US Bancorp Fund Services acquires Quintillion
US Bancorp Fund Services is to acquire Quintillion, the Ireland-based fund administrator, as mergers and acquisitions (M&A) in the sector continue.
The terms of the deal were not disclosed although the transaction will add $18 billion in hedge fund Assets under Administration (AuA) and 53 Dublin-based employees to US Bancorp Fund Services’ existing business with the combined company now supporting roughly $84 billion in hedge fund AuA.
Joe Redwine, president of US Bancorp Fund Services, said the transaction would bolster the Milwaukee-based firm’s operations in Europe, adding the process would be seamless for clients.
The acquisition of Quintillion comes nearly one year after US Bancorp Fund Services purchased AIS Fund Administration.
Fund administrators, particularly those without investment bank backing, have been under severe pressure. The market is highly saturated and a number of smaller outfits do not possess the resources to invest in technology and staff.
Regulations such as the Alternative Investment Fund Managers Directive (AIFMD) are also impacting standalone administrators which do not possess banking licenses to provide depository services to fully compliant AIFMs.
A number of these standalone fund administrators are debating whether to launch depo-lites, which under Article 21 of the AIFMD, are exempted from the strict liability provisions for loss of assets when servicing non-EU funds taking advantage of national private placement regimes.
However, regulatory approval to establish depo-lites is not guaranteed for many of these firms and some standalone administrators could struggle to convince investors that their potential conflicts of interest can be effectively mitigated. Furthermore, the European Securities and Markets Authority (ESMA) could force non-EU managers to appoint a full depository in 2015 thereby rendering depo-lites obsolete.
M&A activity at fund administrators has not been as prolific as it was in 2012 which saw two high-profile mergers – namely the sale of Goldman Sachs Administration Services to State Street AIS, and that of GlobeOp to SS&C. Perhaps the biggest deal in 2013 was Mitsubishi UFJ Financial Group’s takeover of Butterfield Fulcrum.
Some investment banks, however, might offload their fund administration arms which are occasionally viewed as high-cost, low revenue businesses. Regulatory capital requirements under Basel III have prompted some banks to scale down their fund administration arms, while some institutional investors are instructing hedge funds not to use the same service provider as both prime broker and fund administrator.