State Street chief executive officer Ron O’Hanley
State Street CEO Ron O’Hanley admits he isn’t a big fan of interim appointments. So when arguably the biggest job in the world of securities services became surprisingly vacant late last year, O’Hanley stepped into the role himself, in what he described as an “easy decision”.
“It’s working out fine,” he says, referring to temporarily heading up the investment services unit which accounts for 80% of State Street’s overall business. “I don’t view what I’m doing now as a burden. I’m actually having quite a bit of fun.”
While some may wonder why the CEO of a G-SIFI would split his time between this role and his myriad other responsibilities, the answers lay in the upsides of continuity, the opportunity to be closer to the client and the team, and the fact that O’Hanley actually once held this role when he first became CEO of the organisation at the start of 2019 all the way through to 2022.
O’Hanley says it is not a permanent solution – meaning at some point in the near future we will see a major appointment to the role – which you would think only a handful of candidates in the world would be suited for – but for now, he represents a more than capable hand on the tiller.
“I think it was the right move at the time and it certainly played out because you see how we finished the year, not just financially, but also what we accomplished,” he explains. “There was a lot of software development that needed to be delivered as it relates to Alpha, there was some private markets software that we had to deliver and have installed, and there was an awful lot of operational change going on in the spirit of transformation. I didn’t want that interrupted.”
Faith in a new leadership line-up
O’Hanley has also put his faith in a new-look leadership roster comprising rising stars and State Street asset servicing stalwarts.
Newly appointed COO Mostapha Tahiri – who O’Hanley describes as having a unique combination of both operational and technology understanding alongside having spent much of his career with the client – has risen through the ranks in recent years, while familiar face Joerg Ambrosius will oversee investment services client facing activities. Donna Milrod, executive vice president and chief product officer, and John Plansky, executive vice president and head of State Street Alpha, make up the rest of the leadership and will report directly to O’Hanley.
“This has given me a chance to work with the team very directly, as opposed to indirectly, to see them in situ and watch them operate,” he explains. “It has also reinforced for me the strength of that bench below. That team is very, very strong; it was just a question of who was going to take what role.”
Heading into 2024, it truly feels like a new era has begun at State Street. The organisation moved to a state-of-the-art headquarters with fresh branding to match, while the BBH acquisition saga scuppered by regulators is well behind them. Mandates are flooding in and despite BlackRock continuing to diversify its service providers across assets, the custodian is back to investing in the core business, technology and its flagship product for the future in front-to-back offering Alpha.
The dream once drafted on a whiteboard by O’Hanley, Maiuri and Plansky has evolved into the jewel in the crown it is today. State Street had 18 live clients at the end of 2023, and O’Hanley says the aim is to deliver six to eight new mandates per year.
“If there’s any Alpha sceptics in the marketplace, I’d like to meet them because I’d like to just understand what they don’t believe,” he explains, referring to the initial doubters when State Street acquired Charles River Development to spearhead its Alpha plans. “We believe it’s becoming not just a competitive advantage for us but a real competitive moat because of what the client is asking of its investment servicer, which has moved beyond the safekeeping, custody and administration of assets.
“I would describe us now as an enterprise outsourcer and increasingly we’re providing really critical infrastructure for our clients, both asset managers and asset owners. Sometimes it’s truly front-to-back, end-to-end, other times it isn’t. But in each case it’s providing critical infrastructure that needs to do a couple things: it needs to fulfil the purpose that our clients are looking for and enable them to take something they were doing, put it outside and know that they future-proofed it with us, but as importantly it’s got a link with everything else they do.”
Custody is a unique business in the financial markets and, despite its necessity, it is a difficult business for many to run. It requires constant significant investment in the core service itself and, in O’Hanley’s own words, and has become “table stakes” in terms of expectations. He refutes, however, the oft used description of “commoditised” – saying he doesn’t know a single client who would describe it in that way.
What this means is that asset servicers are evolving to offer a full front-to-back service, enhanced data and to provide the appropriate technology and efficiencies to help their clients futureproof their business. Those clients have incredibly complex operational models and technology stacks, and the realisation that they would turn to their custodians for operational support has driven State Street’s strategy.
“I remember having a conversation with one client that really stuck with me. It was an institution that you would agree has plenty of money, wherewithal and market success that it doesn’t need to be worried about this, but the CEO at the time said to me: ‘it’s not that we can’t do this and that we can’t invest in this technology, but I don’t want to. I want my people focused on investment management and the actual production of Alpha for our clients and clients, service, everything else, if I can outsource it, I’ll do it’.
“You realise this isn’t clients that are on their back foot looking for ways to cut costs, its clients and institutions thinking about how they are going to future-proof themselves. I think that’s what a global custodian needs to do now: recognising its role has changed and needing to be in a spot where it can provide that infrastructure, actually work with a client and say, ‘I hear what you’re trying to achieve, let’s spend a few months and engineer what that is’.”
Alpha? Bravo!
A lot of this comes back to Alpha, a service which has already been expanded to the first private market client. It will continue to reach State Street clients of all sizes – the majority of initial users are some of the largest – and at its current growth trajectory will continue to dominate the Boston-headquartered asset servicers’ earnings calls each quarter.
While this expansion of business won’t show up on the widely cited assets under custody and administration league table, it is impacting State Street’s revenue as clients are turning to the organisation for more and more services.
“We were very keen to have a couple of development partners and that did come forward pretty quickly. One of them isn’t fully onboarded because the development that we’re doing with them will represent the next generation of software beyond what I have talked about.”
In 2024, State Street will pour around a billion dollars into technology and new capabilities for its front-to-back offering, along with private markets, custody and beyond. In addition, O’Hanley says the organisation will implement more than 10 AI savings initiatives in 2024 and hopes to capture up to eight new Alpha mandates over the next year.
“To do what we aspire to do, to be this true essential partner, the outsourcer of choice and provider of this front-to-back service – in not just the asset servicing platform but also the data platform, there’s just a lot we need to get right,” he explains. “That’s why you’re seeing the investments that we’re making in the business. We’ve talked about this to our investors – we will invest a billion dollars in new capabilities this year and a huge amount of that is in the investment services business.”
The investor services role is quite natural for O’Hanley, a CEO who likes to be close to the clients, who knows many of them personally through his asset management roles at State Street, BNY Mellon and Fidelity.
“I spend a good third of my time with clients quite intentionally… going back to this idea of essential partnership, you need that constant refresh of what’s important to them and to know what are we doing or where are we falling short?
“Whether directly – like I’m doing so now – or indirectly, if you’re not spending a large amount of time with clients, I’m just not sure you’re in a spot to be able to set strategy, allocate resources and really think about the people that you want to assign to this task.”
O’Hanley may not like the notion of interims, but this closer proximity to the investment services could work out well. The chief executive is planning to grow fee revenue by 3-4% in 2024 through a combination of back-office sales, Alpha and private markets, while also reducing Alpha implementation time and continue to digitise.
While at some point in the future we will be dealt a huge headline when a new investment services head is appointed, for now, O’Hanley is a luxury to have at the helm for State Street and its ambitions in 2024.