The trust and fiduciary industry, valued at approximately $79.9 billion in 2024, is undergoing transformation through consolidation. This sector, traditionally rooted in trust and stability, thrives on long-term relationships, consistent service, and personalized care—qualities that inspire confidence among clients. Private equity is playing a significant role in this consolidation, leveraging its substantial capital reserves to acquire businesses with stable cash flows and opportunities to enhance margins. As private equity firms increasingly target the trust, fiduciary, and custodian market to deploy capital, their emphasis on rapid efficiency gains and maximizing returns introduces potential risks to the delicate balance of personalized service and client trust that defines the industry.
This is an extension of PE’s entrance into the wider wealth management and financial services industry where PE activity in the space increased 3x between 2020-2023 with 80% of M&A activity now driven by PE activity. A theme that sparked the head of the accounting watchdog FRC to sound the alarm earlier this year about private equity’s role in the audit market.
This trend was highlighted and discussed in our recent webinar on “Exploring the pressures on international wealth”. While this brings risks such as regulatory breaches, reduced service quality, and counterparty risk for clients, it also offers potential benefits. With traditional financial institutions exiting the space, private equity provides much-needed competition, innovation, and capital, helping to rejuvenate an industry that might otherwise stagnate.
Some examples of recent consolidation in the industry:
- JTC's Acquisition of Citi Trust (2024): Global professional services provider JTC announced its intention to acquire Citi Trust, the global fiduciary and trust administration services business, to bolster its position as an independent provider of global trust services.
- Harneys Fiduciary's Sale to Hillhouse Capital (2023): Harneys Fiduciary, a global offshore corporate services provider, was sold to Hillhouse Capital.
- CSC's Acquisition of Intertrust (2022): Corporation Service Company (CSC) completed its acquisition of Intertrust, a Dutch corporate management service company, expanding CSC's reach into over 140 jurisdictions.
- Ocorian and Estera merger (2020): Ocorian merged with Estera, both providers of corporate, trust, fund, and accounting services, creating a global leader in the sector. An Inflexion Private Equity owned company.
Client Risks: Counterparty Risk and Service Quality
As private equity consolidates firms in the trust and fiduciary space, clients who see their trust companies as a safe harbour for their assets, may start needing to consider the financial health, leverage and counterparty risk of the service provider. It potentially exposes clients to failures and the implications of a highly levered PE-owned firm.
Moreover, the efficiency improvements pursued by private equity owners to achieve returns often result in the standardization of services. This shift can replace bespoke, tailored solutions with more generic offerings, potentially undermining the personalized care that high-net-worth individuals and family offices have come to expect. Additionally, private equity ownership frequently leads to increased staff turnover or workforce reductions, disrupting the consistent and trusted relationships that are critical for family offices relying on stable points of contact with their service providers.
Lessons from Veterinary Services
The veterinary industry, which has experienced a similar historic wave of private equity takeovers, serves as a cautionary tale. In that sector, many clients have reported rising fees and diminishing service quality as corporate owners prioritize efficiency and profits. This echoes concerns in the trust and fiduciary industry, where PE-backed firms may shift focus from long-term client relationships to short-term financial goals, potentially leading to higher fees and diminished attention to individual client needs.
Regulatory Breaches: IQ-EQ and Equiom
Recent regulatory actions highlight the risks. IQ-EQ Jersey, acquired by private equity firm Astorg, was fined in 2022 by the Jersey Financial Services Commission (JFSC) for failing to meet anti-money laundering (AML) and counter-terrorism financing (CTF) regulations over more than a decade. Similarly, Equiom Guernsey faced sanctions from the Guernsey Financial Services Commission (GFSC) for compliance failures in 2024. Both cases illustrate how PE ownership’s focus on short-term profitability can lead to regulatory lapses, tarnishing client trust and reputations.
The Counter-Narrative: Private Equity as a Catalyst for Competition
Despite these risks, there is a counter-narrative that private equity’s entry into the industry brings important benefits. Traditional financial institutions have largely exited the trust and fiduciary business, leaving a void that private equity has filled. Without this influx of capital and competition, the industry might stagnate, leading to outdated practices and reduced innovation, which could ultimately harm clients.
Private equity-backed firms can introduce new technologies, streamline operations, and create more efficient service models, potentially lowering costs for clients in the long run. They also offer an injection of fresh competition, which can drive the industry forward and improve service offerings. In many cases, PE firms have the resources and strategic know-how to help fiduciary firms expand into new markets or offer more comprehensive solutions, ultimately benefiting clients who need more dynamic, forward-thinking services.
Protecting Clients in a Consolidated Industry
To balance these potential benefits with the risks, clients need to remain vigilant. Conducting regular due diligence on their service providers and staying informed about ownership structures is critical, part of this should be asking for details of staff turnover/satisificaton. Ensuring regulatory authorities maintain stringent oversight will help keep the focus on compliance and client protection, even as firms grow and consolidate.
Conclusion
The trust and fiduciary industry stands at a crossroads, with private equity driving significant consolidation and transformation. While this brings opportunities for innovation, increased competition, and expanded service offerings, it also introduces risks to the core values of trust and stability that have traditionally defined the sector. Regulatory breaches, service standardization, and counterparty risks highlight the potential pitfalls of private equity ownership. However, with vigilant due diligence, robust regulatory oversight, and a focus on maintaining personalized client care, the industry can harness the benefits of private equity while safeguarding the principles that underpin its success. As the landscape evolves, striking this balance will be critical to ensuring a thriving and resilient future for the trust and fiduciary sector.
