MUFG Investor Services CEO, John Sergides, speaks with Funds Europe about the changing alternative asset servicing space and the importance of being different.
“We want to be the best, not the biggest,” says John Sergides, chief executive officer of MUFG Investor Services, the global asset servicing arm of the Japan-based Mitsubishi UFJ Financial Group.
It is a bold statement but also marks out the firm’s wish to be seen as different in a market dominated by the search for scale.
MUFG Investor Services was established in 2013 following the acquisition of Bermuda-based Butterfield Fulcrum Group. It marked MUFG’s first entrance into the alternative administration space. Several subsequent acquisitions followed, including UBS Alternative Fund Services, Meridian Fund Services Group, Neuberger Berman’s Capital Analytics and Maitland’s hedge fund administration business, among others.
While the acquisitions helped put MUFG on the alternative administration map, it was the subsequent roll out of value-added services that set them apart from competitors, says Sergides. These services, not traditionally offered by administrators, include fund financing, banking, securities lending, Foreign Exchange (FX) overlay, business consulting, and more.
The firm’s performance over the last decade confirms its strategy is working. “The asset servicing industry is not known for being fast-growing, with typical CAGR at 5-8%, but MUFG Investor Services has seen close to 30% CAGR through organic means,” says Sergides.
The figures are especially impressive given the current market conditions.
The asset servicing industry has faced several challenges in recent years. The diminishing margins for core services like custody and fund administration has led many to seek other ways to generate revenue and to serve their clients.
There has also been heavy M&A activity, especially on the fund administration side, but this has created its own challenges. “Most of the acquisitions have been private equity-backed and involved a fair amount of leverage. While this made sense in a low interest rate environment, the macro-economic conditions have changed. Interest rates have gone up, so the firms that have taken on debt will have to start refinancing at a higher rate and that will have implications,” says Sergides. At best, it implies a much lower return on earnings. More likely, it could involve lay-offs and a change in direction.
There is also the operational challenge. “Those firms that have acquired others to grow scale will have to fully integrate at some point if they are to be more than a collection of companies in the asset servicing world,” says Sergides. “The integration will cost as much as the acquisition and be more complicated.”
In addition to organic growth, MUFG Investor Services is highly recognized in the industry for their very high client retention rate and for providing customized solutions that help firms reach their goals and fuel their growth trajectory. Services including fund financing, subscription lines of credit, securities lending, FX services, consulting services (and more) have not historically been offered by asset servicing companies and are a key differentiator.
Sergides says that the firm offers a unique partnership to clients, committing to supporting them as their business grows. This can mean investments in new technology, advising on infrastructure changes, or customising solutioning; they want quality partners over quantity and are highly selective in who they take on.
“We have hundreds of clients, whereas others have thousands,” says Sergides. “Staying hyper-focused on fewer clients allows us to deliver exemplary service and partnership. There is no value in playing a zero-sum game.”
Different from the others
Another major differentiator for MUFG Investor Services is its Japanese parent, says Sergides. “In Japan, relationships are measured in decades, not months, and strategies are measured in years, not quarters. This enables us to form a longer-term view, longer-term decisions, and longer-term commitments.”
“There are asset servicing firms that look for short-term gain and do not have the desire for a long-term presence. They may not be able to attract tier 1 clients, and no number of acquisitions will change that,” he says.
“We are not planning to divest or engage in a race to the bottom in terms of fees. Scale is not a necessity for us. For example, in the real assets space, we intentionally add a small number of new clients each year. It’s no secret that the bitterness of poor-quality lasts longer than the sweetness of low fees for clients,” says Sergides.
Technology has also been a focus for the firm, including a cloud-first policy, in-house software development, application programming interfaces (APIs), and leveraging machine learning for further automation and efficiency gains.
Adding to this was their acquisition of Point Nine, a post-trade technology solutions provider, as well as hiring staff from outside the funds industry to enable more innovative thinking. As Sergides says: “It is not enough to be slightly better at doing the same thing as everybody else. You have to be different and that means looking at where you can innovate.”
MUFG Investor Services offers a range of outsourcing options for clients, in keeping with the trend to extend beyond traditional back-office services to the front and middle-office, be that of subscription lines of credit, regulatory services, trade execution, or collateral management.
MUFG also launched a business consulting service in 2022, designed to help clients identify critical gaps in their infrastructure. Sergides explains this saying: “Many alternative investment management firms are at an inflection point in terms of their operations and making them more institutional.” The business consulting group is a courtesy service offered to help clients create scalable operating models and implement solutions to improve business outcomes.
The firm has also invested heavily in AI in recent years to research and evaluate data analytics services for clients – for example, examining the link between economic volatility and increased redemption rates, or looking at ways to optimise FX hedging strategies.
“For fund managers, this level of insight is critical,” says Sergides. “It should be value-added, not require an additional fee, leveraging data as a new revenue stream. The data is our way of helping our clients develop new strategies for growth. Do we make money from it? No. Do we offer it anyway? Absolutely, yes.”
The final factor that separates MUFG Investor Services from other providers is its people, says Sergides. The firm has a flat organisational structure and a turnover rate that is less than half of its peers. “If you take care of your people, they will take care of your clients. That is our secret sauce.”