First Data Investor Services Group Inc. has been muscling its way in to the bank funds administration and distribution business in recent months.
The Westborough, Mass.-based company said that since October, it has acquired bits and pieces of its competitors' business.
First Data signed contracts with three bank-sponsored mutual fund complexes that previously used administrator-distributors Bisys Funds Services of Columbus, Ohio, and SEI Investments of Oaks, Pa.
Observers said the deals were not a great loss to industry leader Bisys or to No. 2 SEI. But they said the contracts were a noteworthy gain for First Data which, as the fourth-largest administrator, is doing everything it can to gain market share in the fiercely competitive fund distribution business.
Banks use administrators to handle day-to-day tasks pertaining to their mutual fund businesses, such as registration, compliance, accounting, and record keeping.
Administrators frequently act as distributors of bank mutual funds, counseling banks on how to market and sell the funds.
In recent years, the business has consolidated as the major players have sought scale through acquisitions. Bank mergers have also consolidated the business, as merging partners chose one or the other administrator for their funds.
First Data said it has signed deals to administer the proprietary mutual funds of First of America Bank Corp. and IBJ Schroder Bank and Trust, two former Bisys clients.
It also said it lured away First American Capital Management Inc., a Newport Beach, Calif.-based mutual fund company, from Bisys.
In addition, First Data said it has signed a contract with ABN Amro to administer its Rembrandt Funds. SEI had previously administered the funds.
"None of these is a big account," said Joy Montgomery, president of Money Marketing Initiatives, Morristown, N.J. "Bisys clearly owns the market, and when you have someone owning the predominant share, others have to make an all-out commitment. First Data has made that commitment."
Jack P. Kutner, president of First Data Investor Services, said, "Bisys, based on its size, is recognized as the No. 1 player in bank mutual fund administration and distribution.
"But First Data has put forward a set of capabilities redefining distribution. There is a clear movement away from Bisys to what we believe is a better product," he said.
Mr. Kutner said First Data's technological expertise was a plus for its clients. The company is a unit of First Data Corp., a Hackensack, N.J.- based payment system and information management company.
Other banking companies that use First Data for fund administration services include Comerica Bank, Fleet Financial Group, and NationsBank Corp.
Robert McMullan, an executive vice president at Bisys, said First Data's claims of a contract with First of America is "totally incorrect."
"First of America, acquired by National City Corp., has contracted with us for three years," Mr. McMullan said. "Parkstone is one of the more successful bank proprietary funds, and we have been a partner of theirs for years."
National City uses SEI Investments. It switched from First Data earlier this year.
Mr. Kutner said First Data signed a contract with First of America before the bank struck a deal with National City. The contract is "on hold until the merger is complete," he said.
An executive from First of America, who asked for anonymity, said it was "a possibility" the bank would switch to First Data, but he said the bank's acquisition by National City made it difficult to say for sure.
As for IBJ and First American Capital, Mr. McMullan said Bisys resigned from its contracts because "their strategies and ours were not in synch."
IBJ Schroder's IBJ Funds, with assets of $222 million, and First American's First Choice Funds, with assets of $100 million, are former clients of Furman Selz. Last year Bisys acquired $30 billion of Furman Selz's mutual fund administration, about half of which came from bank funds.
Robert L. Wagner, executive vice president of SEI Investment Systems and Services, said it was losing only a part of ABN Amro's business and will maintain an offshore contract with the Dutch bank.
He called the loss of ABN's Rembrandt $2.3 billion funds "insignificant."
SEI resigned from the contract because Chicago Corp., a broker-dealer owned by ABN Amro that manages the funds, wanted a short-term agreement.
"Our business is based on long-term contracts. We have invested heavily in our business, and short-term contracts don't work for our business model," Mr. Wagner said.
Chicago Corp. wanted "a 90- day out," and "we told them we would not do that. And if they were to ask us to do this, we would resign from the complex. We want to use our business for other contracts that will be with SEI for the long term."
Richard Ayotte, president of American Brokerage Consultants, St. Petersburg, Fla., said First Data is trying to make headway in the quickly consolidating distribution business.
"It's not a major loss to SEI or Bisys. It's a competitive industry, and pricing is extremely thin," he said. First Data is trumpeting the arrangements "because it is intent on becoming a major player in bank- related businesses."
First Data is the "new kid on the block," he added. "It is letting the world know it's out there."
