With offices in 35 locations worldwide, Apex Fund Services has grown into one of the financial industry’s largest independent fund administrators since it first opened its doors in Bermuda back in 2003.
And with plans to make upwards of 10 acquisitions within the next 24 months, Apex has its sights set on becoming a top five global fund administration group within the next five years.
This follows the recent announcement this summer that Genstar Capital, a leading middle-market private equity firm, has recapitalised Apex, whilst simultaneously acquiring Equinoxe Investment Services and merging it into the Apex Group.
“FTV Capital, a private equity investor, had been invested in Apex for the last five years with a minority stake and as with any PE fund, as it approaches the end of its life you need to give them liquidity,” explains Peter Hughes (pictured), Founder and CEO of Apex. “I wanted to make sure I was running a fund administration business through the next phase of its growth. We talked to a number of private equity managers and Genstar was the most impressive. It has a clear strategy in terms of how it wants to grow, and our platform was ideal for them owing to the fact that Apex has expansive global coverage.”
With the addition of Equinoxe, Apex increases its suite of middle office solutions. Moreover, its AuA has grown from USD50 billion to USD80 billion. “Our strategy is to continue doing more of the same,” says Hughes.
In his view, consolidation is good for the industry. A vacuum is being left as bank administrators keep looking for the largest clients they can find, and as a result the mid-tier space is not as well covered. That creates an opportunity, says Hughes, “but you need to be big enough yourselves to ensure you can provide everything the big bank administrators can provide. To do that you need to have scale.
“You can’t do it as a niche, independent fund administrator.
“By consolidating as an independent administrator, it allows you to get to the scale necessary to deliver everything that a bank-owned administrator delivers, but with a more focused approach towards service levels. The important thing for us, going forward, is to be a global institution and still provide great service; as we grow, our strategy will also focus on maintaining the tailored and personal approach to service that our clients truly value.”
At the time of the Equinoxe announcement, Genstar’s Managing Director, Tony Salewski, commented: “We are excited to support Peter and his team in driving accelerated growth through strategic add-on acquisitions and expansion within high growth areas of the fund services market.”
In many ways, this illustrates how the sands of fund administration have shifted in recent years. Private equity groups have become far more prominent, adding administration businesses to their growth portfolios. At the same time, it has given independent administrators like Apex access to deal expertise to further support them in making their own acquisitions, thereby fostering further growth.
Hughes says that being able to reach out to Genstar’s team is certainly helpful “with respect to making sure you don’t make mistakes and ensuring you’ve done the right diligence and making sure the cost of capital is structured the right way.”
So why Equinoxe?
“This was a business that was built on the same ethics as Apex’s: putting the client first, making sure the service levels are high,” confirms Hughes. “We tracked their growth and we knew Equinoxe had a good team of people. That is key to ensuring that clients continue to be well serviced.
“There were various benefits and synergies to doing the acquisition. In six locations that we operate, Equinoxe had an office too. By putting people together and creating one big team, we can become more efficient. Equinoxe also has a strong middle-office product, using Calypso which enhances what we can offer to our clients.
The deal only closed on 29th August so Apex is still going through the integration phase. This is likely be a 12-month process in order not to disrupt client service. “It’s something you always have to be mindful of,” says Hughes.
Such has been the level of consolidation in the hedge fund administration space in recent times, managers have to be careful that they select with the right long-term partners.
Investment banks running profitable prime brokerage business divisions thought it would make sense to set up administration arms, but while they were making money from PB they weren’t necessarily making money from administration services. Culturally speaking, owning asset-servicing businesses has never really been a good fit.
“Investment banks are having to consider whether it makes sense anymore. The ones that set these divisions up as a nice complement to their prime brokerage business…that’s not the right reason to run these businesses,” says Hughes.
He is very clear in his belief that M&A has to be a catalyst to win more business organically and attract larger better clients. “Your average revenue per client should increase in proportion to the size of your business. The organic business that you win should rise as you build a bigger, stronger reputation,” suggests Hughes.
“Just because we are independent it doesn’t mean we don’t have a strong product offering to rival bank administrators in many different areas,” says Hughes. He adds that a local presence, the right price point and good technology are all attractive features for fund managers.
“When you’re doing M&A you want to try and keep staff in the same place and only change technology if it improves on what was there before. You want to make sure it’s a better user experience for the manager; if it ends up being worse, and you have clients leaving you, your decision to do the acquisition becomes questionable,” remarks Hughes.
Going forward, he thinks technology will continue to play a key role in how fund administrators operate, but caveats the point by emphasising that managers don’t want everything to be pushed through automatically. They still want the personal touch.
“Our model has always looked to deliver that rather than move towards complete automation. Personally speaking, I don’t want to be serviced by robots and while some administrator’s might be moving toward doing everything automatically, I think there is a lot of value to be had in retaining the personal touch to go alongside the best technology,” concludes Hughes.
