Asia Pension Fund

The Client

Citi global custody worked with a large public pension fund in Asia to address concerns on custodian risk and identify alternative solutions to mitigate concentration risk and identify tangible solutions.

The Challenge

Citi has been providing global custody services to subject client for a long time. As with other pension funds in Asia, the client was analyzing their risks and exposure across various markets and factors – portfolio, market, operational. Operations and market risk were key concerns as they were invested across various markets and exposed to a single custodian, their sub-custody network and insolvency risks. To address concerns on sub-custodian risk, the client sought solutions mitigating credit risk concerns, an operations strategy to address sub-custodian insolvency risk questions while maximizing complementary services and revenue streams.

The Solution

The Citi sales team worked with the client to analyze in detail their custody structure, exposures and key solution requirements. The team successfully convinced the pension fund client that, in addition to credit rating, other key factors that they should consider in a global custodian bank are:

Segregated account structure: this can ensure the safety and soundness of client’s assets and enable the client to monitor accounts at any time
Transparent FX services: Citi has 31 currencies available via AutoFX, and Citi offers a flexible solution with options to maximize transparency and clearly understand FX exposures and risk
Global proprietary network: lower credit, operational and settlement risk, lower cost and higher operational efficiency, higher problem-solving capability and easier local compliance
Local/Pension industry commitment: in partnering with a global custodian with a large on-the-ground presence, the client can get best local support. Moreover, with strong client penetration in the Pension industry, Citi put significant resources on Pension-related activities and is best positioned to provide advisory and solution supports that Pension fund needed

The Result

Citi helped the client think in a more broad manner about the risk and requirements of their custodian considering factors such as Asset size and complexity, level of understanding of regulation and market infrastructure, asset transitions and potential limitations, and access to market participants (e.g., brokers, regulators). Due to Citi’s experience in customization and comprehensive service offering, and knowledge of the Asia pensions industry, we were able to help the client set up a dual-custodian for a hot/cold custodian structure to minimize their exposure to a single custodian, and provide more comprehensive services such as cash pooling, securities lending, repo to enable them to best leverage their custodian’s services and capabilities.