Two of Signature Financial Group's biggest bank clients have taken most of their fund administration business to archrival State Street Boston Corp., triggering speculation that more Signature clients will defect.
Industry sources said J.P. Morgan & Co. has cut its ties with Signature and has hired State Street to provide administrative and accounting services for Morgan's $11 billion-asset proprietary fund complex. The change takes effect today, the sources said.
And recently, Signature, which administers funds under its "hub-and- spoke" structure, was not awarded the contract for Citicorp's new CitiSelect Funds, although the company continues to provide administration and fund accounting for Citicorp's less prominent Landmark Funds.
In hub-and-spoke, an investment company, acting as a "hub," manages a pool of mutual fund assets for various "spoke" banks and other companies, which may name and price those funds as they wish.
Signature receives an ongoing fee, typically a percentage of net assets, for each hub and each spoke it sets up. The company is estimated to have booked between $2 million and $3 million in fees from Morgan over the 12 months ended May 31.
Observers say the latest defections were prompted by a U.S. District Court ruling in April that invalidated Signature's patent on the hub-and- spoke structure.
"The number of clients interested in exploring" hub-and-spoke arrangements, also known as master-feeder, "is greatly expanded now, " said Kenneth R. Hoffman, president of Optima Group, Fairfield, Conn. "It would make sense, if the ruling stands, for fund companies to coordinate as much of their administrative needs through a single vendor."
Indeed, State Street was already providing custody services to Citicorp and Morgan, as well as to another Signature client, Neuberger Berman Asset Management.
Industry insiders said Signature must lower its fees or will risk losing more business.
"The two considerations for fund companies are the range of services and support, and obviously the fees" assessed by companies such as Signature, said Burton Greenwald, a Philadelphia-based mutual funds consultant. "State Street might have an advantage because it has global support in place and has more elaborate resources overseas than Signature does."
