I traded text messages with a friend who is contemplating a Chief Investment Officer role with a large RIA firm. Increasingly it seems Portfolio Managers who spent much of their career working for large, long-only investment managers are looking for a change to where they can operate with more flexibility and creativity. The RIA/Private Client/Trust business is a competitive space given low-cost alternatives. However, I am long-term bullish on this segment of the asset management market as I believe there will always be room for asset managers that can consistently deliver alpha while simultaneously providing well-reasoned advice whether delivered by humans, AI or both (our preference).
There are a number of firms that play in this space including FIS (tkr: FIS), SEI Investments (tkr: SEIC) and SS&C Technologies (tkr: SSNC). In the intermediate-to-long-term I’m most curious about SS&C’s ability to leverage its recent acquisition of Innovest Systems which includes the Innotrust (Web-based, API-enabled portfolio accounting and reporting), and Innopay (SaaS-based paying agent, tax remittance and tax reporting services), platforms. If there is one thing that SS&C does well it is driving operating leverage/ROIC from acquisitions. This includes extending an acquired company’s reach as well as eliminating waste, thereby creating a force multiplier effect in terms of operating leverage.
I don’t have high expectations in terms of SS&C or any company driving massive leverage from recent acquisitions in the immediate-term given the challenges presented by the COVID virus. I do however believe that companies such as SS&C Technologies, CoStar Group (tkr: CSGP), Clarivate (tkr: CCC), Amazon (tkr: AMZN) and others that invest in product development and/or M&A while less operationally-focused competitors struggle to execute will come out of the COVID crisis in an even stronger competitive position with an even wider competitive moat.

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