Article: New horizons for fund distribution
The full article was first published in the October 2020 edition of "funds europe"
Clearstream has finalised its acquisition of a majority stake in the Fondcenter B2B fund platform from UBS on 30 September 2020. CEO of Clearstream Banking S.A. Philippe Seyll, Head of Investment Fund Services Product Bernard Tancré, and Global Head of Sales for Investment Fund Services Neil Wise, speak to Funds Europe about the advantages this will deliver across the funds value chain.
The completion of Clearstream’s purchase of a majority stake in UBS’s fund distribution platform Fondcenter provides evidence of the restructuring that is taking place across the collective investments value chain.
One-stop shop approach
Commenting on Clearstream’s motivation for the deal, Philippe Seyll explains that clients were increasingly seeking a solution where they could source fund order routing, execution and custody, along with distribution support, through a single supplier.
Clearstream fund centre
Developed through links with UBS Global Wealth Management, the entity Fondcenter AG, since 15 October 2020 renamed to Clearstream Fund Centre AG, enables distributor clients to negotiate high-quality contracts with a large pool of fund providers and to benefit from the additional negotiating power offered through a mutualised platform. “This consolidated service, named Clearstream Fund Centre, offers wide product coverage combined with operational simplicity, shielding the distributor from the complexity of managing connectivity with the transfer agent,” says Bernard Tancré who heads the new Clearstream Fund Centre operation.
Opportunities to outsource
Developing this point, Neil Wise explains that, for many years, distributor firms have generated strong revenue from managing distributor fee payments on funds sales. However, as regulatory changes (particularly MiFID II) have driven sales volume from commission-paying to clean share classes, and in many cases forcing distributors to pass back the trailer fees, many distributors no longer believe that they receive adequate compensation from managing this processing in-house. “Distributors found themselves doing trailer fee calculations, administering rebate payments but then passing much of this commission flow through to sales intermediaries further down the distributor network,” he says. “As this business has become less attractive, distributors have been exploring opportunities to outsource this operational activity and several approached us requesting that we establish a commission and contract management service.”
In building on this foundation, Tancré says that Clearstream’s strategy will be to promote the Fund Centre platform services across its Vestima franchise, while enabling all clients to contract this service through Clearstream Banking S.A. so they only need to sign legal agreements with a single counterparty.
Seyll highlights a four-dimensional strategy based on fund execution, fund distribution, innovation and data services. The fund execution component is well established through Vestima, which represents the world’s largest order routing and fund execution platform, processing more than 24 million transactions annually valued at close to €2.6 trillion. Clearstream will continue to build transaction volume on this platform, while also targeting growth through its fund distribution support business, now embracing the world’s second largest distribution platform with finalisation of the Fondcenter acquisition.
In the realm of innovation, Clearstream is a shareholder in the FundsDLT platform, the Ethereum-based distribution ledger technology. Through this investment, Clearstream is taking steps to accommodate potential changes in how fund shares are issued – particularly as fund promoters’ experiment with issuing tokenised assets on blockchain.
Clearstream also identifies opportunities to assist asset managers and their distribution partners through extension of its data services. “This includes static data for 230,000 funds and a large number of ISINs, along with fund information, performance data for each product and distribution data across an asset manager’s sales network,” says Seyll. “This provides essential insights for fund promoters regarding who is buying their funds and where they can reap competitive advantage through new product launches and extension into new markets ̶ while also delivering the data services required to meet reporting requirements under MiFID II and other regulations.”