Demand Outpaces Pay in Global Custody

Over the last year, global custody has become a more sophisticated undertaking as asset managers turn to complex derivatives to beat the market's doldrums.

Investing in mere bonds to meet pension needs lost its luster years ago as aggressive money managers turned to equities for higher returns. Today, corporations and governments are looking to exotics as a way to meet obligations without pouring more money into pension funds.

For custodians, this new degree of complexity requires hiring people who understand derivatives. "You need a whole cadre to support them," says Susan Livingston, a partner at Brown Brothers Harriman.

However, while the experts who create and trade derivatives command high salaries and bonuses, clients don't want to pay for the overhead of custody specialists who have the advanced education and derivatives experience custody of the instruments requires, specifically people who understand derivatives pricing, accounting and operations.

"That has always been a problem in custody but derivatives bring it to the fore because the risks are so high," says Livingston. At another bank, for example, an entry level staffer doing the accounting on a transaction reversed its valuation and missed a $70 million drop in portfolio value. Such errors inevitably lead to lawsuits.

Laura Scherban, BBH's director of recruitment, says the expansion of derivatives has opened up opportunities for people desiring to work with more sophisticated products. "We are not just doing plain vanilla processing," she says. "Our custody servicing has expanded to products such as real estate and derivatives that clients are demanding. It's a huge opportunity for people who have that type of experience."

Because derivatives are rapidly evolving, "we aren't necessarily looking for 10 years of experience," says Scherban. "We might look at candidates with six months or a year of experience who have demonstrated they have worked with derivatives somewhere else. We can take that and teach them more."

While her bank doesn't release exact salary information, the more experience in exotics candidate have, the higher their salary potential, Scherban says.