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EXTERNAL CUSTODY GROWS IN HI-TECH WORLD

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More local authority pension funds are outsourcing their custody arrangements because of the increasing expense and...
More local authority pension funds are outsourcing their custody arrangements because of the increasing expense and complexity of the hi-tech financial universe and new custodial and settlement arrangements.

The introduction of T+5, or five-day rolling settlement, in June and the impending implementation of the CREST computer system mean councils are being forced to hire external experts because of financial, geographical and labour constraints.

Midland Securities Services has been signed up by the £600 million Cleveland CC pension fund as custodian of UK equity and fixed-interest investments worth £400m, while Dyfed CC has launched a search for a custodian for foreign and UK securities.

These developments follow similar signings between Cornwall CC and Barclays Global Securities Services and SG Warburg, and the London Pensions Fund Authority and Chase Manhattan.

'The move to T+5 settlement and CREST were the two burning issues for us,' said Cleveland loans and investments officer Andy Hill. 'We lack adequate resources to become a direct participant in the information technology now coming on stream.'

Bankers Trust, BZW and Merrill Lynch are already in place at Cleveland as international custodians.

Dyfed senior assistant county treasurer Cyril Philips said T+5 made in-house custody too risky because of the council's remoteness from London. 'On top of that CREST is coming on track and we will not have the resources to invest in the expensive equipment required.'

Dyfed aims to have the new custodian in place by March 1996, in time for the move to unitary authorities in Wales. BZW is sole balanced manager to the £402m pension fund.

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