Business process outsourcer Xchanging has won a 400m-euro ($542m) contract with Allianz Global Investors to provide retail investment account management services.
The deal is the UK vendor’s biggest win of the year after it renewed its flagship human resources outsourcing contract with BAE Systems in January.
Like several of Xchanging’s large contracts, the deal will be structured as a joint venture. Xchanging will pay 13m euros ($17.6m) in cash to acquire a 51% stake in Allianz’s retail portfolio management subsidiary Fondsdepot Bank, with an option to buy the remaining 49% for 13m euros ($17.6m) after four years.
Xchanging will take over the day-to-day running of Fondsdepot Bank from no later than November 1 under an eight-year contract, with the goal of improving the bank’s productivity through process optimization and expanding its business with third-party brokers and independent financial advisers.
Fondsdepot Bank has 400 employees and manages 1.3 million active securities accounts with a combined asset value of 19.2bn euros ($26bn). At the end of last year, the bank had net assets of 26m euros ($35m) and gross assets of 38m euros ($51.5m).
The contract is Xchanging’s second major win in Germany. In 2004, it captured a deal with Deutsche Bank, which saw it acquire a 51% stake in the bank’s securities, funds, and derivatives processing arm ETB.
Xchanging CEO David Andrews said the contract expands the company’s financial services processing capabilities beyond the securities space and into asset-management BPO. Datamonitor valued this market in Europe at $758m in 2006.
Xchanging is in expansion mode following its flotation on the London Stock Exchange in April. In the first six months of the year, the company reported a 35% fall in net profit to 4.3m pounds ($8.6m), due in part to IPO costs, on revenue that rose 18.4% to 222.4m pounds ($444.6m).
Xchanging is breaking new ground with this contract win.
The front-runners in the asset-management BPO space to date have been large custodians such as State Street, Bank of New York, JP Morgan, and Citigroup, rather than specialist outsourcing players. Lots of suppliers from an IT outsourcing background as well as BPO vendors have expressed an interest in building up in this area, but none has won business on this scale.
Asset-management companies are increasingly keen to improve the efficiency of their back-office operations and focus on core investment activities in the front and middle office. If Xchanging can deliver the goods on the Allianz deal, it can use it as a springboard to target similar contracts across Europe.