The evolving role of custodian banks in investment administration

As pension fund investment portfolios grow larger and more diversified, the volume and complexity of investment data have seen investment administration taking a much more central role in how these funds operate. The investment administration function is no longer just about keeping track of numbers - it’s about ensuring data integrity, meeting compliance demands and making decisions based on information that can be trusted. However, the job is immense, and the diverse responsibilities place an inordinate amount of pressure on most administrators – which is why custodian banks have stepped in to lighten the load. 

Traditionally, pension funds have relied on asset manager records to construct the fund’s financial reporting, to complete regulatory compliance and to measure the asset manager’s performance. On paper, it works. But in practice, each manager uses their own systems, accounting frameworks, valuation methodologies and data standards. The reports are individually accurate but, often, collectively inconsistent. Reconciliation becomes a manual, time-consuming process, prone to delays and potential errors. For funds with dozens of mandates, often spread across multiple markets, this patchwork approach doesn’t scale well.

Custodian-driven investment administration addresses this by starting from the source. Instead of aggregating third-party reports, the custodian builds the accounting record directly from custody data, like security identifiers, cash flows, and asset valuations already sitting in their systems. From there, they construct a full accrual, trade dated double entry accounting record that is reconciled to the custody records and asset manager statements. It’s a ground-up approach that creates structure and clarity where there used to be fragmentation.

This independently constructed accounting record - what some call the “golden record” has become a crucial differentiator for the most competitive funds. It’s the version of the truth that informs financial reporting, audit preparation, mandate compliance and performance measurement. Not only does it help funds identify discrepancies early, but it also creates a reliable, standardised baseline for everything that follows. In many cases, this record is used to directly populate the fund’s general ledger, streamlining year-end processes and reducing audit friction. For others, it provides a critical check against internal figures or manager reports.

Where this model becomes particularly powerful is in complex investment environments. A fund with 15 asset managers is manageable. A fund with 85 mandates is a different story entirely. Without a central, consistent data source, the administrative overhead becomes a full-time burden. As a result, custodians who can report across asset classes and cross boarder markets and don’t just offer reporting; they offer meaningful operational relief.

Internationally, the global custodian banks have provided investment administration services for the past 50 years, with roots dating back to the establishment of the Employment and Retirement Income Security Act (ERISA) of 1974 in the United States. In fact, for decades now, it’s been commonly considered best practice in places like the US, the UK and Europe for custodians to hold the accounting book of record for retirement funds.

In South Africa, the adoption of this approach is growing, though it’s still not the default. Some of the country’s larger custodians, including Standard Bank, have built out their investment administration services specifically to support these evolving fund needs. While these services initially focused on listed instruments, the capabilities have expanded to include unlisted assets, private equity, and infrastructure investments - categories that are becoming increasingly important under Regulation 28. As pension funds shift more capital into alternative assets, the ability to track, monitor, and report on those holdings consistently is essential.

This is especially true when you consider that, what’s changed in recent years isn’t just the scope of assets being managed; it’s the level of customisation required. No two pension funds are structured exactly the same. While standardisation underpins the custodian model, the front end often needs to be tailored with different benchmarks, different compliance rules and different reporting formats. Banks that can balance this customisation with reliable operational scale are in a position to serve medium and large funds without sacrificing efficiency.

Importantly, this isn’t about replacing administrators or competing with internal teams. It’s about enabling those teams to operate with better data, less risk and more control. Of course, independent, custody-led investment admin isn’t appropriate for every fund in the market, but for those dealing with high volumes, complex portfolios or tight reporting cycles, the benefits are hard to ignore.

As the investment landscape continues to shift towards even more diversification and increased regulatory scrutiny, the pressure on pension funds to tighten their operational models will undoubtedly grow. Against this backdrop, custodians that can deliver clarity at scale, backed by independent, reconciled, auditable data, are no longer just safekeepers of assets, they’re enablers of trust. And in an environment that effectively runs on trust and confidence, that might be their most valuable and important role yet.

With over R15.4 trillion of assets under custody and administration, Standard Bank is the largest custodian in Africa and as of 30 June 2025 supports over R4.1 trillion on its investment administration platform.