Investment funds, and particularly alternative funds, are making up an increasingly important share of Clearstream’s business, one of its top executives said in an interview ahead of an annual conference.
The financial firm has €300 billion in alternative assets under custody, Neil Wise, chief commercial officer and member of the executive board at Clearstream Fund Services, told the Luxembourg Times last Thursday.
That “has grown from nothing 11 years ago,” when Clearstream acquired Citco Global Security Services, “which was our first foray into the alternative fund arena,” Wise said.
The Citco deal “moved us a little bit away from the core DNA of Clearstream in the capital markets,” where it is a global leader in post-trade settlement of stocks and bonds.
Luxembourg-headquartered Clearstream is a bank for banks and investment firms, connecting financial firms to global financial networks and keeping track of investors’ money. Clearstream is wholly owned by Deutsche Börse, which runs the Frankfurt Stock Exchange.
Alternative funds, often called private market funds, refer to investments in private assets such as equity stakes in companies and property, as opposed to mutual funds that invest in publicly traded stocks and bonds.
Since that Citco deal, Clearstream’s fund services segment has grown significantly. The number of fund services transactions rose by 362% to nearly 45 million between 2015 and 2024, according to annual financial statements.
Over the past five years, investment fund assets under custody increased by nearly 50% to €4 trillion and the proportion that fund assets make up of its total assets under custody went from around 18% to 20%. While two percentage points may seem like a small figure, the difference represents roughly half a trillion euros more in assets on the company’s platform.
Its fund services segment has around 800 clients, the firm said, including global banking giants like HSBC, JP Morgan, State Street and UBS, and local outfits like Banque de Luxembourg, Quintet and Spuerkeess. Including subsidiaries, it has about 280 staff in Luxembourg, out of 1,140 total Clearstream employees in the Grand Duchy.
Fund segment split-off
Clearstream Fund Services was hived off from Clearstream Banking, the part of the company that handles stocks and bonds, in 2022. One reason for the separation is that the two businesses fall under two different regulatory regimes.
“What the split allows us to do is also to have a laser focus on the product itself, to allow the business to breathe, because in reality we’ve increased, a lot, our coverage model,” Wise said.
In recent years, the fund services segment has grown both organically and through a series of acquisitions. First was UBS Fondcenter, a fund distribution platform, in 2021, which pushed up activity – and revenue – for the business.
Then it bought Kneip Communication, a fund data firm, in 2022, and FundsDLT, a blockchain-based fund distribution platform, in 2024. Both companies were started up in Luxembourg.
Purchasing Kneip followed “requests from our clients to provide them more data, which we didn’t have,” Wise stated. FundsDLT “had the technology we wanted and it would have taken us a lot longer to create it than to acquire it.”
‘Create scale, not outsource’
Some alternative fund managers and wealth managers have processes run in Excel files, which is unwieldy and “not necessarily regulatory compliant,” he said. Clearstream aims to make its platform more attractive for fund firms and wealth managers by letting them “mutualise their technology spend.”
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Wise is clearly keen on the private market funds sector: “I generally think that we are scratching the surface fundamentally in the alternative space [….] We’re very much looking to grow, develop and industrialise third party fund processing.”
That involves both “investing in technology” and perhaps staff levels, Wise stated during the interview. “In a perfect world, you would be able to invest in technology and then not invest in having people. The reality is the manual nature of our business requires people to be hand-holding, supervising, providing oversight and managing exceptions. So it’s not a question of outsourcing people to lower cost locations. That’s actually not the aim at all. The aim is to automate and create industrial scale and industrial robustness to our processing.
“But as the asset managers create more and more complex products, as the distributors and investors want to have access to these more complicated products, you have an element that the technology takes some time to support and of course we want to make sure that we can support the industry and figure out the automatisation of this digitisation,” he said.
Only after the technology and processes have been fully developed, and “once we know exactly what we’re talking about” in terms of needs, will the company be able to plan any staffing changes.
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The business is being bolstered by another buoyant asset class: exchange-traded funds (ETFs), which invest in stocks and bonds by tracking a benchmark index. State Street recently forecast that European ETFs will grow by 20% this year to €2.6 trillion in assets.
Clearstream has approximately €1 trillion in assets under custody, Wise said, which by his reckoning gives the firm “about 50% of the European ETF market.”
Clearstream Fund Summit
Clearstream hosts its 20th annual fund summit on Thursday. The event’s slogan is “where the market meets,” because it brings together distributors and asset managers, Wise stated.
Twenty people attended the premiere edition, but Wise said the company is expecting 450 attendees this year. “It’s a great visual sign of the growth of our business.”
“It’s the first time we’ve had sponsors” and “we’re even charging people to attend.” Wise said fund service providers want to promote their access and knowledge of the firm’s platform and asset managers “want to attract distributors to invest in their products by getting some airtime with Clearstream.”
