Capital Markets Fintech and Technology Trends – June 28, 2019

Even though things might slow down for the summer, there still continues to be lots of interesting trends and themes either emerging or continuing to develop in the markets. There are two interesting ones that I’ve been keeping my eye on the last week or so – asset managers starting to replicate trends from the sell side (especially around tracking distribution) and the big corporate access story covered in the WSJ

The buy side adopts sell side tools for distribution and engagement tracking – one of the biggest trends we’ve seen over the past 6 months is the explosion of interest in distribution tracking and analytics on the buy side. Funds are looking to capture more data on what internal research consumption looks like as they make internal investments, and benchmark it to external providers. Additionally, they are also becoming more intelligent about engaging with and covering their external clients (such as RIAs). Over the last two months, I’ve been in with half a dozen global asset managers who are looking to bring the same tools the sell side uses into their own internal distribution and external sales organization. We’re also seeing this with hedge funds – they are starting to track engagement with monthly and quarterly performance reports, using the data to understand engagement from existing LPs, but also market to new LPs and allocators. Fundamentally all of the innovation in capital markets has largely been on the execution side of the business over the last 15-20 years. Now all market participants are looking to communication as the next big wave of innovation to drive margin and scale.

This technology adoption is well captured in the following article, which I’ll take an excerpt from:

“The system lets the asset manager track whether an investor has opened an e-mail or an attachment from the firm, visited the company’s website, or checked out the asset manager’s website, LinkedIn profile, or Twitter feed.”

Buy side hosting their own corporate access events? The story that has everyone talking this week was the WSJ article on funds jumping into the corporate access space.

“Fidelity Investments, Capital Group, Wellington Management, T. Rowe Price Group Inc. and Norway’s government fund are planning a series of private conferences where their analysts can meet CEOs, according to people familiar with the matter.”

A few of the global asset managers are launching a unified corporate access effort to try and source some of their own meetings. I have a few different thoughts on this – first, any consortium effort (whether sell side or buy side) is always really difficult to get going. It’s classic ‘innovator’s dilemma’: all of these initiatives are secondary priorities to the core business of the firm participating in the consortium, which means they can end up suffering from a lack of support, talent, and financing if not properly prioritized. While there have been a few notable successes, Wall Street is littered with firms backed by one or both sides of the Street who couldn’t get the momentum they needed to break out – building technology is hard. Second, I find it hard to believe that these firms can’t already get almost any meeting that they want (given their size and holdings) so I’m wondering what the goal of this initiative actually is (lowering costs being the clear hope, whether or not that materializes), and whether it creates more problems than it solves. That being said, organizing and hosting a full day conference is a major operational undertaking in and of itself, even if you have easy access to the corporates.

 

Third, aren’t these firms all competitors? That is going to prove to be a challenge on many levels. Who is going to organize the calendar and resolve conflicts or overbookings? Won’t that be a massive conflict of interest? Normally when that happens, brokerage hosts use the client value and economics as a tiebreaker, especially when there is a high value meeting or company attending (meetings go to the more valuable clients), but how will that work in this case? Additionally, once the calendar is organized, who manages that data? Where does it sit? My guess is there will need to be an arms length organization, because I can’t see any funds being comfortable with the corporate access team at another fund seeing all their calendars, and who’s meeting with who from their organization. These details will prove complicated, and more importantly, they will drive up the cost of the effort, which might end up challenging the main purpose of the initiative (to lower costs)

Ultimately my view is that this just shows the bar is being raised on the sell side to make sure that they are offering differentiated value to either their buy side clients or corporates clients when hosting corporate access related events. Firms need to use their unique position and view to augment the process, and differentiate themselves. This might mean providing the corporate with proactive intelligence around where they should be visiting, and who. It might mean getting smarter about making intelligent recommendations to funds based on past engagement about upcoming corporate meetings. Whatever it is, the sell side needs to figure out how they uniquely can engage and add value to both corporates and clients in the space if they want to stay relevant.

https://www.wsj.com/articles/giant-investors-are-coming-after-one-of-wall-streets-cash-cows-11561555988

In the coming weeks, we’ll continue to share our view on the Capital Markets Fintech, and Technology landscape. We hope to provide you with interesting perspectives and updates on new ways of thinking, new tools, and new approaches as the industry evolves. Please subscribe below to keep up to date.

Blair Livingston
CEO
Street Contxt


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Capital Markets Fintech and Technology Trends – June 14, 2019

As you may know and appreciate, because of our position in the ecosystem we have a great seat in seeing how technology is impacting and changing the capital markets. We see how it’s changing the sell side – especially around distribution, personalization, research creation, sales, and client coverage. We see how it’s changing the buy side – as it relates to content and product access, broker voting, thesis creation, collaboration, and other pain points. We also see the pain points around asset manager distribution – whether related to IA marketing and sales, or LP prospecting and updates. We also see corporates, PE/VC funds, other software providers, and all other market players. We get a front row seat to observe (and hopefully contribute to) the major changes driving the industry forward. This should give you some interesting perspectives and updates on new ways of thinking, new tools, and new approaches as the industry evolves. With that in mind, let me begin:

What is the future of corporate access? Probably not a marketplace. Joining a crowded space, a new company called InterAxS is the latest entrant to the corporate access market (which already has at least a half dozen players). The approach companies are taking in this space feels very similar to the research market place space – a kind of “build it and they will come.” I’ve talked to a lot of companies in this space (corporate access marketplaces), and almost all of them are struggling from an event liquidity perspective, and those that are actually able to get some event traction then struggle from an economic perspective. It’s a hard business to do on it’s own. It makes me think of Roboadvisors on the investment management side – are they a stand alone product, or a feature of a larger product? Like we’ve seen for Roboadvisors, corporate access also feels like it’s more of a feature. My guess is we’re going to see some consolidation in this space over the next 12 months.
https://www.businesswire.com/news/home/20190523005298/en/InterAxS-Global-Longtime-Corporate-Access-Duo-Shakeup

How to cover private equity clients? One of the biggest continued trends we’ve seen is the emergence of private equity clients as a powerhouse, as more capital looks for private or control deals. Now we’re seeing that the line between hedge funds and PE funds is blurring. Business Insider had a great article on the talent war that is growing, which really captures the essence of their collision course. From the PE firms we’ve been working with, we hear more and more that they want an easy (read: not cumbersome) way to access research and commentary, and also analyst/expert time. They’re willing to pay, but are lower frequency. How this fits into the evolving sales model will be important as this client segment becomes more and more valuable. Additionally, we’re seeing more and more PE funds look to create centralized collaboration platforms, where they can share deals, ideas, commentary, research, and other materials, and also build and manage investment theses. This is done quite primitively right now.
https://www.businessinsider.com/hedge-funds-and-private-equity-battling-over-each-others-talent-2019-6

The Fintech herd is thinning – we’re going to see a lot of consolidation over the next 12 months. MiFID II was a big catalyst for change, or at least, was supposed to be a big catalyst for change. A lot of companies that were started over the last 3-5 years based their core assumptions around the fact that MiFID II would change market structure and behaviours. Perhaps it has, but not anywhere near the degree that people thought it would. Now we’re going to see a lot of consolidation in those companies. I spent a lot of time with research providers – from bulge bracket firms, down to independents, from all over the world. I can tell you that not a single one has ever told me “I’m making a lot of my revenue from [insert marketplace].” As it turns out, in order to get someone to buy something, you usually have to reach out and sell it to them. Recently, Liquidnet announced it purchased Research Exchange from the UK. I expect we’re going to see a lot more acquihires in this space as some of the larger players look to take a swing at the marketplace model in a cheap way (I personally doubt they will see any more success, but we’ll see!)

Liquidnet buys Research Exchange:
https://www.pehub.com/2019/05/liquidnet-buys-rsrchxchange/

Liquidnet buys Prattle:
https://www.financemagnates.com/institutional-forex/technology/institutional-trading-network-liquidnet-acquires-prattle/

In the coming weeks, we’ll continue to share our view on the Capital Markets Fintech, and Technology landscape. We hope to provide you with interesting perspectives and updates on new ways of thinking, new tools, and new approaches as the industry evolves. Please subscribe below to keep up to date.

Blair Livingston
CEO
Street Contxt


Subscribe to Get Future Content Delivered to Your Inbox