Investment administration provider, Appello Services, has fielded a flurry of queries from local managers in the wake the recent sale of the Trustees Executors (TE) fund accounting and custody divisions to rival, Apex Group.
Craig Nodder, Appello chief, said the firm had seen a marked pick-up in interest from NZ fund managers following the deal, which brings together two of the biggest competitors in the outsourced administration market.
“We have heard from several of their clients expressing concern about the impact on competition,” Nodder said.
Appello is one of a handful of smaller NZ investment admin players potentially in line to benefit if managers seek alternative options for the unit-pricing and fund-accounting services set to be unified in the – yet-to-be-approved – buyout..
Other groups including Adminis and GenCap also offer unit-pricing and associated services that might now find a more receptive audience in the NZ funds management market.
Global-local custodian, BNP Paribas Securities Services, provides unit-pricing and fund-accounting, too, but typically only for large clients or in tandem with custody.
Nonetheless, the prospect of a Apex-TE fund admin combo (notably, the TE registry was excluded from the deal) has triggered kick-back from some managers worried about excessive market concentration.
But Apex NZ chief, Anthony Edmonds, said while the feedback was “flattering”, the joint operations would have less control of the admin market than many fear.
“Apex and TE have calculated our combined market share of the [licensed retail] fund administration market is approximately 27 per cent, while being only approximately 10 per cent of the custody market,” Edmonds said.
He said the market share of the two entities would be lower still if measured against the wider admin universe including wholesale, institutional and in-house.
“A number of groups in-source retail fund administration including ANZ Bank, AMP Wealth, NZ Funds, Booster, and the Christian KiwiSaver Scheme,” Edmonds said. “Market new-comer Sharesies is also doing a lot of its own investment administration.”
Some in the industry argue that in-house admin should be considered separate from the outsourced market – a point, no doubt, the Commerce Commission will consider as it weighs up the merits of the Apex-TE arrangement.
At any rate, in-sourced admin is dwindling in the NZ funds market with the country’s largest retail fund manager, ANZ, understood to be switching to an external unit-pricing model soon with BNP Paribas in the frame.
However, Myles Allan, head of consulting firm Mosaic FSI, said the concentration of outsourced fund administration implied by the Apex-TE deal could “elevate the industry’s level of operational risk” – another item likely to sit on the Commerce Commission agenda.
“From our customers’ perspective, choice is a good thing and outsourcing options will of course be reduced by further consolidation, although there are other emerging NZ compliant options, both domestic and from offshore,” Allan said.
He said managers would have to be “at the end of their tether” to contemplate switching to in-house admin given the difficulties involved.
Allan said the unique local demands of the portfolio investment entity (PIE) system also constrains NZ fund managers from using – possibly cheaper – off-the-shelf global platforms for either in-house or outsourced administration services.
While some managers have expressed worries the Apex-TE tie-up could see price hikes, Allan said – if anything – economies of scale should in theory enable a “lower fee fund administration environment”.
“We would not expect fees to materially increase and, if they do, this is likely a reflection of the oligopolistic pressures that are often seen across the NZ economy reflecting, among other things, NZ’s scale and barriers to entry for new players,” he said.
Either way, Apex and TE still have some conversations ahead with the Commerce Commission before the purchase can proceed.
“We are aware of the proposed transaction and look forward to engaging constructively with the parties,” a spokesperson for the competition regulator said.