New horizons
04 Febuary 2020
MUFG has set itself the mission of becoming the preeminent Asian bank in the global securities financing market. It has begun with a series of senior hires and plans for a brand new technology framework to reinforce its global growth plans. Drew Nicol reports
Image: Shutterstock
This year, MUFG Investor Services declared its aim is to focus on building out its securities lending offering. Why now and what are you looking to achieve?
Dan McNamara: MUFG Group has put a huge focus on its investor services franchise in recent years and there’s a genuine commitment to growing this area. We’ve already seen it in our fund administration and fund financing solutions and we see the enhancement of our securities lending proposition as a continuation of that mission. Clients and the industry know that MUFG is committed to this space, we have a longer investment and commitment horizon than many other banks, so a move like this has resonated with the market.
We are the fifth-largest bank in the world by balance sheet, we have a stable brand and we see agency securities lending sitting very well alongside our portfolio of products. You could say we were a little underweight in this area even though we have been here for 20 years, but now it is an area where we can grow dramatically.
We are making this move at a point in time where a lot of regulatory change has been introduced and bedded down; yes changes will continue but we are in a prime position to build a platform for the future that already incorporates many of the post-crisis regulatory requirements in its core DNA. In this sense it’s the perfect time to re-start with our new programme.
What opportunities are you looking to leverage to jump-start your new lending offering?
McNamara: First of all, we’re really excited about the team we have built, including Tim Smollen as the global head of securities lending solutions. This is a team that has a lot of experience with managing clients who have large portfolios and expect a very high-end service in terms of the provision of necessary information, transparency, data and adapting to regulations and clients’ changing needs.
We also believe that buy-side clients are looking for another option in this market and we see a space for another truly global programme, especially one run by an Asian bank. The actors in the industry we’ve spoken to are very interested in what we’ve showcased so far and given the current market environment we see now as the right time to do this.
Tim Smollen: The new regulatory environment also creates opportunities and not every programme out there can take advantage of that. We look to be nimble and responsive to changing market dynamics.
Crucially, we are not going to be a programme that’s struggling with what to do with general collateral. That said, we want to be selective in our marketing and work with clients where we can offer value and something they aren’t getting elsewhere.
Where are you starting on this mission? How will the new global programme be structured and where is your team based?
Smollen: So far we have Jay Schreyer, based in London, who will focus on Europe, the Middle East and Africa, along with Asia Pacific.
Additionally, we now have Anthony Toscano, in New York, who is responsible for building out the business in North America.
Both these gentlemen have experience in working with custodial and non-custodial programmes. They are both traders and risk managers, and client-focused as well, so they have the perfect skill set for our new model.
This is a global business and our clients need and demand continuity when interacting with each of our desks, so the fact that Jay and Tony have worked together before and understand each other is going to be critical.
McNamara: Asia is obviously an important market for us as well and we plan to set up a desk there the future. In the meantime, we will continue to engage with Asian clients, but it’s just a matter of building that physical presence.
We are satisfied with the team we have right now and we’re not planning any further hires for the moment. We have very high expectations for how this business will grow in the coming years and we will take on new hires to support that as needed.
Becoming arguably the first Asian bank to take a leading role in this space would be a major accolade, Tim, is that what drew you and your team’s attention to MUFG?
Smollen: Yes. We love a challenge and we love to build. This business requires long-term commitment and not every bank out there is ready to do that – MUFG is. When I get a client I expect them to be with me for 10 to 20 years, and that’s our goal. There’s also obviously something to be said for working with the fifth-largest bank in the world. We have a strong capital base and a great credit rating and that resonates with clients. I could build the best mousetrap in the world, but, in the end, clients buy the bank, so it’s important to have that rock-solid foundation.
The world’s best mouse trap will require some heavyweight technology to back it up. Can we expect to see some investment in this area for MUFG Investor Services?
McNamara: Technology is at the core of our proposition. Our wider investor services franchise made some acquisitions in 2019. These include Point Nine, a post-trade start-up now re-branded as MUFG Investor Services FinTech, and certain divisions of the fund administration business of Maitland, a global advisory, administration and family office firm.
We’ve done this because we need to own and develop our key technology functions, such as client interface and data management and analytics to continue being a provider of choice.
The acceleration of our agency lending programme will follow a similar strategy. We will take inputs and feeds from market data sources and leverage some other in-house data systems but it will always be in a way that fits within our existing ecosystems. Tim and the team have always been major users of data and data analytics and so our aim now is to take that to the next level. You’ll hear more about all this in the next six to 12 months.
In terms of our in-house builds, we have an opportunity to focus on new market trends such as environmental, social and corporate governance, which we know our clients care about and work with them during the process to know what they needed.
Speaking of clients, where are you going first in search of new lending clients?
Smollen: Primarily, we are hoping to tap into additional supply in Japan by offering a new programme which helps those clients get more comfortable. A number of large clients already lend—and have for years—but most really limit what they do and others have remained on the sideline for years.
Elsewhere, we also fully expect to win business from clients who are already with other lending agents by offering a better option.
We are looking for clients that have large, global portfolios that are diversified across asset types. In turn, we are avoiding clients that only have large general collateral holdings such as corporate bonds or only UK stocks. In terms of clients, generally we are looking to partner with asset gathers. Not surprisingly, that means asset managers and sovereign wealth funds that are chasing yields and own assets that tend to be more attractive in the securities lending markets.
MUFG also has a long history of working with central banks and even though the asset classes they tend to buy are not always the most exciting we can always find value in high-quality liquid assets such as US, German and French government bonds.
Clients who come to us tend to be the ones who want information, who want to be engaged with our traders and our desks on a regular basis.
They are looking for more than a behind-the-scenes programme that generates some alpha and covers costs – they want a proactive management tool where they can find innovation.
And what feedback have you got from the borrowers?
Smollen: It’s actually from the borrowers that we’ve seen the most excitement so far because they have their own challenges and we’re solutions-oriented. We have worked with counterparts on capital and regulatory solutions for many years and we’ve had great feedback when they’ve heard our plans to expand our service for both sides of the trade.
This year’s Pan Asian Securities Lending Association conference is in Tokyo and we’re viewing that as our coming-out party. We know borrowers that will be attending that are especially keen to hear more about what we have planned.
Are you concerned by the fact that the biggest Japanese lender partially pulled out of the market last year?
Smollen: If a client like Japan’s Government Pension Investment Fund was in our programme, I am pretty confident that we would have been able to build a solution to meet their needs and keep them lending. And that’s one of the opportunities we are looking to tap into. Those big, sophisticated investors that need and crave more transparency and information, and a more client-focused service that we can provide. I was disappointed to read about the fund’s decision but I also see it as an opportunity.
It’s undeniable that Asia is the future. There are huge opportunities there and we will be ready to take advantage of them.
Dan McNamara: MUFG Group has put a huge focus on its investor services franchise in recent years and there’s a genuine commitment to growing this area. We’ve already seen it in our fund administration and fund financing solutions and we see the enhancement of our securities lending proposition as a continuation of that mission. Clients and the industry know that MUFG is committed to this space, we have a longer investment and commitment horizon than many other banks, so a move like this has resonated with the market.
We are the fifth-largest bank in the world by balance sheet, we have a stable brand and we see agency securities lending sitting very well alongside our portfolio of products. You could say we were a little underweight in this area even though we have been here for 20 years, but now it is an area where we can grow dramatically.
We are making this move at a point in time where a lot of regulatory change has been introduced and bedded down; yes changes will continue but we are in a prime position to build a platform for the future that already incorporates many of the post-crisis regulatory requirements in its core DNA. In this sense it’s the perfect time to re-start with our new programme.
What opportunities are you looking to leverage to jump-start your new lending offering?
McNamara: First of all, we’re really excited about the team we have built, including Tim Smollen as the global head of securities lending solutions. This is a team that has a lot of experience with managing clients who have large portfolios and expect a very high-end service in terms of the provision of necessary information, transparency, data and adapting to regulations and clients’ changing needs.
We also believe that buy-side clients are looking for another option in this market and we see a space for another truly global programme, especially one run by an Asian bank. The actors in the industry we’ve spoken to are very interested in what we’ve showcased so far and given the current market environment we see now as the right time to do this.
Tim Smollen: The new regulatory environment also creates opportunities and not every programme out there can take advantage of that. We look to be nimble and responsive to changing market dynamics.
Crucially, we are not going to be a programme that’s struggling with what to do with general collateral. That said, we want to be selective in our marketing and work with clients where we can offer value and something they aren’t getting elsewhere.
Where are you starting on this mission? How will the new global programme be structured and where is your team based?
Smollen: So far we have Jay Schreyer, based in London, who will focus on Europe, the Middle East and Africa, along with Asia Pacific.
Additionally, we now have Anthony Toscano, in New York, who is responsible for building out the business in North America.
Both these gentlemen have experience in working with custodial and non-custodial programmes. They are both traders and risk managers, and client-focused as well, so they have the perfect skill set for our new model.
This is a global business and our clients need and demand continuity when interacting with each of our desks, so the fact that Jay and Tony have worked together before and understand each other is going to be critical.
McNamara: Asia is obviously an important market for us as well and we plan to set up a desk there the future. In the meantime, we will continue to engage with Asian clients, but it’s just a matter of building that physical presence.
We are satisfied with the team we have right now and we’re not planning any further hires for the moment. We have very high expectations for how this business will grow in the coming years and we will take on new hires to support that as needed.
Becoming arguably the first Asian bank to take a leading role in this space would be a major accolade, Tim, is that what drew you and your team’s attention to MUFG?
Smollen: Yes. We love a challenge and we love to build. This business requires long-term commitment and not every bank out there is ready to do that – MUFG is. When I get a client I expect them to be with me for 10 to 20 years, and that’s our goal. There’s also obviously something to be said for working with the fifth-largest bank in the world. We have a strong capital base and a great credit rating and that resonates with clients. I could build the best mousetrap in the world, but, in the end, clients buy the bank, so it’s important to have that rock-solid foundation.
The world’s best mouse trap will require some heavyweight technology to back it up. Can we expect to see some investment in this area for MUFG Investor Services?
McNamara: Technology is at the core of our proposition. Our wider investor services franchise made some acquisitions in 2019. These include Point Nine, a post-trade start-up now re-branded as MUFG Investor Services FinTech, and certain divisions of the fund administration business of Maitland, a global advisory, administration and family office firm.
We’ve done this because we need to own and develop our key technology functions, such as client interface and data management and analytics to continue being a provider of choice.
The acceleration of our agency lending programme will follow a similar strategy. We will take inputs and feeds from market data sources and leverage some other in-house data systems but it will always be in a way that fits within our existing ecosystems. Tim and the team have always been major users of data and data analytics and so our aim now is to take that to the next level. You’ll hear more about all this in the next six to 12 months.
In terms of our in-house builds, we have an opportunity to focus on new market trends such as environmental, social and corporate governance, which we know our clients care about and work with them during the process to know what they needed.
Speaking of clients, where are you going first in search of new lending clients?
Smollen: Primarily, we are hoping to tap into additional supply in Japan by offering a new programme which helps those clients get more comfortable. A number of large clients already lend—and have for years—but most really limit what they do and others have remained on the sideline for years.
Elsewhere, we also fully expect to win business from clients who are already with other lending agents by offering a better option.
We are looking for clients that have large, global portfolios that are diversified across asset types. In turn, we are avoiding clients that only have large general collateral holdings such as corporate bonds or only UK stocks. In terms of clients, generally we are looking to partner with asset gathers. Not surprisingly, that means asset managers and sovereign wealth funds that are chasing yields and own assets that tend to be more attractive in the securities lending markets.
MUFG also has a long history of working with central banks and even though the asset classes they tend to buy are not always the most exciting we can always find value in high-quality liquid assets such as US, German and French government bonds.
Clients who come to us tend to be the ones who want information, who want to be engaged with our traders and our desks on a regular basis.
They are looking for more than a behind-the-scenes programme that generates some alpha and covers costs – they want a proactive management tool where they can find innovation.
And what feedback have you got from the borrowers?
Smollen: It’s actually from the borrowers that we’ve seen the most excitement so far because they have their own challenges and we’re solutions-oriented. We have worked with counterparts on capital and regulatory solutions for many years and we’ve had great feedback when they’ve heard our plans to expand our service for both sides of the trade.
This year’s Pan Asian Securities Lending Association conference is in Tokyo and we’re viewing that as our coming-out party. We know borrowers that will be attending that are especially keen to hear more about what we have planned.
Are you concerned by the fact that the biggest Japanese lender partially pulled out of the market last year?
Smollen: If a client like Japan’s Government Pension Investment Fund was in our programme, I am pretty confident that we would have been able to build a solution to meet their needs and keep them lending. And that’s one of the opportunities we are looking to tap into. Those big, sophisticated investors that need and crave more transparency and information, and a more client-focused service that we can provide. I was disappointed to read about the fund’s decision but I also see it as an opportunity.
It’s undeniable that Asia is the future. There are huge opportunities there and we will be ready to take advantage of them.
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