J.P. Morgan retains top spot

Global Investor/ISF’s Beneficial Owners Survey 2023 edition recognised the leading custodial lenders and third-party agent lenders globally. The survey asked beneficial owners from around the world to rate the performance of their agent lenders across areas such as collateral management, market coverage, reporting transparency and programme customisation. Only three firms qualified in the lender categories this year.

Global bank J.P. Morgan returned again this year to win the global weighted and unweighted categories, winning the top prize in two of the three regions: Europe, the Middle East and Africa (EMEA) and the Americas.

While RBC Investor & Treasury Services’ scores in the global categories were down on last year’s totals, the Canada-headquartered lender made the top three in this year’s rankings.

State Street took the final spot in the top three global lender lists and came out top in the Asia Pacific region.

J.P. Morgan

One respondent to the survey noted that the US lender ‘continues to be a leader in navigating the ever-changing market environment’, setting the backdrop for J.P. Morgan’s win across multiple categories again this year.

It scooped up the top prize again this year in the weighted category, scoring the highest global totals in Americas (7.07) and EMEA (6.98), both down slightly on 2022’s figures. The bank scored 6.13 in the Asia Pacific weighted list, also lower

RESPONDENTS:

This year’s survey saw nearly two-thirds (62%) of respondents originate from the asset manager or mutual fund space, up on last year’s representation (54%). Respondents also comprised public and private pension funds (22%), insurance companies (14%) as well as trust banks and corporations.

Nearly half the respondent firms reported assets under management (AuM) valued at more than $100bn, with the remainder spread out quite evenly over the $1bn to $90bn brackets. The remainder had AuM under $10bn.

Three-quarters of respondents said they use only one single provider, while the remainder used two or more.

than last year, but making it the second best-rated lender in that region behind State Street. The firm’s global average rating across the three regions, at 6.40, also continued a slight downward trend.

In the unweighted category, J.P. Morgan had the highest unweighted scores in EMEA (6.98), an improvement on last year, and in the Americas (6.72). Again, in Asia Pacific, it was only one of two lenders to quality, and ranked in second place. On an average basis, a score of 6.79, though down in 2022 meant it returned to levels seen in 2020 and 2021 (6.69 and 6.8 respectively).

As a custodial lender, J.P. Morgan secured the top spots on both an unweighted (20.56) as a global total) and weighted (19.59) basis. Again, it achieved the highest scores in EMEA and Americas.

It scored top marks with respondents in all 12 service categories outlined the unweighted category. In the weighted part of the survey, it was recognised for its Programme Customisation, the Provision of Market and Regulatory Updates and its Relationship Management capabilities.

J.P. Morgan also received recognition as top agent lender in the EMEA and Americas regions, in the weighted and unweighted categories, which also enabled it to get the best global total score. It was the only agent lender to qualify in all three regions.

Like previous year results, respondents showed a differing appetite for lending. The number of firms lending up to $1bn was similar to making available between $2bn and $3bn and between $5bn and $7bn.

Of the key challenges outlined, a few respondents singled out the upcoming regulatory challenges lying ahead including the SEC’s US settlement cycle moving to T+1 in May 2024 and the impact on security recalls, and the new proxy and loan disclosure requirements. Ongoing market turbulences were also highlighted as an issue.

State Street

Rated ‘excellent’ by one survey respondent, the lender qualified in the Americas and Asia Pacific regions in the All Lenders part of the survey, in the weighted and unweighted groups, winning in APAC with an unweighted score of 6.75 and a weighted total of 6.25. It also won the average weighted score category, with a figure of 6.58.

In the Americas market, it came third behind J.P. Morgan and RBC Investor & Treasury Services, with an unweighted score of 5.75. In the weighted space, a score of 6.91 placed it second behind J.P. Morgan only.

The situation was similar when only top custodial lenders were considered, with State Street returning to place top in Asia Pacific. When it comes to the agent lenders, it was only one of two firms – alongside J.P. Morgan – to qualify, and also win in the Asia Pacific market.

State Street achieved second or third place when service categories in the unweighted category were taken into account. However, in the weighted space, it won across multiple categories including Collateral Management, Engagement on

Corporate Actions, Income Generated, Lending Programme

Parameter Management, Risk Management, Market Coverage in Emerging and Developed Markets.

RBC Investor & Treasury Services

Canada-based lender RBC Investor & Treasury Services (RBC I&TS) was only one of two lenders to qualify in the EMEA and Americas regions, alongside J.P. Morgan. An unweighted score of 5.36 in EMEA was down on the 2022 figure, while a result of 6.50 for the Americas was higher (6.44 last year).

In the weighted space, it placed at the same levels. It scored a global weighted average of 4.96, down on 2022’s numbers (5.22), and a global total of 9.92, also slightly down on the prior year’s levels.

In the unweighted custodial lenders lists, RBC I&TS also qualified in EMEA and Americas, and took second place in these regions.

Looking specifically at service categories, the Canadian lender won second place in the unweighted Programme Customisation, Provision of Market and Regulatory Updates and Relationship Management lists.

One survey respondent highlighted: ‘RBC I&TS continues to have great reporting tools, risk management and overall client experience.’

AGENT LENDERS (WEIGHTED)

AGENT LENDERS SERVICE CATEGORIES (WEIGHTED)

Global Investor/ISF Beneficial Owners Survey 2023 METHODOLOGY:

Beneficial owners are asked to rate the performance of their agent lenders. Respondents are asked to rate their agent lenders across 12 service categories (see below) from one (unacceptable) to seven (excellent).

There are two methodologies: unweighted and weighted.

Unweighted methodology

All valid responses for each agent lender are averaged to populate unweighted tables. All beneficial owners’ responses are given an equal weight, regardless of the size of their lendable portfolio. All categories are given equal weight regardless of how important they are considered to be by respondents. No allowances are made for regional variations.

Weighted methodology three in Asia Pacific. To qualify globally, a lender must qualify in at least two regions.

The weighted table methodology makes allowances for both the size of the respondent’s lendable portfolio and how important the respondents, on average, consider each category to be. An allowance is also made for differences between average scores in each region to make meaningful global averages.

Step one – weighting for lendable portfolio: A weighting is generated to reflect to the size of the respondent’s lendable portfolio. Each respondent is put into a quartile depending on its total lendable portfolio. The scores of the respondent are then given a weighting based on this quartile. As the boundaries of each quartile are determined by all the responses received in this year’s survey, the boundaries are unknown until the survey closes. For the purposes of the 2023 survey all Asian responses will be given a weighting of 1. Asian responses will not be included in determining the quartile boundaries. However all Asian responses will be subject to step two – see step 2 below.

Custodial and third-party agent lender tables Ratings of lenders acting in a custodial or third-party agent lender capacity are recorded in separate tables. The respondent is asked to define their relationship with the lender: custodial, agent or both. If the relationship involves both forms of arrangement, the response counts for both the custodial and agent lender tables. Therefore, some responses will be included in both the custodial and third-party agent lender tables. All the scores calculated for overall lenders will be replicated for custodial and third-party agent lenders separately.

The qualification criteria are lower for the custodial and agent lender tables compared with overall. To qualify for either the overall custodial and third-party agent lender tables, lenders need four responses in the Americas, four in Emea and three in Asia Pacific.

Most improved

The agent lender that improved its score by the greatest margin over its equivalent 2022 score is the most improved firm. Agent lenders are ineligible if they did not qualify for the 2022 survey.

Service categories

Respondents are asked to rate each of their providers from one to seven across 12 service categories. The ratings of respondents for each service category are averaged to produce the final score for each provider. The service categories are:

Income generated versus expectation

• Risk management

Reporting and transparency

• Settlement and responsiveness to recalls

Engagement on corporate action opportunities

• Collateral management

Relationship management/client service

• Market coverage (developed markets)

Market coverage (emerging markets)

• Programme customisation

Lending programme parameter management

Step two – weighting for importance: An additional allowance is made for how important beneficial owners consider each category to be. This is done to acknowledge the fact that beneficial owners consider some categories to be more important than others.

Respondents are asked to rank each service category in order of how important the function is to them. An average ranking is then calculated for each of the 12 categories (11= highest ranking, 0 = lowest). This number is then divided by 5.5 to give a weighting within a theoretical band between 0 and 2, with an average of one. Again, basing weights around one is done to preserve comparability with unweighted scores.

To illustrate, if every respondent considers category X to be the most important it would get an average rank of 11. This is then divided by 5.5 to provide the weighting for category X, i.e. 11 / 5.5 = 2.

Tables And Scores

Overall tables

The overall table contains all responses for a lender regardless of its relationship with the beneficial owner, whether custodial or agent. The following scores are calculated: separately for each region, a global total, a global average and for each service category.

Regional scores are the average of all responses from beneficial owners based in that region (it is the location of the beneficial owner, not the lender, that is the relevant). There are three regions. A lender must receive a different minimum number of responses to qualify in each: five in the Americas, four responses in Europe, the Middle East and Africa (Emea) and

• Provision of market and regulatory updates

To qualify for each service category table, the lender needs the same number of responses to qualify for the corresponding main table; i.e., to qualify for an overall, custodian or agent lender service category the lender must qualify in two of the three regions (for example, four responses for that category in the Americas and three in Emea). A lender can qualify in some categories and not others – it does not have to qualify globally for all service categories to be any particular service category.

VALID RESPONSES

For a response to count for the purposes of qualification, the beneficial owner must rate the lender in no fewer than eight of the 12 service categories (i.e. it can tick n/a in no more than four service categories).

It is possible for a lender to qualify globally or regionally without qualifying for all service category tables, if it receives n/a responses for certain categories. For example, it may not offer emerging market coverage and therefore receive a string of n/a ratings in that category but qualify for all other categories, regionally and globally.

If a lender receives two or more responses in the same region from the same beneficial owner, an average of the ratings will be taken and it is considered to be one response for qualification purposes. If a lender receives two or more responses from the same client in different regions (e.g. pension scheme X rates lender Y in Emea and the Americas) the responses are not averaged and are counted as separate responses for qualification purposes.