On the surface, State Street’s acquisition of Mizuho’s global custody business earlier this month looks like a basic outsourcing arrangement, but upon closer look, it actually presents a nuanced hybrid model for APAC asset servicing, claims The Asset. In a recent article, the publication takes a closer look at the strategic collaboration between the two firms.

State Street’s acquisition included Mizuho’s global custody services; cross-border fund services domiciled in the Cayman Islands, Bahamas, and Luxembourg; a European securities agency; as well as sub-custodian and securities lending services in the US, all supporting the overseas investments of Mizuho’s Japanese clients.

The transaction represented movements of businesses with approximately US$580 billion in assets under custody (AUC) and US$24 billion in assets under administration (AUM). According to The Asset, this expanded State Street’s AUC in Japan by about 50 per cent and increased its market share in foreign asset custody, which is estimated to be a US$5 trillion market, to about a third.

In an interview with The Asset, Hiroshi Kobayashi, senior vice president and Japan country head of State Street, emphasised that the two organisations’ global custody portfolios have minimal overlap. The collaboration is thus complimentary by nature.

New investment trends

Japan is currently seeing increasing foreign investment outflows, a trend that The Asset claims is influenced by initiatives such as the Nippon Individual Savings Account (Nisa) programme. Nisa encourages Japanese residents to save for retirement through investments instead of savings by giving tax exemptions.

The article quotes Kobayashi: “There’s been a slow trend of increasing overseas investment in Japan with its new theme of savings to investing, and a good portion of that is going to continue to flow into foreign investment.”

Local and global

Similar investing trends are also seen elsewhere in Asia Pacific, resulting in markets such as China, India, and Australia grappling with issues of scaling. For regional or local banks, partnerships with global custodians are a way to handle cross-border complexities.

Kobayashi shared with The Asset, “The investment servicing business is a platform business. The amount of investment required obviously is continuing to rise. And you do need a certain amount of volume and scale to be able to continue to invest.” He added that for Mizuho, divesting non-core global custody operations to State Street would allow it to focus on its domestic strengths.

The Asset concludes that the State Street-Mizuho partnership could represent “a pragmatic path forward” for consolidating the APAC landscape.