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Tech costs of L&G link will delay break-even for cofunds

Cofunds’ projected break-even date has slipped back to early 2007 due to the level of investment required to support the platform’s tie-up with Legal & General.

The cost of systems to support the addition of bond and pension wrappers, set for launch this year, runs into “several million pounds”,says Cofunds chief executive Stuart Dyer. Break-even was expected in 2006 before the L&G tie-up.

Dyer says it will be two to three years before the deal starts to pay for itself. The bond and pension business will be higher-margin business for Cofunds, but only around 10 per cent more lucrative than its mutual fund business, making a margin of around 0.33 per cent of funds under management.

Dyer also reveals that Cofunds paid out around 16m in 2003 to fund re-registration – close to 50 per cent of the platform’s operating costs. In 2003, operating costs were 32m although back-office improvements mean these are projected to fall to 28m in 2004 and 27m in 2005 despite rising volumes of business.

Re-registration costs made up around two-thirds of Cofunds’ losses. The platform lost 23m in 2003 but expects losses to fall to 16m in 2004 and 4-5m in 2005.

Dyer says: “The cost of the project to us is several million pounds and the investment is not going to pay back a period of two to three years. We believe that the life and pension business will be slightly higher margin for us and our running costs are being held or are reducing.”

Cofunds chief executive Stuart Dyer believes the company’s link-up with Legal & General opens up its access in the depolarised world to a variety of markets

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