Australian alternatives fund administrator MainstreamBPO has acquired Luxembourg-based Alter Domus’ Asia-Pacific hedge fund admin arm, amid a trend for consolidation in this sector and growing opportunities in the family office segment.
The acquisition adds some $3 billion to the Sydney-based firm’s $52 billion in assets under administration, of which $34 billion is in Australia.
The deal has bolstered the Hong Kong business in particular, with client numbers there rising to 23 from six prior to the agreement, which was struck on September 16. MainstreamBPO has also added one client in Singapore to bring the number up to 14 there.
“Demand from hedge funds out of Hong Kong is significantly higher than out of Singapore,” said Martin Smith, chief executive of FundBPO, a subsidiary of MainstreamBPO. He sees “exponential growth potential” in both markets in light of fund passporting initiatives, most notably the Hong Kong-China mutual recognition scheme.
The hedge fund space has been traditionally targeted by Citco, Smith noted. “Now we can offer a credible alternative.”
In Hong Kong, demand for fund admin is largely driven by hedge funds, he said, while in Singapore he is seeing business come above all from family offices, private equity and real estate funds.
Smith sees family offices as a growth segment, as certain big fund admin players are focusing on larger institutional clients, partly due to regulatory risks around increasingly tight anti-money-laundering rules on private individuals.
Large asset-service firms are increasingly seeking clients to which they can provide global and multi-faceted services, said Smith, and this creates opportunities for specialist providers. “Clients ask how much of your business comes from fund admin,” he added, and in MainstreamBPO’s case that figure is 80%.
There has been a significant trend towards consolidation in the fund admin industry in the past year or so, something Smith also sees as an opportunity. Several changes in ownership along larger players have led to frustration among clients, he said, and others in the industry confirm this.
US-based SS&C Technologies said in August it was acquiring Citi’s alternative investor services. One June 19, Tokyo-based Mitsubishi UFJ agreed to acquire UBS’s alternative fund services group. Baring Private Equity Asia struck deals on July 8 and May 22, respectively, to acquire Orangefield and Vistra Fund Services. And BNP Paribas Securities Services agreed in August 2014 to buy Credit Suisse’s fund admin arm, with the deal completing in June this year.
MainstreamBPO does not feature among the 10 largest hedge fund administrators in Asia, according to September data from Eurekahedge. Citco ranks third (with 14.2% market share), behind State Street (18.2%) and HSBC (17.9%). Fouth-placed SS&C’s Citi deal will see its Asia share rise from 7.7% to 12.2%.
Smith originally met Alter Domus in May to discuss a deal, after the firm had been considering its options for several months. The transaction is expected to be finalised by December 31 and is forecast to generate around $1 million of annual revenue for MainstreamBPO. The initial purchase price of $1 million was funded with proceeds from MainstreamBPO’s initial public offering, which led to the holding company’s shares being listed on ASX on October 1.
Smith is the largest shareholder in the Australia-listed holding company of MainstreamBPO. The holding company owns three business lines: FundBPO, which accounts for 80% of revenue and operates in Australia, Hong Kong and Singapore; SuperBPO (20% of revenue and only operates in Australia); and ShareBPO (not material).
Having set up an office in Singapore in April 2012, MainstreamBPO opened in Hong Kong in 2013 and acquired middle-office services provider in the city, HFO, in mid-2014.
Alter Domus continues to operate in the corporate services market, where it competes with the likes of Intertrust and TMF, and to offer private equity and real estate fund admin services in Asia.