TMF Group will offload Custom House Fund Services, one year after the two companies merged. The management buyout of the company from the parent group will create an independent fund administration company, bucking the consolidation trend in the market. Mark Hedderman, CEO, Custom House Fund Services gives his reasons for MBO.
What is the background to the latest move?
MH: Equity Trust invested in Custom House in 2008 and was itself acquired by TMF a few years later. We merged with TMF Fund Services and created a new business within the TMF family. As part of a large organization such as TMG we were able to withstand the volatility in the market that as a smaller player would have been challenging. When we finalized the creation of the new funds services business we felt along with TMF that the time was right to take it independent.
The announcement of the acquisition may appear quite recent but the full merger of the two businesses took the best part of a year and a half. The hedge fund administration market had been evolving rapidly. We were managing the client base at the same time as upgrading the business model.
With the TMF acquisition we had a new operations centre in Sofia. So we didn’t want a quick and dirty way of integrating the teams and felt the best way of strategic integration was to align the businesses properly given the way the hedge fund administration landscape was changing to create a new business model that was fit for purpose and that was future proof. We wanted a new centralized operating centre with sales forces in key locations including New York, Hong Kong and Geneva. So during the two-year process it wasn’t a case of taking one thing and adding it to another, it was an overhaul of the combined businesses to create a new entity that was more than the sum of the previous individual parts.
The days of simple NAV calculation are long gone and the industry has become more complex, more sophisticated and requires a compliance offering with legal support. So your business has more layers than purely an accounting/admin focus. The challenge everyone had was how to react and respond to that demand. In that sense we have become consultative as opposed to just striking an NAV. So by undertaking an operating model overhaul, investing in new technology and expertise we have been able to build a new business that is positioned for the future demands of our clients and our investors.
Was it always management’s plan to buy out the company?
MH: It was not always the plan but as the new combined funds business evolved with TMF as TMF evolved itself, it became clear that the best chance of success for the funds business was to revert to being independent. It is also our belief that this is the service that the market is crying out for, a totally independent administrator focused on servicing their client and their investors.
This goes against the grain of recent consolidation in the fund administration space. That’s something we’re aware of and we’re excited about. As an independent business there’s merit in taking a position in the market to who you are different. We want people to recognize again the value in the segregation of responsibility and the strength there is in being independent.
How will the business be structured?
MH: In terms of the structure Custom House will have locations in Sydney, Singapore, Hong Kong, Sofia, Malta, Rotterdam, Dublin, New York and Chicago. Fund administrators are challenged in terms of how to structure their operating model. We decided to take advantage of our existing presence in Sofia and create a centralized operating location whose driving force is its quality. This has been made possible by advances in technology and consolidating into a central and specialized operating model. This goes against the grain of some of the traditional centres like India. The defining characteristic of our Sofia centre is that quality is not sacrificed over costs.
Who will lead the company?
MH: I will lead the company as CEO. James Osborne is chairman.
Where do you see the future for independent fund administration?
MH: From a commercial and market perspective we see the value of independence to support the fund and investors. That will be the cornerstone of the investment industry. It’s time for a true discussion on how the administration market will deal with regulations like AIFMD, which favored consolidation. The sands are shifting and that’s why it’s important to bring the core value of independence to investors and managers. That is what we believe our business that is is worthwhile in reinforcing the position of truly independent administrator as having a key role to play in today’s market.
GC Interview: Mark Hedderman on the Importance of Being Independent
TMF Group will offload Custom House Fund Services, one year after the two companies merged. The management buyout of the company from the parent group will create an independent fund administration company, bucking the consolidation trend in the market. Mark Hedderman, CEO, Custom House Fund Services gives his reasons for MBO.