GC Friday Interview: Tim Calveley, Deputy CEO of Mitsubishi UFJ Fund Services, on HFA M&A

Nearly a year ago, Mitsubishi UFJ Trust and Banking Corporation, part of the Mitsubishi UFJ Financial Group (MUFG), acquired Butterfield Fulcrum to become the global alternative asset administration platform of the Tokyo-based bank. Now rebranded as Mitsubishi UFJ Fund Services, the administrator is seeking to become one of the top three players in the space, and to get there, the firm is actively pursuing acquisitions, as well as looking at ways to grow organically. Tim Calveley, deputy CEO of Mitsubishi UFJ Fund Services, had previously served as deputy CEO at Butterfield Fulcrum, and he explains how the two have come together and look to move forward.

GC: How has the year gone since being acquired?

TC: It’s been a crazy year; so much has happened and it’s very exciting. When Mitsubishi bought us, they bought Butterfield Fulcrum as a platform, as they wanted to get into the fund administration business, and they wanted to expand in the West and use the leverage and influence they have in Asia to help grow the business. They really wanted to put together an investor services platform, combining fund admin with custody, banking, FX, securities lending, etc., into a global platform.

We’re really spending a good part of the initial year just working on a strategic plan, seeing what does the big picture look like, where do we want to get to and how do we get there, and then you divide that into the subsets. Clearly M&A is an important one. We did the Meridian acquisition pretty much as soon as we closed the Butterfield Fulcrum acquisition. That was a nice, small easy one to do, and it’s been a very successful acquisition; it’s added quite a lot of value and some really good clients. We are actively hunting targets. We have a number of conversations ongoing. Once people realize you’re an acquirer and you have a lot of capital, you get a lot of incoming calls. We have a lot of conversations at various stages right now, and I certainly expect to see more activity in that area going forward.

GC: How many acquisitions are you looking to make?

TC: It totally depends on size. Meridian is about as small as we would do. There’s no real limit on how big we would do; there’s plenty of capital there. There are a few bank-owned shops that either are available or have been available. If we did one of those huge ones, obviously that’s going to take up the whole year pretty much, whereas otherwise we could do a few smaller ones. It needs to be the right fit for us strategically; an acquisition that gives us more presence in Asia might be on the list or maybe an acquisition that gives us a little bit more product set in other areas where we’re not as strong, and it has to be a good cultural fit for us as well. We have a pretty wide remit, and I would certainly expect to see one or two acquisitions 2015.

GC: Do you focus more on growing organically or through M&A?

TC: We’re really pressing our foot on the pedal on both avenues. M&A has a lot more uncertainty; there’s a certain amount of things outside of your control. We’re not going to overpay—we’ve had a couple we’ve looked at and we didn’t either like the business or like the price, so we walked away. So you never really know what’s going to happen, but in the meantime, you can control the organic side of things.

On the organic side, there’s two main initiatives. Number one is really exploring and utilizing the Mitsubishi network, especially in Asia. It’s the fifth largest bank in the world, obviously with tremendous contacts all throughout Asia, so one thing we’ve done is set up something called “MUFG Strategic Alliances” group. We took a whole bunch of our top operations staff, pulled them into this separate unit, and they pretty much spend much of their time in Asia now, speaking with people in Mitsubishi Financial Group and getting introductions to asset managers, for example—people Mitsubishi already have a relationship with and are looking for avenues of growth with us. We just won a five or six billion dollar mandate; we’ve got several of these huge mandates who Mitsubishi already has a relationship with and they can get us not only in the front door but halfway down the corridor.

We have zero interest in competing in small startups right now. We’re really much more focused on either big conversions of existing funds or utilizing the Mitsubishi network. It’s been very successful, and that’s probably the lowest hanging fruit. There’s a whole orchard for us to go visit and meet. We haven’t really taken the first apple off that orchard yet.

GC: What size of clients in terms of AuM are you targeting?

TC: Anything over $100 million, and $200-250 million probably gets our interest a little bit more, just because a lot of the stuff we’re getting through [Bank of Tokyo] are $500 million+.

One thing we’ve noticed is the number of startup funds who go on to become large funds has really decreased. A lot of that is based on the regulatory environment. There’s a much greater churn of small startups right now, and a lot of them just don’t survive due to the regulatory environment; it’s so expensive–their break-even cost points are so high, so it’s much harder. So we’re just focused on big startups, which are few and far between, or potential clients where we can add a cross-bunch of services like custody and all the other banking products that the larger clients want; they want a unified offering from one service provider.

GC: How much more will the hedge fund administration market consolidate?

TC: If you categorize it as under $10 billion in assets under administration, those administrators would be too small for us to consider acquiring, but maybe a couple of them will go together. So I think there will always be a bunch of small administrators in that size. There’ll probably be more consolidation in the $10-100 billion market where larger players, more established administrators have been around a long time but probably struggle to grow or make money. That’s an area where we’ve been taking a look. And certainly we’re looking at any super large administrator, any bank-owned shops who want to go out of the space, like Credit Suisse did recently. There could be a couple more Credit Suisse types coming up, and that’s something we’d be very interested in taking a look at, as that would catapult us. Our goal is to be a top 3 global administrator. We’re not going to do that organically, so that will happen through M&A, but we’ll never do an acquisition for the sake of it.

GC: Would you ever be open to being acquired by someone else?

TC: 100% no. This is a really important, strategic business for the bank. The size of the acquisition Mitsubishi made on [Butterfield Fulcrum] is peanuts relative to their balance sheet, but it gets a lot of attention it get from top MUFG executives. The president of MUFG was in our Bermuda office recently, and they’re taking this acquisition really seriously, and putting this investor services group together is highly, highly strategic. So 100% this is a business we’re going to be growing.

GC: What makes MUFG put so much attention on the fund services group if it’s relatively small?

TC: Because it can very large. The fund administration business they bought is by their standards small, but their custody business is huge, and for banking, FX, lending, etc., they’re a huge player. So with the ability to put everything together, the opportunities are mind-boggling. We just have to piece it together slowly and carefully and make sure we get it right.

GC: Are there any other areas you’re focusing on?

TC: One thing we’re doing now is from a technology point of view, we’re able to take a much longer timespan approach. Under private equity ownership, everything is very much about the next quarter or the next year. Now we’re taking our view on technology over the next five to ten years. We’re making a huge, multimillion dollar investment into core technology and a lot of things we’re building ourselves, partnering with IBM and using some of their tools, and we’re building some really exciting stuff that’s going to be game-changing, we think, in the fund administration industry.