Connect with us

Europe

‘Mancos’ consolidate as Brexit transition deadline approaches

Published

on


Hidden behind the high-profile announcements of City of London fund managers’ Brexit relocation plans, a revolution is quietly sweeping through a little-known but integral part of the investment management industry.

A wave of dealmaking activity has taken hold among third-party management companies, the administrators that provide governance and compliance services to asset managers. Triggered by the UK’s vote to leave the EU in 2016, the trend is now gathering momentum as the Brexit transition period nears its end of year deadline.

While management companies, or “mancos”, may seem peripheral, they carry out a key regulatory function on behalf of fund managers: all EU investment funds must appoint a manco, which is tasked with making sure portfolio managers stay within the bloc’s investment rules. Crucially, mancos offer fund managers a straightforward path in gaining a regulatory foothold in another country, making the service providers more important than ever in the wake of Brexit.

While some investment managers have established their own mancos in the EU, many have turned to third-party providers based in Luxembourg and Ireland — Europe’s largest fund domiciles — in order to access investors in the bloc without having to move staff from London.

This has made third-party mancos highly prized and explains why buyers, often backed by private equity groups, are swooping on the sector.

Last month, fund servicing group Apex, which is owned by buyout investor Genstar, acquired FundRock, Luxembourg’s largest third-party manco which oversees $100bn on behalf of clients, for an undisclosed price. Private equity groups Carlyle and Pacific Equity Partners also in October tabled two bids to buy Link Group, whose manco business oversees assets of £86bn on behalf of asset managers, including Neil Woodford’s former fund. Link rejected the offers, the second of which gave it an equity value of $2.9bn, but has opened its books to the consortium in the hope of securing better terms.

Revel Wood, co-founder of One, a newly launched manco, says he is “constantly being called by private equity groups” who are rubbing their hands at the prospect of increased outsourcing and consolidation across the sector.

More approaches are anticipated, according to Marco Boldini, a partner at law firm Orrick. “Private equity groups are aware of the potential of third-party mancos and want to take advantage of a business that is flourishing,” he said. “We will see more transactions in future.”

The manco industry has slowly evolved over the past decade as fund managers have outsourced more of their operations to cut costs in the face of falling fees. Yet the sector is still relatively immature compared to other outsourced areas, such as fund custody or administration. Third-party mancos oversee just 7.5 per cent of fund assets in Luxembourg and Ireland, according to investment bank Stephens.

But the picture has begun to shift as a result of Brexit — in 2015, that share stood at just 4.5 per cent — and it is expected to continue to grow as fund groups also focus on their core business of managing money. Stephens projects the proportion could rise to 10 per cent within the next few years.

Third-party mancos are increasing market share

This is appealing to potential buyers who see an opportunity to grab a slice of a consolidating market where size counts.

“As more people are looking to outsource, you need to be a scale player,” says Des Fullam, chief product and regulatory officer at Carne, which provides manco services covering $1tn in assets.

Regulatory changes in the past few years have benefited larger mancos but strained smaller players. After the Brexit referendum, fears that UK asset managers would use mancos as a workaround to avoid setting up a fully fledged EU presence pushed regulators to raise the bar for how many employees they should have.

Mancos in Luxembourg and Ireland now require a minimum of three full-time employees, although staffing levels are expected to increase in line with their asset base. This, combined with increased competition for qualified workers in the two fund hubs, is significantly driving up costs for mancos.

David Rhydderch, global head of financial solutions at Apex, says that only large mancos have pockets big enough to absorb the added costs. “If you don’t have €25bn of assets, it’s incredibly difficult for a manco to make a profit,” he says.

According to PwC Luxembourg, staff costs for the top 50 mancos in the grand duchy increased by 40 per cent between 2015 and 2018, while net profits dipped by 13 per cent.

Ryan Johnson, head of Lloyd Expert Consultancy, says that buyers are looking beyond mancos’ limited scope to raise their prices and are attracted by the potential for building scale. “It’s not about revenue, it’s about size,” he says. “Once you have a silly amount of assets, the costs balance themselves out.”

Mancos’ costs have jumped while net revenues and profits have sagged

Another factor driving consolidation is the growing need for mancos to have a global presence. This is becoming more important with Brexit as managers set up funds in multiple locations to retain access to different clients.

Recent examples of deals that have enabled groups to expand their geographic reach included the tie-up of Dublin-based DMS with Luxembourg’s MDO earlier this year, and MJ Hudson’s recent acquisition of Dublin-based Bridge Group.

For large groups such as MJ Hudson and Apex, which also offer fund administration and other services, buying or starting a manco is a way to become a one-stop shop and potentially cross-sell services to clients. Matthew Hudson, chief executive and founder of MJ Hudson, recalls catching “the next plane to Luxembourg” in the wake of the 2016 referendum to set up a manco. 

But the future of the sector now hinges on the shape of post-Brexit regulation. In August, the European Securities and Markets Authority called for a toughening of the rules concerning delegation — a model which allows an asset manager to domicile a fund in the EU and carry out portfolio management outside the bloc, for instance in the UK. It questioned the extent to which mancos should be able to delegate to non-EU fund firms.

Requiring fund managers who wish to retain access to the EU to beef up their presence in the bloc could benefit mancos and drive further M&A.

However, some fear that a potential tipping point — for instance if the fund managers themselves have to be located in the bloc — would deter some UK-based managers from selling to EU clients entirely, a development which could have a devastating impact on mancos.

Olivier Carré, a partner at PwC Luxembourg, believes that M&A activity among third-party mancos will continue barring any radical interventions by policymakers. “We expect further consolidation and concentration unless there is a change in the regulatory environment. The regulator is the big unknown.”



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Europe

German regulator steps in as Greensill warns of threat to 50,000 jobs

Published

on

By


Germany’s financial watchdog has taken direct oversight of day-to-day operations at Greensill Bank, as the lender’s ailing parent company warned that its loss of $4.6bn of credit insurance could cause a wave of defaults and 50,000 job losses.

BaFin appointed a special representative to oversee Greensill Bank’s activities in recent weeks, according to three people familiar with the matter, as concern mounted about the state of the lender’s balance sheet.

The German-based lender is one part of a group — advised by former UK prime minister David Cameron and backed by SoftBank — that extends from Australia to the UK and is now fighting for its survival.

On Monday night Greensill was denied an injunction by an Australian court after the finance group tried to prevent its insurers pulling coverage.

Greensill’s lawyers said that if the policies covering loans to 40 companies were not renewed, Greensill Bank would be “unable to provide further funding for working capital of Greensill’s clients”, some of whom were “likely to become insolvent, defaulting on their existing facilities”.

In turn that may “trigger further adverse consequences”, putting over 50,000 jobs around the world at risk, including more than 7,000 in Australia, the company’s lawyers told the court.

A judge ruled Greensill had delayed its application “despite the fact that the underwriters’ position was made clear eight months ago” and denied the injunction.

Greensill Capital is locked in talks with Apollo about a potential rescue deal, involving the sale of certain assets and operations. It has also sought protection from Australia’s insolvency regime.

Greensill was dealt a severe blow on Monday when Credit Suisse suspended $10bn of funds linked to the supply-chain finance firm, citing “considerable uncertainties” about the valuation of the funds’ assets. A second Swiss fund manager, GAM, also severed ties on Tuesday. Credit Suisse’s decision came after credit insurance expired, according to people familiar with the matter.

While the bulk of Greensill’s business is based in London, its parent company is registered in the Australian city of Bundaberg, the hometown of its founder Lex Greensill.

In Germany, where Greensill has owned a bank since 2014, BaFin, the financial watchdog, is drawing on a section of the German banking act that entitles the regulator to parachute in a special representative entrusted “with the performance of activities at an institution and assign [them] the requisite powers”.

The regulator has been conducting a special audit of Greensill Bank for the past six months and may soon impose a moratorium on the lender’s operations, these people said.

Concern is growing among regulators about the quality of some of the receivables that Greensill Bank is holding on its balance sheet, two people said. Regulators are also scrutinising the insurance that the lender has said is in place for its receivables.

Greensill Bank has provided much of the funding to GFG Alliance, a sprawling empire controlled by industrialist Sanjeev Gupta.

“There has been an ongoing regulatory audit of the bank since autumn,” said a spokesman for Greensill. “This regulatory audit report has specifically not revealed any malfeasance at the bank. We have constructive ongoing dialogue with all regulators in all jurisdictions where we operate.”

The spokesman added that all of the banks assets are “unequivocally” covered by insurance.

Greensill, a 44-year-old former investment banker, has said that the idea for his company was shaped by his experiences growing up on a watermelon farm in Bundaberg, where his family endured financial hardships when large corporations delayed payments.

Greensill Capital’s main financial product — supply-chain finance — is controversial, however, as critics have said it can be used to disguise mounting corporate borrowings.

Even if an agreement is struck with Apollo, it could still effectively wipe out shareholders such as SoftBank’s Vision Fund, which poured $1.5bn into the firm in 2019. SoftBank’s $100bn technology fund has already substantially written down the value of its stake.

Gupta, a British industrialist who is one of Greensill’s main clients, separately saw an attempt to borrow hundreds of millions of dollars from Canadian asset manager Brookfield collapse.

Executives at Credit Suisse are particularly nervous about the supply-chain finance funds’ exposure to Gupta’s opaque web of ageing industrial assets, said people familiar with the matter.

The FT reported earlier on Tuesday that Credit Suisse has larger and broader exposure to Greensill Capital than previously known, with a $160m loan, according to two people familiar with the matter.

Additional reporting by Laurence Fletcher and Kaye Wiggins in London



Source link

Continue Reading

Europe

FT 1000: Europe’s Fastest Growing Companies

Published

on

By



The latest annual ranking of businesses by revenue growth. Explore the 2021 list here — the full report including in-depth analysis and case studies will be published on March 22



Source link

Continue Reading

Europe

EU plans digital vaccine passports to boost travel

Published

on

By


Brussels is to propose a personal electronic coronavirus vaccination certificate in an effort to boost travel around the EU once the bloc’s sluggish immunisation drive gathers pace.

Ursula von der Leyen, European Commission president, said on Monday the planned “Digital Green Pass” would provide proof of inoculation, test results of those not yet jabbed, and information on the holder’s recovery if they had previously had the disease.

“The Digital Green Pass should facilitate Europeans‘ lives,” von der Leyen wrote in a tweet on Monday. “The aim is to gradually enable them to move safely in the European Union or abroad — for work or tourism.”

The plan, expected to be outlined this month, is a response to a push by Greece and some other EU member states to introduce EU “vaccination passports” to help revive the region’s devastated travel industry and wider economy. 

But the commission’s proposed measures will be closely scrutinised over concerns including privacy, the chance that even inoculated people can spread Covid-19, and possible discrimination against those who have not had the opportunity to be immunised.

In an immediate sign of potential opposition, Sophie Wilmès, Belgium’s foreign minister, raised concerns about the plan. She said that while the idea of a standardised European digital document to gather the details outlined by von der Leyen was a good one, the decision to style it a “pass” was “confusing”. 

“For Belgium, there is no question of linking vaccination to the freedom of movement around Europe,” Wilmès wrote in a tweet. “Respect for the principle of non-discrimination is more fundamental than ever since vaccination is not compulsory and access to the vaccine is not yet generalised.”

The travel sector tentatively welcomed the news of Europe-wide vaccine certification as a way to rebuild confidence ahead of the crucial summer season, but warned that regular and rapid testing was a more efficient and immediate way to allow the industry to restart.

Fritz Joussen, chief executive of Tui, Europe’s largest tour operator, said “with a uniform EU certificate, politicians can now create an important basis for summer travel”. But he added that testing remained “the second important building block for safe holidays” while large numbers of Europeans awaited a jab.

Marco Corradino, chief executive of online travel agent Lastminute.com, said he feared the infrastructure needed would not be ready in time for the summer season: “It will not work . . . at EU level because it is too complicated and would not be in place by June.”

He suggested that bilateral deals, such as the one agreed between Greece and Israel in February to allow vaccinated citizens to travel without the need to show a negative test result, had more potential.

Vaccine passport sceptics argue it would be unfair to restrict people’s travel rights simply because they are still waiting for their turn to be jabbed. 

Gloria Guevara, CEO of the World Travel and Tourism Council, said it was important not to discriminate against less advanced countries and younger travellers, or those who simply cannot or choose not to be vaccinated. “Future travel is about a combination of measures such as comprehensive testing, mask-wearing, enhanced health and hygiene protocols as well as digital passes for specific journeys,” she added.

A European Commission target to vaccinate 70 per cent of the bloc’s 446m residents by September means many people are likely to go through summer unimmunised.

While some countries around the world have long required visitors to be vaccinated against infectious diseases such as yellow fever, a crucial difference with coronavirus is that those inoculations are available to travellers on demand. 

Questions also remain about the risk of people who have already been vaccinated passing on coronavirus if they contract the disease.

 





Source link

Continue Reading

Trending