Fiduciary frenzy

Written by: David Stirling Posted: 01/08/2022

BLCITY22_Fiduciaries illoTen years ago, the Channel Islands witnessed a flurry of management buyout activity across fiduciary services. Today, the growing need for expert and secure services means fiduciary providers are 

Cast your mind back a decade or so and, if you were a participant or observer of the fiduciaries sector in the Channel Islands, three simple letters were all the rage – MBO (management buyout). 

In 2014, Channel Islands and offshore law firm Ogier sold its financial services division in one such MBO deal, backed by private equity fund manager Electra Partners.

At the time, then Ogier Chief Executive Nick Kershaw said that Ogier Fiduciary Services was at the stage where an MBO “makes perfect sense given the additional investment needed to achieve its significant growth plans”. 

In 2016, offshore legal services firm Appleby made a similar move. It sold off its Appleby Fiduciary & Administration Business (AFB) in an MBO backed by private equity group Bridgepoint. It was reported to be worth $370m. 

William Paul, Partner and Head of Bridgepoint’s financial services team, said at the time: “The buyout brings significant opportunity for AFB as a standalone business to accelerate its growth organically and via acquisition, in what remains a strongly growing market.”

According to Jonathan Smith, Partner at Wyvern Partners, these MBOs were a continuation of growing private equity interest in the fiduciary sector that began at the start of the millennium. 

“This has always been a fantastic sector for investors, such as lawyers administering structures for their own clients or accountancy firms.

"But because it wasn’t regulated and didn’t have KYC on all its clients, it meant PE firms were reluctant to invest,” he says. “How did you know Osama Bin Laden wasn’t a client or that Russian mafia money wasn’t involved? 

“But when regulation came in during the early 2000s, you suddenly had 100% KYC for all of your client base. The floodgates opened and the bravest PE firms dipped their toes in the water.”

Other examples Smith mentions include PE group AnaCap buying business services company First Names back in 2012 and Inflexion buying Ocorian in 2016. “What you saw 10 years ago was PE firms making platform investments,” he states. “Since then, they’ve made bolt-on acquisitions.”

Indeed, this includes a number of Ocorian acquisitions, such as MAS International in 2017 and business services provider ABAX in 2018.

“A PE firm typically holds an investment for three to seven years, then exits to get their money (and capital profit) out by selling. Exit is sometimes by IPO, but usually by selling to a bigger PE firm,” Smith explains.

This has certainly been the case for some of those earlier fiduciary MBOs.

Change of course

Ogier Fiduciary Services rebranded as Elian and within a couple of years, it had been sold once again – to Intertrust Group of the Netherlands, for £435m. Its name was then rebranded to Intertrust. 

David de Buck, CEO of Intertrust, said then: “The acquisition of Elian presents a great opportunity for Intertrust to significantly expand its capital markets and private equity and real estate fund administration services.

"Consolidation in our industry continues, and the ability of global trust and corporate services providers to acquire high-quality companies will determine their success.” 

Appleby Financial Services’ brand name was also changed, this time to Estera, but it too did not last the course. Only a few years later, in 2020, it was snapped up by Inflexion-backed Ocorian. 

“The combination of Estera and Ocorian is extremely powerful. No matter where in the world our clients’ financial interests are structured, we will provide flexible, bespoke solutions that meet their needs as well as the needs of their stakeholders and regulators,” Farah Ballands, at the time CEO of Ocorian Group, said.

BLCITY22_Fiduciaries illo2AnaCap also sold First Names to a bigger consolidator, SGG, and private equity group Sovereign Capital Partners has recently backed the MBO of Guernsey-based specialist private client trust and corporate services provider Aquitaine.

It provides private client trust services, including estate planning and wealth management structures, together with corporate fiduciary services.  

In addition, both Guernsey-based Federal Trust (Federal) and Summit Trust International (Summit) were acquired to beef up the service offering.

Sovereign Partner Alex Hay said of the deal: “We are delighted to partner with the Aquitaine management team. The acquisition of Federal increases our presence in Guernsey, while Summit is an established provider that will enable us to develop the group’s service offering to clients, broaden its multi-jurisdictional reach and add scale.” 

PE group Palatine-backed Suntera Global has also recently bought Channel Islands specialist fiduciary services provider Nedgroup Trust. It provides fiduciary services to high-net-worth and ultra-high-net worth individuals, family offices and owner managed businesses.

“Most of the buy and build strategies have been established now and we are hitting the second and third round of funding with interest from bigger PE firms and more consolidation,” Smith says. “The sector is becoming more attractive to PE. There have been success stories.”

Guernsey-based Mourant LP Partner Gilly Kennedy-Smith says that despite believing private equity is always interested in fiduciary, there have been instances where those circling did not come from a background that meant they properly understood trusts – which could impact their involvement going forward.

“The sales we are seeing now involve greater due diligence of clients, jurisdictions, types of work and staff members. They want to make sure the new business aligns with their own model to make the transition as smooth as possible for clients and staff alike,” she says.

According to a recent Barclays Fiduciaries of the Future article, in Jersey local firms currently administer 30,000 trusts with assets of over £600bn, as well as bank deposits totalling over £127bn. “It’s an attractive environment,” the article states. “But, at the same time, cost pressures and complexity are rising.”

The article cites issues such as post-lockdown inflation and ever-evolving regulatory expectations squeezing fiduciary margins to the extent that “it is often no longer cost-effective to service clients with less than £5m in assets”.

This chimes with the experience of Kennedy-Smith. “The entry point has shifted for a multitude of reasons,” she says.

“The threshold of wealth has increased over the last 10 or so years. Onboarding, the cost of running structures, increased employment costs for experienced professionals being in high demand, as well as increased administration costs with greater regulation and reporting requirements will only increase the overall costs of running structures – and I would be surprised if these costs go down.

"This is a global increase and certainly not restricted to just the Channel Islands.”

She says this plays into another trend. “There are fewer clients suitable to offshore structuring, but the ones that are suitable are more significant in terms of wealth and more complex in their needs.

"They require more bespoke services, as they bring more technical and complex cases, which Guernsey is well set up for with its depth and breadth of expertise.”

Barclays agrees, stating that UHNWs are accustomed to receiving bespoke services, especially in matters of finance and investment. “So, fiduciaries with access to diverse perspectives and expertise across different industry sectors and jurisdictions will increase their appeal and their chance of being able to meet growing client expectations,” it says. 

“Where they can offer access to a range of investment options – covering equities, private markets (for sophisticated investors only), credit, macro, funds, capital markets and structured products – preferences can be met, and market opportunities revealed.”

Staff movement

Kennedy-Smith says a number of factors, including consolidation of companies, could lead to a lot of staff movement. 

“This provides more opportunities to get the right staff and skillset in for companies to begin to enhance their fiduciary services,” she says. 

“The demand is there and people in this sector are feeling optimistic. There’s plenty of work out there for all. I’m not seeing anyone concerned about the future of their business.”

It may not be the frenzy of activity that we saw a decade or so ago, but the fiduciary climate in the Channel Islands remains one of much interest and demand. 

PE firms, fired up with large war chests accumulated during the pandemic, are active in all business sectors and, as Kennedy-Smith explains, are still looking at the fiduciary world as an option.

Smith agrees: “The fiduciary sector has shown good steady growth year on year – even through the Covid-19 pandemic. It is cash-generative and has good margins, with sticky clients.”

Demand from wealthy clients – despite the pandemic, the Russian sanctions and regulatory change – is still strong, and the Channel Islands can expect to benefit for some time to come.

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