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Thursday, July 28, 2016

A Japanese Giant Buys Into U.S. Mutual Fund Services

Reported by Neil Anderson, Managing Editor

A giant, publicly-traded Japanese bank is buying into the U.S. mutual fund and ETF administration business.

MUFG Investor Services, Mitsubishi UFJ Financial Group's global asset servicing arm, will acquire Rydex Fund Services from Guggenheim Investments [profile], confirms Junichi Okamoto, group head of the trust assets business group and deputy president of Mitsubishi UFJ Trust and Banking Corporation.

The deal is expected to close in early Q4, and pricing and terms were not disclosed. Yet the Nikkei Asian Review reports that Mitsubishi is paying $190 million (about 20 billion yen) for the deal. Rydex Fund Services has 115 employees and $52 billion in assets under administration, mostly in Guggenheim ETFs and mutual funds (some of which have the Rydex brand). So, that $190-million price estimate translates into 0.37 percent of Rydex Fund Services' AUA.

Ropes & Gray advised MUFG Investor Services on the deal.

The deal will push MUFG Investor Services' AUA to $422 billion. Meanwhile, Guggenheim will continue to serve as the investment advisor to the Guggenheim and Rydex mutual funds and ETFs.

"Mitsubishi does intend to retain all current Rydex Fund Services management and staff," Ivy McLemore, a spokesman for Guggenheim, tells MFWire. "Clients are going to benefit from the same trading system, interact with the same client service personnel."

Okamoto calls the deal "an important part of [Mitsubishi's] commitment to supporting the growth of new clients and extending our services to existing clients."

Nikolaos Bonos, head of Rydex Fund Services, says the deal "will enable [the Rydex Fund Services team] to respond to rising demand for liquid alternatives with a comprehensive service proposition that supports the development of investment managers' businesses."

John Sergides
MUFG Investor Services
Global Head of Sales & Marketing
John Sergides, managing director and global head of business development and marketing for MUFG Investor Services, similarly notes that "demand for liquid alternative strategies has risen significantly in recent years."

"Alternative fund managers are increasingly establishing '40-Act fund structures to access this growing market," Sergides states. "Our complete offering will allow us to become the partner of choice for alternative fund managers of all sizes, strategies and structures."

Nikkei Asian Review writes that "asset management and custody are a key component of MUFG's growth strategy, especially as negative interest rates in Japan squeeze returns at home."

For Guggenheim, McLemore says, selling Rydex Fund Services is "really consistent with asset management industry trends" around outsourcing fund servicing to third parties.

"This allows us to focus on asset management," McLemore says. "We really believe that the funds and the fund shareholders will benefit from MUFG's scale of operations and breadth of offerings."

"This is a core business for Mitsubishi," McLemore adds. "It's not a core business for us."

The Rydex deal comes seven months after MUFG Investor Services closed on its acquisition of UBS Asset Management's Alternative Fund Services business. The Rydex deal also comes less than two years after MUFG Union Bank unveiled a strategic partnership with another Guggenheim Partners arm, Guggenheim Investment Advisory.

Meanwhile Mitsubishi is the parent company of Union Bank, and Union Bank subsidiary HighMark Capital Management is a mutual fund subadvisor that previously offered its own mutual funds. 

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