Continuing a wave of consolidation in the mutual fund servicing market, Federated Services Co. plans to buy the bulk of Signature Financial Group's fund administration business.
Under a deal expected to be announced today, Federated would acquire the Boston-based company's Signature Broker Dealer Services unit for an undisclosed sum.
Federated, based in Pittsburgh, would add almost $11 billion in mutual fund assets under administration to an existing pool that already exceeds $90 billion. Federated administers its own funds, as well as those managed by more than 20 other companies, including Wachovia Corp., Hibernia Corp., and Marshall & Ilsley Corp.
"This is a business of scale," said Ronald M. Petnuch, senior vice president of Federated Services Co. "Adding on $11 billion in assets over several customers. . . gives us more economies of scale."
Signature is just the latest casualty in the increasingly cutthroat fund-servicing business. Just last month, Furman Selz agreed to sell its fund servicing unit to the Bisys Group.
When the deal is complete, Signature's business would be limited to providing so-called hub-and-spoke services to mutual fund complexes, including Citicorp's, and to providing some administrative services for Brown Brothers Harriman & Co.
Under hub-and-spoke arrangements, an investment company acting as a "hub" manages a pool of assets that feed assorted "spoke" funds which can be named and priced differently for various clients or markets.
"We'll have a smaller company but a higher level of profitability," said James E. Hoolahan, a senior vice president at Signature.
After legal setbacks invalidating Signature's domestic patent for hub- and-spoke, several large bank fund complexes left the company this spring. Both J.P. Morgan & Co. and Citicorp moved their fund administration business to State Street Boston Corp.
Signature is now focusing on global applications of its hub-and-spoke scheme to allow a single, centrally managed portfolio to be repackaged for sale in multiple countries, Mr. Hoolahan said. It expects to have three international arrangements running by yearend, he added.
Bankers Trust New York Corp., Signature's largest administration client at $10 billion in fund assets, has already approved a one-year renewable contract with Federated, Mr. Petnuch said.