Market environment and StatPro’s channels
Growth drivers: Providing solutions for asset management
StatPro's products are targeted at the global wealth management industry, which relies on assets under management (AuM) to provide a source of revenue from which to extract fees. StatPro provides solutions that enable its clients to increase their AuM and improve profit margins.
The outlook for fund managers has been showing improvements with global AuM rising by 7% to $69.1tn in 2016, according to Boston Consulting Group, compared with 1% growth in 2015. Growth in AuM comes from net inflows of capital from clients along with the market growth of asset prices. The world’s top 500 asset managers grew AuM by 5.8% in 2016, according to Willis Towers Watson. Alternatively, PwC estimated global AuM were $84.9m in 2016, and expected to rise to $111.2m in 2020 (7.0% CAGR) and to $145.4m in 2025 (6.2% CAGR). In its report Asset & Wealth Management Revolution: Embracing Exponential Change, PwC points out that the asset and wealth management (AWM) industry is a digital technology laggard and it warns that firms need to take action now if they are to survive the exponential change that lies ahead.
Significant pressure on management fees has been encouraging asset managers to seek to manage their costs while increasing their service levels. Meanwhile, the rise in passive investing and the pressure on fees has been driving significant M&A activity in the investment management industry. Sector M&A reached an eight-year high in 2017, in value terms, although the number of transactions was relatively low, as the deals were focused on mid-sized players.
Asset managers have a reputation for being slow to adopt digital technology, but StatPro believes this is now changing. It says that many clients are now transforming the technology and the middle office, where StatPro is strong, is part of this process. StatPro is the first cloud-based analytics platform targeting the sector and is therefore well-placed to address the market. The group’s cloud solutions offer greater flexibility, along with evolving development, exemplified by self-service reports, configurable dashboards (enable clients to specify precisely what each user can see) and the ability to link to other systems with APIs (application programming interface).
We highlight the following growth drivers.
Margin pressures: the pressures on the asset management sector continue to increase, exacerbated by the onset of MiFID II. StatPro’s cloud-based technology offers asset managers a route to improving efficiency, reducing costs and upgrading legacy systems.
Fund administration channel: the company has begun to see significant acceleration in additional portfolios being subscribed to by fund administrators. This is largely due to the launch and roll-out of the Performance module in 2016, which has completed the offering.
New functionality: a priority will be to strengthen the group’s front office and there are plans to expand functionality in the portfolio modelling space. Additionally, the Investor Analytics acquisition has yet to be fully realised.
Leveraging intellectual property: StatPro is seeking to leverage its Data division, where it believes it has not fully exploited the potential of its data.
Conversions: there remains £6.3m of traditional software that StatPro plans to convert to cloud over the next two to three years. There is typically a premium on conversions since the cloud solution offers cost efficiencies and a more powerful, modern solution.
Outsourcing: the group’s cloud solutions offer the opportunity for customers to make greater use of outsourcing, eg reducing their hardware footprint.
New markets: StatPro wants to be the provider of portfolio analytics solutions for the growing number of financial information platforms. Many fund administrators and investment banks have these or are building them. Integration using APIs is the key to this strategy.
Acquisitions: the acquisition of Delta was a tremendous coup for StatPro, as it was able to acquire the business on very favourable terms. This was because UBS Delta’s technology needs to be refreshed and it is increasingly difficult for non-software businesses to maintain an application. Acquisitions such as Investor Analytics create the potential for cross-selling.
StatPro’s routes to market
StatPro sells directly to fund managers and also uses the indirect sales channel, via asset service providers. StatPro has a team of 23 salespeople primarily focused on the direct sales channel. The strategy has evolved as Revolution has gained in sophistication, with the group hiring more senior salespeople. The team operates out of North America, Europe (London) and Asia Pacific (Sydney).
Direct channel: targeting investment managers of all types and sizes as they look to replace legacy technology and improve their digital distribution strategy. Profit margin pressure and competition are forcing asset managers to look at their technology footprint to ensure they are efficient, and allowing the business to focus on core operations and clients.
Indirect channel: primarily focused on fund administrators that are “gate keepers” to large pools of portfolios. These third parties effectively outsource their IT to StatPro, implementing the solution on a white-label basis. Historically, many of these players spent significant sums developing their own in-house solutions, which cost a lot to maintain. StatPro Revolution makes these solutions obsolete.
As StatPro Revolution gains scale, StatPro believes it will increasingly benefit from the viral effect of people sharing portfolio access with each other.
Exhibit 5: Fund administrator channel
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Source: Edison Investment Research
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Case study: National Australia Bank implements Revolution
The StatPro Revolution cloud services platform replaced a legacy system at this new client. National Australia Bank (NAB) provides the solutions, on a white-labelled basis, to its own asset management and pension fund clients. The key factor in the win was Revolution’s then newly added functionality, which covers the new Australian Standard Risk Measure (SRM). SRM is a method used by Australian superannuation funds to describe investment risk and is an Australian Prudential Regulation Authority (APRA) requirement. StatPro’s cloud platform has made the process of adding functionality like this far more viable. The new functionality was developed after rigorous research, and saves customers the time and costs associated with developing their own SRM tool in house. Further, the solution was fast to implement and customers benefit from the scalability, speed and cost efficiency of the cloud computing platform.
Competitive market environment
StatPro has two main sets of competitors – the major data suppliers (notably Bloomberg and FactSet) and smaller specialist players (including BISAM, now owned by FactSet), SS&C (Sylvan, Anova and HiPortfolio), Eagle (owned by BNY Mellon) and others. The data suppliers use mainframe systems and are multi-tenant by definition, but these platforms are much more expensive to run. Also, data suppliers lack data controls and users need to ensure the data are accurate before use.
StatPro’s Performance module runs off Amazon Cloud, which means users can leverage vast processing (CPU) power when required so data can be processed at very high speed, while mainframe systems and traditional software installations can only use the CPU power on their systems. Most established players lack a pure cloud solution. While start-ups are likely to embrace the cloud, there are significant barriers to entry – business knowledge, technological know-how and, crucially, the data (which need to cover all assets and be accurate).
In the risk space, StatPro competes with heavyweights MSCI (RiskMetrics) and SunGard (owned by FIS), as well as a number of smaller players.
System providers |
Mainframe terminals |
Aladdin (BlackRock) |
Bloomberg |
SimCorp |
FactSet |
Challenges: cost, complexity and time to market. |
Challenges: cost, flexibility and integration. |
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Specialist risk software: |
New entrants: |
MSCI (RiskMetrics and Barra) |
Cloud Attribution |
Axioma |
Clearwater Analytics |
Challenges: cost, integration and technology. |
Challenges: functional depth, data management & global support. |
System providers |
Aladdin (BlackRock) |
SimCorp |
Challenges: cost, complexity and time to market. |
|
Specialist risk software: |
MSCI (RiskMetrics and Barra) |
Axioma |
Challenges: cost, integration and technology. |
Mainframe terminals |
Bloomberg |
FactSet |
Challenges: cost, flexibility and integration. |
|
New entrants: |
Cloud Attribution |
Clearwater Analytics |
Challenges: functional depth, data management & global support. |