Friday Interview: SGSS On The Credit Suisse German Fund Admin Partnership

SGSS recently won the mandate to provide fund services to Credit Suisse (Deutschland) AG. The win saw SGSS add 6 billion to its 62 billion assets under custody, and also acquire the legal structure of Credit Suisses German Asset Management fund administration arm. Global Custodian.com interviews Frdric Barroyer, chief executive officer for Societe Generale Securities Services (SGSS) Deutschland KAG, and Alain Closier, global head of SGSS, about the deal.

GlobalCustodian.com: Could you give a brief history of the deal?Frdric Barroyer: In the second half of 2009, Credit Suisse Asset Management in Germany decided to review its infrastructure in Germany and look for service providers for fund services. After the beauty contest we finally won, thanks to the strengths and robustness of the services.

GC: How have you structured the deal? Why the need for the term partnership?FB: It is a partnership because we are going a bit deeper than traditional outsourcing in this operation. The domestic-KAG system in Germany is quite unique in Europe. The way the Germany fund industry is structured for both institutional and retail investors is through a Master-KAG a master portfolio management company which is selected by the investors, and which then consolidates all the administration of the fund and outsources portfolio management to other managers. This model goes far deeper in providing services for clients than what exists in the rest of Europe. This is why we talk about a partnership, also because of the long term commitment from both partners.

GC: What is SGSS now liable for after the deal?FB: We will provide fund services, starting from solutions for their portfolio manager and their front office system. Then all the way down to reporting, fund administration, accounting, etc. The strategy of Credit Suisse in Germany will then be to focus only on portfolio management and distribution, and client acquisition, and they will mobilise all their resourses on these two core functions. Whereas SGSS as a well experienced master KAG will help reinforce the funds administrative function with its expertise.

GC: Why did you have to acquire the legal structure of Credit Suisses Asset Management Kapitalanlagegesellschaft mbH [Credit Suisses German fund administration arm?FB: To implement a Master-KAG model, it was much quicker to acquire the company and to novate the relationships with the inventors rather than transfer one by one all of the institutional funds or all of the retail funds. The final client has a direct link to the KAG.The price of the acquisition remains undisclosed. Credit Suisse will not get stake in SGSS and vice versa.

GC: What is the time frame for migrating clients onto the SGSS platform?FB: The target is to complete migration by the end of 2011, and the decision process of Credit Suisse is that they had to change their own system, it was getting close to the end of its life-span, and they needed a more robust solution, and we are operating in Germany a strong platform that is very integrated with the font-office modules up to the back office.

GC: What do the Credit Suisse clients think of the move?FB: We have not yet talked to Credit Suisse clients, but this is very compatible with the German model and SGSS is already a leading player in this industry.

GC: Because this partnership goes deeper than normal fund admin partnership, has the fee structure changed at all?FB: The fee structure is compatible and comparable with the rest of the Master-KAG business in Germany.

Alain Closier: It was an open bid from Credit Suisse, as you can image the key for Credit Suisse was the fees offered but also the services we are able to provide with our platform.

GC: Partnership seems to be the key word for SGSS. In July you signed a commercial agreement with the National Bank of Abu Dhabi (NBAD), expanding your custody reach into the Gulf region for the first time. In June you steamed up with U.S. Bancorp Fund Services to combine fund services across the European and American markets, and in March SGSS and the State Bank of India launched a joint venture offering securities services in India. In an industry that is seeing increasing acquisitions and consolidation, why are you choosing the route of partnerships?AC: Indeed they are partnerships but of three different natures. Concerning our recent announcements with USBSF and NBAD, both are commercial alliances, very important and innovative for us. The idea is to grow our geographical coverage in order to offer a global service to our clients, and at the same time better value our European platform to non-European customers who have a growing market share in Europe. USBSF is providing a service in the U.S., NBAD is providing a service in the Middle East. We will provide their clients with a platform and an expertise in Europe and at the end we are all able to provide a greater global service than our competitors. It is exactly the same as in the airline industry, with Skyteam or OneWorld. Clients are increasingly global, yet one cannot use only one airline in order to travel the globe and clearly sees the advantages as customers of using the companies that have joined into a well recognized commercial alliance.

Our other initiative with Credit Suisse is also a key point in our strategy as it reinforces our presence in key countries in Europe, and Germany is a key country for us. The rationale behind this partnership is a little bit different as we are aiming at reinforcing our link with key European clients.

As for India, SGSS is not massively present in India, an interesting emerging market for securities services but one that is difficult to enter. The idea there was to create a JV to combine our global expertise with that of the leading bank in the region.

All in all, they are all partnerships as you say but of very different nature in order to precisely tackle the different axis of our development strategy. What they do have in common though is the fact that we want to build our development in the long term with key stakeholders.