Money managers including State Street, Pimco and Amundi are pouring money into digital investment platforms in hopes of emulating BlackRock’s technology business, which is bringing in new revenue even as falling markets hit fees from their core investment clients.
BlackRock got into the business of software as a service more than two decades ago. The world’s largest money manager now makes nearly 8 per cent of its revenue from selling technology to rival asset managers and other financial institutions. Just as Amazon developed cloud technology for its own needs and then commercialised it, BlackRock built the Aladdin portfolio management system to manage its own holdings and started offering it to clients in 1999.
Now State Street and Amundi are trying to go head to head with Aladdin. All three platforms offer a package of services that can include allocating assets to the right portfolios, tracking changing values, measuring risk and linking investors to data and outside providers. That appeals to money managers trying to simplify their IT and cut the time wasted on repetitive tasks.
“Over the past 10 years the top 100 asset managers have been coalescing around a smaller set of technology vendors,” said Alex Heasman of consultancy Alpha FMC, which helps investment managers purchase IT. “Aladdin was absolutely in the right place at the right time . . . but it’s not the only choice out there.”
The rising competition reflects the money management industry’s dilemma over technology. “Proprietary portfolio management tools, data and risk analytics . . . are a competitive advantage” for big groups such as JPMorgan that can afford to build them, said George Gatch, who heads its asset management arm.
But most asset managers, faced with shrinking margins and falling fees, are in no position to build innovative technology in house. French firm Amundi calculates that at least €1.6bn in annual revenue is up for grabs just from banks and asset managers that need to replace their technology in the next few years.
“The cloud has changed the dynamic because you couldn’t [previously] access these kinds of services through a vendor,” said Paul Taylor, chief executive of Hub, which is trying to build a new data platform for asset managers with backing from State Street, Pimco and Man Group. “We are forced with the cloud and fresh technology to look at the world again, rather than closed systems [known as] ‘ walled gardens’.”
For many years, BlackRock exploited the fact that it was the only big platform provider that also managed money. Its main rivals were Bloomberg, the US data company, and SimCorp, the Danish software group. So far this year, its tech division has brought in more than $1bn from more than 950 clients.
“What makes us special today and I believe will continue to make us special in 10, 20 years is the fact that we eat our own cooking. The cycle of innovation, the cycle of understanding is greatly enhanced,” said Rob Goldstein, BlackRock’s chief operating officer.
State Street and Amundi think they can win business from asset managers that want to cut costs through outsourcing but are reluctant to entrust key functions to a platform controlled by the industry’s most formidable competitor.
Massachusetts-based State Street, which is both a custody bank and an asset manager, entered the platform game in 2018 with the $2.6bn purchase of Charles River, a midsized technology firm with 300 asset management customers.
State Street migrated Charles River on to Microsoft’s cloud computing platform and began offering not just portfolio management but also what it calls “enterprise outsourcing”. This adds State Street’s broader back office and custody services. That all-in product, known as State Street Alpha, has 20 customers and is growing. Software and processing fees brought in $573mn in the first three quarters of this year, accounting for nearly 8 per cent of State Street’s total revenue.
“We’ve only been at it for three years but it’s had double-digit growth and we’re adding a lot of services,” said John Plansky, who spearheaded the acquisition and now runs the Alpha business. “We are quite serious about being the leading platform.”
Amundi’s Alto system is smaller and newer, with just €36mn in revenue last year, but it has 42 clients and the company has set a 2025 revenue target of €150mn.
Guillaume Lesage, who heads Amundi Technology, said the bank believes it has two factors in its favour: its software was written specifically for cloud computing, rather than being moved there, and its European base appeals to financial groups that must comply with EU rules. “They know that Amundi knows the regulations perfectly,” he said. “Our data centres are regulated by the French . . . and our clients appreciate this.”
BlackRock is not sitting still. In 2016, it added a technology offering specifically for wealth managers. Three years later it bought eFront, which expanded BlackRock’s reach into the rapidly growing realm of alternative assets.
More recently it has been focusing on making it easier for clients to write their own applications to plug into the Aladdin system and on working with asset servicers — custodians, fund accountants and the like — to streamline and standardise data exchanges. Its executives also see a chance to profit from the market volatility that has hit assets under management and depressed revenue across the industry.
“These are the times that people really double down on technology and use it to do more with less. It creates an opportunity for our clients to even further simplify their operating infrastructure and lower their costs, said Sudhir Nair, global head of the Aladdin business.