Consolidation is an ‘opportunity’ for mid-size fund admins

Mid-sized fund services firms are set to benefit from a trend toward using multiple firms to mitigate risk, according to one fund services executive.

“Fund managers see risk as a key part of their decision-making process and are spreading their business among several fund services firms rather than having all their eggs in one basket with a bigger operator,” said Ian Hobday co-chief executive of Professional Partners, which sold its fund services and intermediary unit to mid-size firm FundRock last week.

Consolidation has continued in the fund services and administration market with Vistra announcing the acquisition of Deutsche Bank’s corporate services business last month, and the mid-market sector is continuing to open up.

“A year ago, if you’d asked if the mid-market was difficult to operate in for fund services firms, many would say ‘yes’,” said Hobday. “However, the round of consolidation at the top end of the market, is giving the mid-sector a new lease of life.”

Challenges remain for smaller players, says Kevin Smith, a director at Heritage, which was acquired by international firm Estera in June.

“There will always be a place for mid-sized fund services providers, as they can offer that individualized service, but the mid-market is becoming increasingly difficult to operate in,” said Smith.

“There are certain clients whose focus is on the brand of fund services provider. That can stem from investor pressure, who want assurances that the provider is top quality. In that sense, there is an advantage to being part of a larger provider.”

Another benefit of scaling up as part of a larger group is the ability to respond more quickly to new complex regulations, he added: “As a smaller outfit, deploying capital to those areas can be a challenge.”

Meanwhile, the sale of UBS’s fund administration unit to Northern Trust has now completed, following an announcement in February. The deal will increase Northern Trust’s assets under administration to approximately $413 billion, expand its existing offering in Luxembourg and allow it to establish operations in Switzerland.