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Citi, JPMorgan in new SMA ops deals

Thomas Coyle 30 October 2005

Citi, JPMorgan in new SMA ops deals

New wins for Vestmark ahead of CheckFree’s EPL launch next year. Last week two separately managed account (SMA) managers – Janus and Lee Munder – agreed to hand their middle- and back-office operations to outside providers. These deals point to the continued acceleration of outsourcing agreements as managers look to reduce costs, enhance scalability and increase product offerings. Another possible goad to deal flow, say industry participants, is the desire of Vestmark -linked providers to reach agreements ahead of the release next year of CheckFree Investment Services’ EPL portfolio-management platform.

Hard on its outsourcing win of Gartmore Global Investments, JPMorgan struck again last Wednesday when it publicized a new deal with Lee Munder. Citigroup announced its outsourcing agreement with Janus on the same day. Both providers now have two publicly acknowledged SMA deals under their belts.

Thumbs up

Lee Munder selected JPMorgan Worldwide Securities Services to runs its SMA ops “because they offer the latest in technology and every service we need to establish a first-rate managed accounts program,” says Kenneth Swan, president of the Palm Beach, Fla.-based management firm.

JPMorgan says its platform lets Lee Munder “access all [SMA] programs through a single web-based interface, where they will be able to implement model portfolios across multiple customized individual accounts, access shadow accounting, document imaging and billing services.”

Meanwhile David Weitzenfeld, Denver-based Janus’ platform services director, says his firm picked Citi’s Global Transaction Services (GTS) platform to “enhance our ability to provide the best service for our clients, [and to] equip Janus with operational tools and expertise to grow our [SMA] business.”

GTS managing director Chandresh Iyer says “the trading and technological advantages of our best-in-class operating platform definitively differentiate us from other service providers and enable us to offer our clients measurable added value with bottom-line results.”

Turning tide…

Altogether 23 SMA ops deals have been made public since the start of 1995, 13 of them in the past 12 months. Industry sources say only about 50 asset managers now have SMA programs big enough to justify business-service – as distinct from portfolio management – outsourcing. In addition to Citi and JPMorgan, Mellon, State Street, the Bank of New York, PFPC, SEI and BISYS provide SMA ops outsourcing. Some industry observers say that’s five or six too many, and that a shakeout is in the works.

Generally speaking all retail SMA managers need portfolio accounting and connectivity support. It helps them keep in touch with the sponsor platforms they rely on for sales. CheckFree is the dominant portfolio-management provider to SMA managers and sponsors. In recent years, however, upstarts like Wakefield, Mass.-based Vestmark and Edison, N.J.-based Market Street Advisors have stepped up to challenge it.

Six of the last 11 SMA deals – and the last four in a row – involve business-service outsourcers whose platforms feature Vestmark as their default portfolio-management provider. Prior to this year, such deals had featured CheckFree’s APL as the portfolio-management application of choice.

…or just an interlude?

JPMorgan is on the record saying it prefers Vestmark to APL, largely because of what it sees as Vestmark’s superior capabilities around multi-currency and fixed-income transactions. BISYS works with Vestmark as well, though it’s at pains to say its platform is equally compatible with APL. Citi says it has a policy of never naming its vendors, so won’t say if it works with Vestmark. But several sources say the company’s SMA-ops platform is compatible with Vestmark and APL alike.

One of those sources adds that Vestmark-compatible SMA ops providers will sign a flurry of new deals over the next few months. It would be interesting to know if that’s because Citi, JPMorgan and BISYS want deals inked ahead of the release next year of EPL. That’s the “next-generation” version of APL designed “to deliver superior business, operational and cost efficiencies to broker-dealer firms, money managers and registered investment advisors,” according to a CheckFree press release.

Vestmark sees deal flow increasing in coming months, but not from a desire hurry things along before EPL comes out. “I can’t say that EPL is the driver of deals for our partners,” says Rob Klapprodt, Vestmark’s head of product management. In fact, he views the release of EPL as an opportunity to win more business. “EPL is a full re-write that requires conversion for all the managers,” he says. “We have to gear up for a potential flood of new business.”

But CheckFree says it’s working to make EPL conversion easy on its clients. “We’re mitigating the risk and taking on all the heavy lifting,” says Hilary Fiorella, head of marketing at Jersey City, N.J.-based CheckFree Investment Services. “All we’re asking our clients to do is validate the data.” She adds that CheckFree has six beta clients running EPL already. “We’re working with them to ensure that the impact of conversion is minimal. This is something we’re prepared for.” –FWR


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