GC Friday Interview: Kedi Chang on Circle Partners' Acquisition of Caledonian Fund Services

Last week, Circle Partners acquired Caledonian Fund Services, which gives Circle, a Netherlands-based independent financial services provider, an entrance into the U.S. fund services space. All the entities will undergo name changes to fall under the Circle brand, and the plan is to keep all of the staff on board (approximately 70 with Circle and Caledonian combined). Kedi Chang, managing director, has been with Circle since 2012 when it acquired ATC Fund Services, giving the company an office in Curaçao. Chang has continued to lead that office, and now, along with Michael van Zanten, Circle’s global head of Fund Services, will work on developing the business throughout the Americas.

GC: What led to the acquisition?

KC: Circle is interested in growth. Organically, it’s been a fairly slow process, ever since the financial crisis, so acquisitions is an option for growing a little faster. While Circle is always on the lookout for opportunities, though, we are not aggressively looking for acquisitions. A couple years ago, Circle made the conscious decision that it wanted to enter the Americas time zone. It had predominantly grown into a solid European-based administrator, and the first stepping stone into the Americas time zone was acquiring ATC almost two years ago, which had an office in Curaçao. But all along, the intention was to have a U.S. office. When we came across Caledonian, who was actually looking to sell their fund administration business, that seemed like a perfect fit. When Circle’s looking for an acquisition, we’re really looking for a partner where the key teams want to stay on and continue to run the business. Having a Curaçao office and now a Cayman and BVI (British Virgin Islands) office from Caledonian helps us grow, because the Caribbean jurisdictions are still fairly popular fund domiciles. But to properly target the U.S. market, you need to have an office in the U.S. The fact that Caledonian’s U.S. office is in Orlando is actually a nice fit in the sense that it’s still close to the Caribbean jurisdiction, and it’s also a place to start looking at the Latin American market, along with the longer-term vision of adding possibly at least one more U.S. office in the Tri-State (New York, New Jersey, Connecticut) area.

GC: Why did Caledonian want to sell their fund servicing business?

KC: [Without speaking for them, I can just say that] they wanted to focus on their core and original business–banking, custody and their corporate work.

From the Caledonian Fund Services offices’ [perspective], they benefit from the fact that Circle is a true administrator; that is its core business, and I experienced this benefit also with the acquisition of the Curaçao office from ATC. The Caledonian offices will benefit from a lot of synergies with the other Circle admin offices, and the group understands where you’re coming from following an acquisition.

GC: Do you plan to keep the entire Caledonian staff or will there be any redundancies?

KC: For the staff in all the offices, there’s no intention to make any changes. Operationally, there’s no plan for immediate changes, but eventually we want all Circle offices to operate the same way, but that is going to be a very lengthy process to standardize the various offices.

GC: What will that mean, in terms of standardizing the offices?

KC: As of right now, it means we have additional systems that we can offer in our suite of services. Again, there are no immediate changes planned there. We use (Linedata’s) Mfact, and the newly acquired offices use Advent Geneva, so right now as a group, have multiple systems. We will consider changing that down the road.

GC: How long of a process would that be?

KC: I think that will also depend on the new business that we intend to attract, specifically in the U.S. market. We will listen very closely to what the clients are looking for. Especially in the U.S. market, for example, you’re dealing with specific regulatory requirements such as Form PF reporting, etc. So what we will be looking at in the near future, starting already toward the end of this year and into next year, is adding to the services that we will be able to provide, and with that in mind, taking a look at which systems are best suited for providing these additional types of services.

GC: What services do you plan to offer other than Form PF reporting?

KC: In Europe we’ve already added depositary services. Right now, as many are, we’re providing FATCA-related services, and we’re also reviewing AIFMD-related services, more so for the European base. But the top new service for the U.S. region would be for Form PF reporting. We are already looking at the capabilities of doing that, but obviously that means we’re targeting larger U.S.-based clients. We would also like to add more tax reporting, such as K-1, to our suite of services and geared toward the U.S. client base.

GC: How large of an AUM for clients are you targeting, and is it a shift in your core focus, or just something you want to add on?

KC: We want to add on. With a company like Circle, our intention is still to provide a boutique-type service, having the personal relationships and quality, etc., but to still have the operations and systems that can deal with a larger client base. As we look across our client base, we can cater to funds that are very small, such as $3-5 million, and we can cater to funds that have $1 billion in AUM, so it’s a very wide range of clients and from all geographical regions. One of the reasons why Circle wants to be much wider in its presence, across multiple jurisdictions, is because the client today is itself really spread around, where it might need a management company in one jurisdiction but a fund in another, or it will have multiple structure funds in multiple jurisdictions and deal with various regulatory requirements. So we want to be able to service them in any jurisdiction where they have needs.

GC: Do you have timeline for setting up an office in the Tri-State area, and is that the only location in the U.S. that you’re targeting?

KC: As of now I would say yes; we do we have some other locations that we think are interesting, but this process is at an early stage, where we’re still doing a lot of analysis. The Tri-State area—whether it’s New York, New Jersey or Connecticut—I think is a very obvious place to be, where you’re in a major center for the fund industry. We don’t have an exact timeline for when that will happen, but we’d like it to happen sometime next year. If it happens next year, it would be in the latter part of the year. It will really depend, though, because Circle Partners is fairly new to this region, so it’s also a question of getting better name recognition. As of now, the priority is to make sure the whole transition with the acquired offices goes smoothly, which take us through the remainder of this year. Separately, our branding and marketing efforts within the U.S. is very important, and hopefully we’ll build upon that and open a U.S. office.