Bisys Pads Its Lead in Bank-Fund Administration

Bisys Group Inc., the top administrator of bank-managed mutual funds, has widened its lead over a shrinking field of rivals, according to data from Lipper Analytical Services, Summit, N.J.

In the quarter ended June 30, Bisys handled $82.9 billion in fund assets for its bank clients, up 51% from a year earlier. That's twice as much as second-place First Data Investor Services, which administered $40.9 billion, down 6% in a year.

Administrators help bank mutual fund businesses hum by taking care of such technology-intensive tasks as fund accounting, record keeping, and compliance. Most also double as distributors, helping banks position and sell their funds.

The fund administration business has been consolidating rapidly in recent years in response to shrinking profit margins. Bank customers are driving harder bargains, and the pressure to make heavy capital investments has grown.

"The level of services demanded and the cost of providing them are increasing," said Burton Greenwald, a Philadelphia funds consultant. Fund administration is a scale game, he said, and survival hinges on having "enough mass to provide adequate revenue" on thin margins.

Bisys, a major bank-technology servicer, has built its mutual fund muscle through acquisitions, having bought administrators Winsbury Group and Concord Financial in recent years.

The company is now in the process of taking over the fund services business of Furman Selz, a New York brokerage firm that currently administers $15.5 billion in bank fund assets.

Mergers in banking have also benefited Bisys by adding assets at the expense of other vendors. The merger of Chemical Banking Corp. with Chase Manhattan and the marriage of First Chicago Corp. and NBD Bancorp are two recent cases in which Bisys was on the winning side.

Bisys' asset growth has fueled the hiring in recent months of a slew of seasoned fund executives from Alliance Capital Management, Vanguard Group, and even Signet Banking Corp.'s brokerage unit.

"We have no trouble recruiting very talented people, and our size is one reason people come to us," said David Huber, president of Bisys' Columbus, Ohio-based fund services group.

Bisys isn't the only fund administrator in acquisition mode.

Federated Investors, which administered $23.3 billion of bank fund assets at midyear, is expected to vault from its current seventh- place ranking later this year when it closes its deal for Signature Broker- Dealer Services. At least $10 billion of Signature's $26.2 billion administration portfolio is expected to move to Federated.

For the survivors, the shakeout promises greater economies of scale. But simultaneously, administrators say, profit margins are continuing to fall as such chores as fund accounting become commoditized.

"Margins are lower than they used to be, but they're still healthy," said Robert Wagner, executive vice president for mutual fund services at SEI Corp. in Wayne, Pa. Most customers understand that pricing pressure becomes counterproductive, he said, "if they squeeze me to a point where I can't make a buck."

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