SGG ponders multi-brand global expansion strategy

Not too long ago, SGG Group (SGG), was a large mainly Europe based and focused independent investor services and fund administrator firm. More recently, it has grown to become the global partner to the alternative investment industry serving funds, international companies, high net worth families and entrepreneurs. The company successfully completed a number of major acquisitions in the past 12 months that expanded its capability and presence into the global markets across 24 locations and now employs over 2450 dedicated professionals.

In 2016, the company received Astorg-Partners, a large European private equity group, as a major shareholder and had since gone on a major expansion spree that saw its assets under administration grow to reach more than $400 billion and over 600 funds. It now claims to be the fourth largest independent investor services firm and one of the top three independent administrators to the alternative investment community in the world,

SGG started its current expansion with the acquisition of the family-run Asia-focused advisory company, Iyer Practice, that offers a number of advisory and compliance solutions to companies and private clients in Singapore and Hong Kong. This was followed by the takeover of First Names Group that considerably strengthened its reach and capabilities in key markets such as Jersey, Guernsey, the Isle of Man, Switzerland, Cyprus and Ireland.

In December 2018, it announced the successful completion of the acquisition of Augentius, the largest independent private equity and real estate administrator in the world, with significant presence across four continents.

The combined group now offers a comprehensive spectrum of services, leading technological platforms and specialized expertise to asset and wealth managers as well as high and ultra-high net worth individuals and families in all key fund domiciles in the world.

The complete solution suite includes fund administration, regulatory hosting, depositary, Alternative Investment Fund Managers Directive (AIFMD) reporting, regulatory compliance, Anti-Terrorism Clarification Act., and Common Reporting Standard (ATCA/CRS) as well as solutions to institutional investors.

The company is currently undertaking a comprehensive review of all its acquired brands. Meanwhile, business will continue to operate under their existing brand names.

Leveraging five strong brands

Justin Partington, the company’s group fund solutions leader, remarked: “Over the past two years, SGG has acquired a number of leading industry leaders to help us achieve our global growth ambitions and our senior leadership team is dedicated to ensuring that those firms are well integrated to meet our overall long-term goal.”

The strategy is a relatively simple one. First, to grow the client base for the core investor service and fund administration business; to acquire businesses on both the private client and corporate sides – which it did through First Names Group in 2017. Then, it was to expand geographically into Asia through Iyer Practice. Finally, it is to identify and leverage available growth opportunities.

Partington explained: “With Augentius, it was to create balance between our three different cores. So, we have the fund administration business with corporate and private clients. We wanted to maintain that balance. We see that private equity (PE) and real estate in particular are among the highest growth areas in our business. The transaction was a really nice fit for us. We’d been their white label partners in the Netherlands for six years and had worked hand-in-hand with them. So, we had a good, nice working relationship.” 

The other growth business is compliance services which SGG gained through another acquisition, that of Lawson Conner.

The challenge to owning these five strong brands said Partington is not to make any quick hasty moves that might undermine or minimise the ability to leverage their strengths and reputations”

“So, we want to be quite considered and measured in terms of our approach. But what we do recognise is that when you bring together five different companies that there is a need to look at the combined brand in a different way. And that brand can be any one of a different number of outcomes. We are still looking at what might be the best option,” he pondered.

Opportunity in Asia

Markets in Asia have been growing robustly, in the 10% to 11% range, over the last five years, albeit there’s been some slowdown of late. Of particular interest to SGG is the private equity investments by foreign and international investors in China.

China’s private equity market grew substantially during this period due to the gradual liberalisation of its macroeconomic policies and a partial opening of the economy to foreign investors.

However, in the past year, Chinese authorities started to take mitigating action to control the growth of excessive debt, by tightening regulations in the private equity market. This started with fund managers being required to register with the Asset Management Association of China (AMAC). Also, there were stricter information disclosure requirements. These tightened regulations served to ensure oversight and investor protection, in a bid to maintain the quality and sustainability of growth.

This had raised concerns among some investors about the openness and the consistency and visibility of regulations in the Chinese market.

“I think it is important to remember that the most important thing the investors want is consistency and visibility. Too much change is obviously a concern for investors.” Partington said.

However, he believes that there is appetite to invest in China and Chinese funds from international investors. But with the typically longer tenure of PE funds, investors also want a longer runway for regulatory visibility. Despite the regulatory challenges, China presents many unique opportunities, especially in new and emerging technologies.

“At one point it was about investing in technology. Now it is about trying to get technology into everything that you operate. It is continuing to disrupt and change the business in every segment of every industry. In particular, we are seeing a lot of cryptocurrency, blockchain and financial technology initiatives,” Partington offered.

Senior management at SGG, led by founder and CEO, Serge Krancenblum, is also passionate about exploring the implementation of impact investing concepts and strategies into the company’s business model.

“We had a big event in Luxemburg last year on the topic of “Doing Well By Doing Good” at our SGG Crossroads,” he added “It is still seen as a side or niche area from traditional PE and real estate investments. I still think that while it is a wonderful investment contribution to the world, the impact is yet to be proven that it is financially attractive enough to go into the main stream.”

Creating value

With the expectation of interest rates rising or normalising, the onus is now on private equity investment companies to do more to create value.

“Ultimately, if companies can support less debt because interest rates are going up then it will be less leveraging, more equity for more stake. There will also be more at stake for the PE houses. It will mean that in order to achieve their own internal rate of returns there will need to be more of those investments,” Partington opined.

In my view, they will be able to drive more consolidation, mergers and acquisitions (M&As), to create more value. But it will be more of an equity led M&A. Equity cushions and contributions will have to grow. And then ultimately, PE houses may have to be more aggressive in their strategies. Squeezing more synergies out when they bring the companies together in order to try and create that value. So, I just think it will mean more active ownership by PE houses,” he added.

In the long-term, investors can do more with a PE strategy than with a short-term equity strategy. Players who add value will face a bright future. And PE houses need to be active rather than just rely on financial engineering or cost synergy.