PFPC Worldwide, the pooled investment products and mutual fund administration, transfer agency and back office servicing unit of PNC Bank Corp. in Pittsburgh, has agreed to purchase First Data Investor Services Group for $1.1 billion in cash. Investor Services Group is the investment product servicing arm of First Data Corp. of Atlanta, one of the largest electronic payment and processing services companies. PFPC is based in Wilmington, Del.
The deal, expected to close in the fourth quarter of this year, will create a bigger and stronger fund and retirement plan processing and servicing company, said James L. Fox, current president of First Data Investor Services Group.
"It's our intention to create an industry powerhouse, not just a company, that has strong systems, technologies and people," said Fox.
Fox, who will be vice chairman of PFPC Worldwide, will be responsible for the new firm's operations, along with J. Richard Carnall, currently PFPC Worldwide's chairman, and Vincent J. Ciavardini, its president and chief operating officer. Fox, who has been with First Data for ten years, has been president of the fund servicing unit since June.
The combined organization will provide accounting services for $287 billion in mutual fund assets and transfer agency services for 33 million shareholder accounts. The new company will also provide administrative and record-keeping services to over 20,000 retirement plans.
While PFPC's strengths lie in providing transfer agency, custody, securities lending, cash management and non-U.S. domiciled as well as offshore fund services, ISG brings to the merger experience in retirement plan servicing and record-keeping, printing and mailing capabilities, as well as transfer agency and fund accounting, said Fox. PFPC also provides services to partnerships and hedge funds.
First Data recently decided that investment product servicing was not its core business, said Fox. Instead, it has been focusing on using its technological capabilities to move more into the e-commerce and electronic payments arenas. Still, it sought to build its own fund servicing unit. In February 1998, Investor Services Group purchased FundPlan Services of King of Prussia, Pa., increasing its staff by 190 people and bringing it a small book of business, said Fox.
For PFPC, the merger with Investor Services Group was driven by the desire to achieve scale.
"When we call, people won't say who?' anymore," said Ciavardini of PFPC. Pending regulatory approval, PFPC will review the customer base of the two firms, all systems applications and the various locations of its servicing staff centers with an eye to possible consolidation, said Ciavardini.
At least one smaller mutual fund service provider says it is not intimidated by the prospective new company.
While in the future firms may be operating in the shadows of much larger service providers, small service firms are not in danger of becoming extinct, said Mim Allison, president of Sunstone Financial of Milwaukee, Wisc., a provider of back office mutual fund services catering to mostly small and niche fund groups.
"We think there's a market for funds that want detailed, hands-on attention to quality without mass production," she said.
The creation of larger fund servicing companies may actually spell opportunity, said Robert Walstad, president and founder of ND Holdings of Minot, N.D. ND Holdings is the investment adviser to two predominantly fixed-income fund groups with a combined $380 million in assets. A year-and-a-half ago, ND Resources, the technology and systems subsidiary unit of ND Holdings began selling back office fund services to small, cost-conscious fund companies.
"For us, this means there are fewer service providers chasing the same number of mutual funds," said Walstad. Those fund servicers who, to be cost-efficient, normally solicit mid- to large-sized fund groups, tend to ignore the smaller funds, he said.
"We have our eyes on those," he said.