BNY Mellon Working On Real Estate Fund Admin Deal With Deutsche Bank

Global custody giant Bank of New York Mellon (NYSE:BK) announced recently that it is in exclusive talks with Deutsche Bank (NYSE:DB) about a deal to take over all administrative functions of the latter’s real estate fund. ^[1] Deutsche Asset & Wealth Management (DeAWM) – the wealth management and private banking arm of the German banking giant – is looking to outsource the administration of a bulk of its real estate funds. The world’s largest custody bank, which has $645 billion of alternative assets under custody and administration (AUC/A) emerges as the ideal candidate for the job.

As a part of the proposed deal, DeAWM will place funds managing $47.6 billion in total assets under BNY Mellon’s care and will also transfer 80 of its employees over to BNY Mellon’s Alternative Investment Services unit. Such a tie-up will elevate BNY Mellon among the ranks of the world’s largest real estate fund administrators while granting Deutsche Bank’s clients access to better technology and information about the funds.

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Deutsche Asset & Wealth Management manages just under $1.3 trillion in assets, and with $144 billion in alternative assets under management, it is one of the world’s largest alternative investment manager. More than half of these alternative assets are housed under DeAWM’s Alternative Real Assets business ($76.5 billion at the end of Q1 2014), and the remaining under its Alternative Fund Solutions unit. The ongoing talks between Deutsche Bank and BNY Mellon pertain to funds managing $47.6 billion in real estate assets which are a part of Alternative Real Assets. Notably, that is one-third of Deutsche Bank’s total alternative assets under management and a little more than 60% of its total real estate related alternative investments. From the looks of it, Deutsche Bank appears to be responding to its clients’ demands for better services from its real estate funds – something that is best achieved by outsourcing the day-to-day functions to a full-service fund administrator.

The niche real estate fund administration industry is dominated by several independent players such as Augentius, CACEIS and CITCO in addition to custody banking giants such as JPMorgan (NYSE:JPM), Citigroup (NYSE:C) and State Street (NYSE:STT). ^[2] BNY Mellon has a small share in the industry, but the deal with Deutsche Bank will boost the size of its real estate fund assets under administration by $47.6 billion – making it one of the leaders in the segment.

You can understand how faster growth to the size of BNY Mellon’s assets under custody / administration (AUC/A) affects its share price by making changes to the chart below.

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1. BNY Mellon and Deutsche Asset & Wealth Management in exclusive negotiations for real estate fund administration outsourcing, BNY Mellon Press Releases, Jul 2 2014 [↩]
2. Augentius Website [↩]