Reconfiguration of the buy side value chain and the recent Blackrock / EFront transaction

We did a series of webinars, in-person presentations, and vendor solution reports recently around the asset management investment and risk technology ecosystem. In these, we recognized that the forces of convergence are aggressively playing out, and Blackrock's recently announced acquisition of EFront continues this trend. I would like to share further insights around the market and business dynamics of this deal.

Investment managers are rationalizing costs and redirecting investments, where even core areas such as portfolio management, dealing, and trade execution are under the spotlight to undergo cost reductions and streamlining. Basically, firms are looking to address operational inefficiencies and costs associated with siloed and fragmented systems, as well as consolidating vendor relationships/sourcing and eliminating duplicative data spending across core businesses.

At the same time, there is continued recognition that new technology is critical to an investment firm’s competitive advantage — to drive better investment decision support and more efficient regulatory operations. This can be observed in recent survey data, where there are increased (rechannelled?) investments in new technology areas such as big data, machine learning, and the thrust to digitize operations in areas such as compliance.

Until last year, favourable AuM and revenue growth conditions have largely masked certain fundamental aspects of the industry's pressure points, especially around the contraction of margins, as well as the business case to address a number of structural changes and trends that are reshaping the industry: namely, active to passive; conventional to alternatives; packaged to bespoke offerings; operational fragmentation to convergence; and technology as means for efficiency, towards technology as a force for disruption.