Dublin, 23 August 2017
There have been plenty of Mergers & Acquisitions (“M&A”) in the Fund Administration space over the past few years. The logic for administrators is easy to see: they can reduce costs, improve profitability, streamline their technology offering and benefit from economies of scale.
However, unless there is clear strategic direction and a commitment to innovation and investment, the marriage between two administrators isn’t always a happy one and gaps and anomalies can appear that have a direct negative impact on clients and staff.
Technology remains pivotal to successful M&A activity. With successful consolidations, clients can enjoy better, more unified systems. However, the process of merging systems can often cause issues that can impact even the most basic technology functions. If not correctly integrated, there is a risk that clients are moving to an environment which is less robust and reliable, which can lead to client and staff dissatisfaction and which can increase the risk of cyber breaches.
The other key consequence of M&A activity which can seriously negatively impact client service is disruption to management and service teams. Deals are often structured with the explicit goal of reducing headcount and service locations. One unintended consequence of such deals which happens frequently is that disaffected team members leave soon after the merger occurs, causing significant service disruption.
What has become increasingly clear is that independence and management stability have become key differentiators in the fund administration market. Many fund managers now rate their administrator’s independence as being more important than size. In fact, Centaur’s recent client survey highlighted that 80% of fund managers rated administrator independence as either ‘extremely important’ or ‘somewhat important’. When we delved further, we found that there is a real fear of conflicts arising from M&A activity. Fund managers are wary of consolidation where short term commercial interests can override long-term strategic planning.
“M&A activity in the fund administration space remains a prominent trend which we are confident will continue,” says Karen Malone, Founding Partner of Centaur Fund Services. “However, clients must ensure that they are not the victim of disturbed or inferior service. We have seen many funds moving their business to Centaur to escape such distractions and upheaval to service and they are now enjoying the stable management and independence of Centaur with the reassurance that no conflicts will arise.”