do you foresee any specific challenges either on the business end or on the technology side for State Street over the next twelve months?
JC. I think the opportunities for us are huge. We have very targeted goals in terms of how we want to grow our business. We have a tremendous focus in Pan European clients as well as our Asia Pacific area, as engines of grow as well as providing additional value and opportunities to our traditional domestic funds. So it’s an interesting challenge to balance multiple objectives, which is to enhance our core business as well as to grow into new areas.

So you’ll see more innovation than we’ve ever seen before in how we grow. We’ve made some very interesting acquisitions. We will continue to do that. We will continue to broaden our net of global operations, as our customers have broadened their capabilities globally. So that’s really kind of our next three-year plan.