Capital Markets Fintech and Technology Trends – June 28th, 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:

Technology Levels Buy-Side Playing Field

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.

– Blair Livingston, CEO, Street Contxt

Hit The Street

Cut through the noise and avoid information overload.