Most likely, you didn’t know much about Intertrust before Stephanie Miller was appointed CEO in 2018. Perhaps you, like me, thought of the firm as a rather dull provider of corporate services, with a small administration business tacked on.
Think again. With the USD330m acquisition of Viteos, Intertrust just joined the major leagues. Intertrust describes the deal as a game-changer – and so it is. Although Intertrust paid an eye-watering GBP435m for Elian in 2016, it did not move the needle as much as it should have. Viteos is altogether a different matter, delivering USD350bn of assets and a blue-chip U.S. client list. Viteos has been working with Intertrust for some time on development of its client portal, IRIS.
The deal comes as no surprise. Miller is in a hurry to build a strong funds business alongside its corporate services offering. Paddy O’Brien has been drafted in from Citi to run the global funds business, whilst Ian Lynch left his job as global head of alternative investors at BNP Paribas to become chief commercial officer. Viteos now gives them a platform for further growth.
Intertrust is not the only independent that is set on global expansion. Apex, the Bermuda-based administrator which claims to have some USD650bn AuA, has been on the acquisition trail since 2017 and now has 40 offices worldwide. SS&C has always seen M&A as the quickest way to bolster the bottom line, whilst Citco, which recently passed USD1trn AuA (all through organic growth), recently announced plans to enter the institutional investor market. There is also plenty of M&A activity amongst the mid-tier administrators, whilst private equity firms continue to invest in the sector.
It wasn’t meant to be like this. The custody banks believed that, once they bought their way into the business, it would be the same as it had been for performance measurement – that is, total capitulation. But, whilst there has been much consolidation, it has actually gone the other way. Apex itself bought out the alternative fund services businesses of Deutsche Bank, and SS&C took on both the Wells Fargo and Citi books back in 2016. State Street, which acquired the Mourant PERE business back in 2009, sold it to TMF in 2018. J.P. Morgan, meanwhile, outsourced a major part of its technology platform for alternative services to Arcesium, the D.E.Shaw/Blackstone-owned administrator which claims to have USD100bn of client assets.
At the same time, efforts by those banks looking to gain a foothold in the alternatives sector have largely stalled. Aside from Wells Fargo, which bought LaCrosse from Cargill in 2011, others with global ambitions have included MUFG, the Japanese bank that acquired UBS Alternative Fund Services in 2015. At the time, the bank said that the deal was all part of the plan to make MUFG Investor Services “a global industry-leading fund administrator.” That has subsequently been pared back: announcing its recent deal to acquire Point Nine, the bank said that it aims to become an “unparalleled industry leader in Japan as well as a global player boasting significant presence overseas”. U.S. Bank, which used the 2005 acquisition of Wachovia’s trust & custody business as the base for its expansion, bought AIS Fund Administration in 2012 and Quintillion in 2013 but has not made any subsequent moves, although it was reported to be interested in Citi’s AIS unit.
Banks have stopped buying administration businesses. The last significant deal was back in 2014, when BNP Paribas acquired Prime Fund Services from Credit Suisse. In the interim, administrators have been on an M&A spree, often supported by private capital. But the independents need to learn the lessons of history: failure to integrate and rationalize disparate O&T functionality will be a drag on earnings and a turn-off for clients. Banks have already been there, and have the scars to prove it.