Having paid E363m for dedicated outsourcing and fund administration provider Cogent, BNP Paribas Securities Services (BP2S) now finds itself in possession of a business that holds E229bn under administration on behalf of 44 fund managers and has substantial operations in London, Luxembourg and Dublin.
By leveraging Cogent’s expertise and experience across all the markets in which it operates, the French bank will be able to extend its product offering beyond custody and funds administration to embrace complete multi-product, multi-domicile back office outsourcing, maintains Cogent managing director Tony Solway.
“BP2S have approached this area from the opposite end of the value chain from us – we started off as part of a fund management group, whereas they come at it from the perspective of a custodian,” he says.
“They have a very strong relationship with AXA in multiple jurisdictions, while we of course have a similar arrangement with Henderson among others, and we can take those skills we have developed within Cogent to deliver new, proven functionality to BP2S clients.”
In particular, Cogent boasts a middle office integration offering that “which very few of our competitors are able to deliver”, Solway maintains. “The service is completely integrated with the client’s front office, so wherever a fund manager may be located, he can hook into his firm’s front office system and see data provided by Cogent for all of that firm’s operations globally,” he says. “That means a fund manager in Tokyo can just as easily manage a fund domiciled in Dublin or the Germany.”
While there has been some debate within the industry over whether BP2S paid too much for Cogent – “you have to remember some of those critics may have been in the market to buy us themselves,” notes Solway dryly – he stresses that the French bank has bought itself far more than merely a way into the fiercely competitive UK market. “It is far more than that – Luxembourg and Dublin have been the fastest growing markets in Europe in recent years, and BP2S had already invested a lot to have high quality operations in both,” he says.
Indeed, with the Cogent deal bringing $10bn in assets to the table, BP2S has overnight moved up the rankings to become the ninth largest administrator in Luxembourg with $30bn in assets – or the sixth largest, if you factor out those providers who don’t take on third-party business.
Crucially for BP2S – a bank that up until now has remained steadfastly focused on Continental Europe – Cogent also encompasses businesses in Australia and New Zealand transferred across to it in late 2000 by its (soon to be) former parent, AMP –a dynamic back office outsourcing outfit based in Sydney that can act as an Asia-Pacific hub to service fund management clients in the region off a common platform.
“We have over 150 people in Sydney providing services both to AMP and third-party clients,” says Solway. “That gives BNP a seat at the table as far as Asia-Pacific is concerned. Cogent’s presence provides something around which they can weave a regional strategy and indeed we are already formulating ideas.” He notes: “Many clients in Europe and the US are looking to Asia-Pacific as the source of the next wave of equity market growth.”
Furthermore, Australia is in itself an extremely dynamic and sophisticated market, especially on the retail side. “The market’s adoption of compulsory superannuation to address the retirement timebomb means there are some innovative structures around master trust and wrap accounts that don’t exist in Europe,” says Solway.
“They have been dealing with low cost pension products for the past 10 years, they have established investment products to allow you to run open architecture and multi-manager structures very efficiently. There is also massive experience running huge DC schemes for people in all strata of society. By contrast, here in Europe we have yet to really grasp the nettle and tackle the issues that they began dealing with back in the early 1990s.
“While it is likely Europe will come up with different solutions to its problems than Australia, and it may not be possible to export Australian systems for use in a multi-currency environment like the EU, it is nonetheless very instructive to be on the ground down there and see what is going on.”