Fintech Partnerships and Acquisitions Strategies Are Transforming Asset Management

The big picture

• Asset managers are looking at fintech firms for innovative partnerships
• They have multiplied, partnerships, investments and acquisitions of fintech firms
• Most firms are switching from a view of competition to one of collaboration and integration
• Technology is a key component of services delivery in asset management
• AM firms use a mix of proprietary technology, vendors and outsourced services
• Fintech firms have been agile in creating, testing and deploying disruptive solutions for the Asset Management industry
• Using emerging technologies like Blockchain and Artificial Intelligence, fintech firms

Be smart

• Blockchain based fund sales: Asset managers including Legg Mason, Merian Global Investors and Aberdeen Standard Investments have teamed up on a new UK trading system powered by blockchain. The fund managers are signed on to a system launched by FNZ, the fintech firm. The system promises to replace the complex patchwork of IT involved in retail investors’ buying and selling of mutual funds with a single distributed ledger.
• FNZ provided blockchain-powered technology for the launch of the Big Exchange, a new funds supermarket promoting ethical and impact-investing funds to the public. Co-founders Aberdeen Standard Investments, Columbia Threadneedle, AllianceBernstein and Alquity are offering their impact funds through the platform.
• Next generation digital wealth management platform: The Singapore subsidiary of Franklin Templeton, Templeton Asset Management, and Razer Fintech, the financial arm of Razer have assigned a partnership that will be tailored specifically to the needs of Razer Fintech’s youth and millennial customers at various stages of their financial journey.
• Interesting to see the focus of this partnership;
• Co-designing the next generation digital wealth journey;
• Development of customised multi-asset solutions for youth and millennials;
• Improving financial literacy for youth and millennials;
• Partnership and co-investment opportunities in fintech start-ups; and
• Digital marketing and customer engagement collaborations.
• Facilitate account opening: JPMorgan and BlackRock announced on September 15 that they are working together with Saphyre — a fintech company powered by patented AI technology for workflow management and the metadata tagging and tracking of documents — to help asset managers digitize the process of opening new accounts with custodians and broker dealers.
• Integration with crypto currency exchanges: For example Capitect, a U.S.-based advisor technology platform, recently announced it has integrated with cryptocurrency platform Coinbase for digital currency performance reporting, billing, and rebalancing. Capitect reported that through the partnership its users are now able to connect directly to clients’ Coinbase accounts and vaults to pull data for portfolio management and reporting, such as history, positions, and transaction.
• Access Private Equity Funds: Fidelity International (Fidelity), and Moonfare, a digital investment platform for private markets funds, announce an exclusive strategic distribution partnership.. Under the partnership, through its digital platform Moonfare will provide access to private market strategies for Fidelity’s institutional and wholesale clients.
• Provide access to alternative investments: AssetMark (NYSE: AMK), and iCapital Network1, announced the launch of AssetMark Alternative Investments by iCapital, a customized alternative investments service on the AssetMark platform. The solution provides a curated selection of fully diligenced alternative investments with low minimums and a seamless end-to-end investing experience to support independent advisors in attracting and serving high-net-worth (HNW) clients.
• Provide liquidity to individual investors in the PE Secondary market. Lexington partners with Moonfare to buy stakes from individuals. Moonfare builds an on-demand secondary market for individual private equity investors; Lexington Partners to bring institutional liquidity to Moonfare platform. Moonfare is bringing a full-service liquidity offering to individual investors in private equity, one of the most illiquid asset classes,
• Streamline cash and liquidity management for private fund managers: Hazeltree announced it has partnered with J.P. Morgan Asset Management to deliver a unique and integrated cash and liquidity management platform to private equity, private credit, real estate and infrastructure funds. The partnership provides clients with unlimited transparency into all cash and liquidity accounts, across all banking relationships, enabling fund managers to easily track and forecast cash balances. Additionally, clients can easily configure robotic automation to calculate excess, investable cash, and recommend cash investment decisions based on user-defined parameters and constraints.
• Simplify and automate Tax for financial advisors: J.P. Morgan Asset Management has announced that it has agreed to acquire FinTech 55ip, which works to help financial advisors deliver tax-smart investment strategies. George Gatch, CEO of J.P. Morgan Asset Management, said the purchase had been necessary because of the needs of advisors who are “increasingly seeking intelligent, automated tools to provide simplicity, scale and efficiency.””[A]nd by acquiring 55ip we are accelerating our significant investments in advanced advisor technology,” he said, according to the release, adding the development signifies “collaboration between FinTech and asset managers, aimed toward improving capabilities and outcomes for advisors and their clients.”
• Launch new products: Nutmeg which is described as the UK’s first online “discretionary investment management company” joined forces with JP Morgan Asset Management to launch Smart Alpha portfolios. Nutmeg and J.P. Morgan Asset Management joined forces to create a product that builds on both of their core strengths: Nutmeg’s technology and digital experience and J.P. Morgan Asset Management’s market insights and deep research expertise. The result of this new synergy is a product that sits at the intersection of passive and active management.”
• Access new geographies: Itaú has partnered with fintech Rappi to provide greater access to financial services and products for retail and mass affluent clients in Chile. The agreement will allow customers to access the Brazilian bank and asset manager’s investment strategies digitally through Rappi’s phone app. The project will be completed by the third quarter, Itaú said.
• Note that JP Morgan has an internal group entirely dedicated to Fintech. Sitting within the Corporate and Investment Bank (CIB), the Digital Innovation Team combines strategy, thought leadership and execution to shape the CIB’s digital agenda and offerings. The team has capabilities across strategy, fintech, partnership development, product management and engineering.
• Another model is partnerships through incubators/start up ecosystems like Plug and Play: An example is their recent partnership with PIMCO. While Plug and Play will have the opportunity to connect PIMCO to some of the brightest and most promising startups in the industry, PIMCO will bring decades of experience and perspective to Plug and Play’s startups and team.

Why it matters

• In the alternatives investment field, fintech have made great strides.
• In their Fintech and alternatives investment report, FT Partners highlights 3 key trends that are diving the sector

Source: FT Partners

• A new guide named, ‘Best Practice for FinTech Engagement’, and instigated by Graham Kellen, Chief Technology Officer at Schroders Personal Wealth and former Engine Advisory Panel Chair, and written by the Engine Advisory Panel of industry provides investment managers comprehensive advice for understanding, on-boarding and implementing FinTech within investment and wealth management.

Source: Engine advisory Panel

• Asset managers priorities include the development of fintech solutions according to Roubini consulting report

Souce: Roubini ThoughtLab

Yes but

• Merging fintech companies and the incumbent cultures is no easy feat
• According to a PwC, 2016, survey, a third of AWMs (34% versus 25% for the global financial sector) does not deal with FinTech companies at all. Those who do only rarely engage in joint partnerships with new entrants (20% versus 32%), and they are not particularly keen to acquire FinTechs (10% versus 9%).

Source: PwC

In the Path to Digital leadership from Roubini Thoughtlab it’s interesting to see how the industry players believe that they are not ready to meet client’s expectations

Source: Roubini ThoughtLab

By the numbers

• Asset managers have accelerated the rate of acquisition of Fintech firms: From F2 research:

Source: F2 Research

The catch

• Keep in mind that for financial institutions under the eye of the OCC, or the FFIEC, partnering with third party and service providers come with extensive regulatory obligations

Source: Morgan Lewis

Between the lines

• Asset managers and other financial services need help for a number of key strategic objectives and they are conscious that fintech can help them improve their customer experience

• And Investment Advisors want more technology tools from Asset Managers

Source: F2 Research

What to watch

• More Asset managers will straight up acquire fintech firms that perform the services they need
• Key developments in content management solutions will be prized by alternative managers stuck with ahigh rate of manual processes
• Focus on digital experiences and providing technology tools to both RIAS and Instititutional investors will become a factor for oth partnerships and acquisitions of fintech firms
• Technology is now a differentiator for asset managers, returns and performance mater but ease of access to strategies and tech integration are becoming key differentiators
• Asset managers with great funds and poor digital experiences will be prime target for acquisitions by their more digital savvy peers