Over the past thirty years, Citi’s securities lending product, OpenLend has grown from a small custodial lender to one of the premier global agent lenders in the business. David Martocci, managing director and global head of sales and client management for Citi’s Securities Finance business, describes OpenLend as “an open-architecture securities lending offering that provides clients with a boutique service designed to enhance portfolio performance by delivering customised solutions”.
SLT catches up with him at the IMN Beneficial Owners Conference in Arizona to find out more about OpenLend and get some insight into how markets are shaping up as securities lending business drifts back.
SLT: You seem to have had a securities lending role in every bank – why end up at Citi?
David Martocci: Citi was an interesting opportunity. I have a lot of experience in the securities lending business specifically in the third party space. I have previously been instrumental in building third party businesses at J.P. Morgan, Lehman Brothers, Deutsche Bank, and Dresdner. In looking at Citi, I saw a business with exceptional potential for growth in this space. Citi’s global presence and the depth of its relationships with many of the world’s most important institutions presented a tremendous opportunity for expansion. What also drew me to Citi was the quality of talent of the people and the level of commitment of senior level management to the business, in terms of continuing, developing and growing it.
SLT: What was the impetus for developing the OpenLend brand?
Martocci: When I think back and look at why we decided to rebrand, obviously we spent a lot of time with clients and prospects discussing their needs and objectives, how they envisioned the business going forward. At the IMN conference you hear a lot about bundling and unbundling and trends, but honestly I feel that the real driver is what clients are saying. OpenLend was really just about spending time with clients, understanding their needs, and providing them with a securities lending offering that is about choice and developing customised solutions.
SLT: How has this evolved from what securities lending used to be?
Martocci: If you look at how the business was back in the late 80s and early 90s, securities lending was a check box on a custody agreement and clients were placed into boxed solutions which did not offer customisation to their unique requirements. Obviously since then we have come a long way. After everything that has transpired over the last four years, beneficial owners have realised that participating in a programme that is flexible and offers the ability to tailor their programme is really what makes sense. I feel that clients can then go to their management and demonstrate that they spent the time in analysing and structuring a programme suitable for their needs.
SLT: What choices are clients making?
Martocci: We work one on one with our clients to understand what their needs and objectives are. We need to understand the risk and return profile of their institution and how we can adapt our program to fit within this framework. Clients are choosing between the benefits of either a custodial or third party programme, they are looking at reinvestment options, lending structures, how they want to lend, what they want to lend, and in what markets. They are also looking at a combination of various programmes in terms of whether they would like an exclusive, an agent structure or a hybrid. At Citi, we are able to leverage our industrial strength and global expertise in delivering the white glove service which our clients have come to expect.
SLT: How about collateral choices, do you see any trends there?
Martocci: Either way you look at it, whether the client takes cash or non-cash collateral the market trend is all about providing choices for clients. For example, is the client an asset manager? Do they want the cash collateral back or do they choose external managers? If the client chooses external managers and just went through an RFP process and selected someone to manage their medium term fixed income portfolio, for example, that means they went through their board, they went through the approval process and they did their due diligence. Well, if those approvals are OK and the asset manager has a money market offering, why not give the same counterparty the cash collateral to manage? At the end of the day, your securities lending provider could be your largest single asset manager, then the same due diligence should apply.
That is how our programme is structured. But we have always run an intrinsic style programme, so Citi never had pooled investments. We are very fortunate in how the programme was structured and developed. It helped in the tough years that we have just gone through and we continue to refine and develop it as market conditions indicate.
SLT: What might some of the customisation look like?
Martocci: Let’s say a client has a corporate bond portfolio with high yield corporates which they are concerned about lending. Customisation is really in finding out what the portfolio manager is concerned with. Are they looking for trading volume or price? So developing a programme for that client based on their needs and making them comfortable based on, for example the last three days trading volume is an integral part of our programme.
SLT: You recently opened an LA office, what was the push?
Martocci: We’ve developed and grown our business in the Americas in the last few years. The Los Angeles office is about US-based market growth and looking at where our clients are located. We can better service clients by expanding the hours for our relationship management team and Citi has always had a fair amount of business on the West Coast. Looking at the development of business over the last 18 to 24 months, it has made a lot of sense to have the staff out there, both from a relationship management and product sales specialist standpoint.
SLT: Asia is always big news, how is your presence there developing?
Martocci: We’ve always been there. I see some of these press releases for Taiwan launches but we have been there over five years. So for us, it is about continued expansion. Some of these markets are true and tested so having that footprint is definitely an advantage for our clients and we are taking full advantage. Our recently launched Australia trading and product group has been very successful in expanding horizons and developing new opportunities and business.
SLT: I often hear that one of the challenges in Asia is a “fragmented” market place – how do you see that developing?
Martocci: I think that fragmented can be a negative term. I see it more like independence. As compared to the securities lending market in Europe where regulations are more broad-based, the regulations that govern many of the countries in Asia are specific to each market. We will continue to see that, especially in the current regulatory environment, and rightfully so. Obviously people want to have a say over what is going on and have an overall awareness.
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