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The changing fund distribution landscape: platforms consolidate down to 5 players. What’s next?
The changing fund distribution landscape: platforms consolidate down to 5 players. What’s next?

The changing fund distribution landscape: platforms consolidate down to 5 players. What’s next?


Anne-Laure Couturier

Anne-Laure Couturier

BNP Paribas Securities Services

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Growth in assets handled by fund distribution platforms has accelerated across Europe. This growth and the recent M&A and IPOs announcements in this space, demonstrate that fund distribution platforms are mature and profitable business models.  Anne-Laure Couturier, Strategy Analyst at BNP Paribas Securities Services, discusses the trends and how technology is changing the industry

Assets under Administration (AUA) on B2B platforms reached EUR 2.4 trillion at the end of 2017 (30.8% of the total assets) and are expected to grow to EUR 4.3tn by 2021 (close to 45% of the total assets). This double-digit growth is impressive and is coupled with a wave of rapid consolidation.

Expected evolution of B2B Fund Platform AuA in Europe

What is a fund distribution platform?

Fund distribution platforms work as intermediaries between distributors and asset managers; they typically serve an administrative function, including distribution agreements, order routing and rebate calculations.

Of course, MIFID II and its requirement for greater transparency along the value chain have played a transformational role on the European fund market and have accelerated the demand for platforms. While asset managers rely on fund platforms to benefit from a unique distribution service entry point, distributors (private banks, insurers, pension funds) are driving the choice of platform they will use to select and buy funds from asset managers. Distributors derive the maximum benefits of using a centralised service provided by the platform: access to a broad list of reliable investment solutions, customized reporting, and an optimized operating model.

What are the trends in the fund distribution platform market?

Since 2017, we have observed several M&A and IPOs announcements in this space, as well as a high private equity interest. This demonstrates that fund distribution platforms are mature and profitable business models.

The acquisition of Allfunds Bank by the Singapore sovereign wealth fund GIC and private equity fund Hellman & Friedman was the first billion-Euro deal for a platform. Since then, Allfunds Bank has grown well beyond its home market (Italy and Spain).

Additionally, the private equity firm Nordic Capital took a 70% stake in the Stockholm-based MFEX platform in September 2017, to expand it through the acquisition of other platforms. And MFEX has confirmed its intention to become an international platform ‘consolidator’ with the recent acquisition of Axeltis (France) and a majority stake in Ahorro Best Funds (Spain).

More recently, Clearstream has announced an agreement to acquire Swisscanto Funds Center (Switzerland), expanding its funds servicing portfolio to include the management of distribution agreements and data processing.

As result of this rapid wave of consolidation, there are currently five B2B platforms in Europe that administer, each of them, more than EUR 100bn of assets and which control more than 60% of overall fund assets administered by B2B platforms. I expect that further consolidation will result in just two main platforms in the coming years.

When will platform services fees replace rebates?

For fund distribution platforms, achieving significant scale and distribution reach translates into greater bargaining power with asset managers and distributors. Scale is paramount for platforms as they are forced to change revenue models. Hence the consolidation we have seen in this space.

In a post-MIFID II environment, where rebates are no longer the norm in some markets and will gradually disappear over the next few years, platforms are rebalancing fees more evenly between distributors and asset managers with both sides paying for the service they use. An intermediation fee is taken as a portion of a distributor rebate - when still relevant – while distributor fees and new explicit ‘platform services’ fees based on AuA are paid by asset managers.

To move to explicit platform services fees, platforms must rethink their business models and expand to new value-added services, such as data services. This is possible thanks to the amount of data that platforms administer between asset managers and distributors. Fund platforms which provide asset managers with sophisticated market and fund data intelligence will be a powerful tool for their distribution strategy by facilitating the distribution to a new market or directing specific sales actions. And they will be willing to pay for such insight.

How will new technologies transform the fund distribution industry?

The fund distribution industry is only in the middle of its transformation journey. New technologies are reshaping the fund distribution value chain. A smooth digital client experience will ease the on-boarding and KYC processes. Artificial intelligence will help by making available all necessary fund data and facilitating product selection. Emerging blockchain-based infrastructures for fund distribution will introduce highly automated trading and settlement process, as well as facilitating cooperation and the data sharing.

In this changing environment, platforms with significant scale who become early adopters of these new technologies will unlock opportunities around data and analytics.