Deals, Funding and Trends in Wealth Technology and Services, week ending July 20th, 2024

Overview

My Weekly piece that is covering transactions that have a direct or lateral relationship with wealth management, covering services, technology and regulated financial activities.? This piece includes announced deals, as well as one growth equity funding situation with geographical exposure to the US, Continental Europe, the UK and Australia.

I have also included an observatory piece related to advisor technology inspired by different engagements and conversations I had this week with founders and teams that are involved with building augmentative solutions in connection with LLMs and other algorithmic machine learning tools.

Deals of the week ending July 20th.

1.??????? Belgium / Delen Private Bank Delen Private Bank further consolidates Belgian Wealth through acquisition of Dierickx Leys. Dierickx Leys Private Bank

A further consolidation acquisition, but one that advances another offering for Delen in the advisory arena, as opposed to discretionary fund management. While the acquisition has less of an impact on advancing the overall AUM, the addition of this form of wealth solution means the group is building scale as a full service provider.

2.??????? USA / Bain Capital and Reverence Capital intend to take Envestnet Envestnet private in US$4.5bl deal

Undoubtedly the transaction of the week, with the deal valuing the company at just under 4x revenue.? While the business has doubled in size since the Yodlee deal was inked 8yrs ago, one could argue that the 10% contribution that has been created through the data and analytics business when measured against the US$600ml price tag has probably been disappointing, so it will be interesting to see what Bain and Reverance, as new owners, support as the strategic imperatives going forward.? Given the trend elsewhere has been to convert subscription and licensing revenue into a more valuable and scalable asset management oriented fee, and that there is a still a lot of daylight in the asset breakdown between AuM and AuA alignment and S&L, i.e. about 4.5x to 1, there clearly is value in investigating how this sort of transition can be achieved via the relationship that Envestnet already has with 1500 firms.

3.??????? USA / Clear Street Clear Street expands its Algorithmic Trading capabilities with acquisition of Fox River Instinet Incorporated

The prime brokerage platform is doubling down on its bet in relation to linking PB services with more advanced trading capabilities. This means appealing more to quant oriented hedge funds, which when one considers the types of strategies that are deployed, especially in relation to securities lending, and the use of derivative and OTC swap risk management and leverage strategies makes sense, as these types of activities usually deliver more profitability.

4.??????? UK / Fintel’s Defaqto Defaqto deepens its fund research and ratings solution via acquisition of Raymond Spencer (RSMR) RSMR

Fintel continues to advance its plan to not only deliver a highly valuable decision support platform as an integrated advisor workstation, in an S&L business model to its client base, but also to make sure that this includes data assets in both the research and ratings arena. Acquiring Raymond Spencer further advances their presence in the model portfolio, and strategic asset allocation space, as well as independent assessment of fund and wealth solution providers.? The trick for Fintel remains turning all of these small acquisitions into a platform solution that is much more than a sum of its parts, both in terms of actual take up (cross sell) as well as the underlying price that advice firms will pay to consolidate these capabilities on the Fintel practice management system.

5.??????? Australia / Dash Technology Group DASH extends its integration and aggregation capabilities via acquisition of Integrated Portfolio Solutions

Dash is an organization that sees itself as a key provider of an integrated solution to enable the delivery of a frictionless investment experience. The acquisition of IPS not only exposes the firm to more clients and assets in accelerating the achievement of this vision, but also a key asset that helps in the acquisition, analysis and ultimate transfer of assets. The company could have approached this with a further extension of their integrate and standardize strategy but instead has chosen a buy and assimilate approach which suggests both better synergies, and more profitability in the operating model can be had.

Funding of the week ending July 20th

1.??????? Goldman Sachs leads C Series round for AI private markets technology and service company, Canoe Intelligence. Canoe Intelligence

This deal underscores a few things about how Domain specific AI platforms are evolving. First, they are increasingly looking to become far more vertically integrated solutions both in terms of their capabilities as well as their overall service model, where flexibility seems to be key.? Second, they are increasingly trying to position themselves so that their role allows them to become embedded between counterparties, and in the process, accepted as a data controller in their own right and not just a data processor.? ?Finally, that for the strategy to work they have to have the capacity to rapidly serve a wide range of clients, who clearly operate at different scales to benefit, in their fund raising, from the TAM and SAM that may be on offer.

Wealth Tech Observation of the week

Many firms on both sides of the Atlantic have been emerging since ChatGPT launched, think Jump, Zocks, Finmate, Plannerpal, Saturn AI, and Multiply for example, with the idea that LLMs will play a critical role in helping those firms that want it, bring lower cost scalable advice for the mass affluent community, into their organization’s suite of offering.

This has meant that the emergence of new players that are concentrating on operational transformation via AI that reduces the amount of time and effort that advisors need to spend on tasks that often need to be orchestrated through CRM and advisory desktop platforms, but which today are delivered via these legacy systems, in a sub-optimal way. There are a number of reasons for this, but mostly it comes down to the fact that an advisor engagement has, particularly in the last 5yrs, become via messaging, web, and voice dialogue a multi-channel conversation, leading to data, information, and potential insight being collected, and processed in different ways. This not only leads to data management challenges for organizations trying to build recommendation engines, and a data led MI/BI strategy, but also to client profiles being incomplete and inaccurate. This stymies advisor effort to deliver consistently good advice, as well as their firm to ensure a consistent, high quality, and potentially scalable (using the network effect) level of service.

It seems like LLMs and its ability to offer a conversational engagement approach is part of the answer, especially when firms, in a compliant way (i.e. one that considers data privacy at all times) are able to leverage and exploit the strengths of different models and their combined ability to transcribe, translate, contextualize, summarize, and accurately extract, transform, translate and process data.

Further, as many of these firms now realize, if one can configure and align these capabilities around different internal user persona’s as well as the rules that both govern internal conduct of business, and broader regulatory compliance, than one can see these benefits not only be realized by individual advisors, but extended to help compliance, administration and paraplanners as well.? This in turn means a far more enriched client profile along with a more comprehensive client experience.? The result is both more value to capture in subscription and services, as well as a far higher return on investment for firms that are keen to scale the return of the front office by magnifying the capabilities of the existing supporting infrastructure.

From what I have seen so far in the market, those firms pursuing this objective are increasingly realizing that many of these capabilities should be packaged together to deliver an augmentative client lifecycle management experience and thus this seems to be a clear destination of travel fo the moment.?? I assume however that maximizing the return on CLM will ultimately need to be achieved by extending these capabilities more directly into the domains currently held by CRM and Practice Management systems so it will be interested to see how participants in these spaces respond and whether as a result there will be convergence through M&A as well as partnerships leading to a new whole new set of advisor platforms.