The lay of the land in the fund accounting business shifted this morning when Citigroup revealed its purchase of Bisys' fund-servicing business, the self-proclaimed second-biggest in the business. But at least one of Bisys' competitors saw the writing on the wall for a while.

For other big sub-accounting shops like DST, PFPC and State Street, the Bisys deal brings Citi, a financial powerhouse with branches in a plethora of different pies, directly into their space. But top executives at ALPS Fund Services, at least, knew something was up with Citi. Tom Carter, ALPS' managing director of business development, cited Citi's initial purchase several years ago of a fund accounting firm in Portland, Maine.

Spokespeople for DST and State Street did not immediately return calls for comment. A spokesperson for PFPC declined to comment.

However, a spokesperson for Citi confirmed the firm's purchase of privately-held Forum Financial Group in December 2003. The spokesperson described that deal as setting the stage for the Bisys buy today.

"The buy a couple of years ago gave us a hedge fund platform and a '40 Act platform," Citi spokesman Brian Steel told The MFWire, adding that previously, "We were nowhere in the hedge fund service business."

"It certainly didn't shock us," Carter commented to The MFWire about Citi's Bisys buy. "When Citi goes in, they typically go in full force."

And that "full force" appears to have started more than three years ago with Forum. A source familiar with the situation confirmed that all, or nearly all, of Forum's management team, including then-president John Keffer, initially stayed on with Citi. After all, the source said, Citi was building the business, not slashing it.

Does this mean Citi might want to buy more here? Perhaps, although speculation so far has focused on Bisys' alternative investment servicing business as Citi's prime motivation.

Bisys could bring more than $350 billion, in 2,400 funds and 87 management companies, to Citi's own fund services unit under managing director Robert Wallace, if Citi retains the business currently listed on Bisys' company website. The back-office specialists claim to be the second biggest provider of mutual fund services, according to both overall assets and NAV generation volume (which surpasses 500,000 per year).

But while the larger fund accounting specialists may be worried, Carter, who sees ALPS as a "mid-tier provider" focusing on the $2 billion to $7 billion fund family space, doesn't see the deal impacting his firm in any big way.

"It's very interesting," Carter admitted, "but we only sometimes bump into them." 

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