Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Shotgun divorce now in FNZ/GBST marriage
NZ-based FNZ, the financial software firm run out of London, will have to offload its $260 million-plus Australian software asset within months after the UK competition regulator smothered the deal in a final ruling last week.
In a decision handed down on Thursday, November 5, the Competition and Markets Authority (CMA) ordered FNZ to sell GBST in its entirety, declaring the merger raised “significant competition concerns in the supply of retail platform solutions to investment platforms in the UK”.
Martin Coleman, chair of the CMA inquiry group into the FNZ/GBST acquisition, said the merger of the two firms “has substantially reduced competition in this sector”. He said: “This matters to the millions of UK consumers who hold pensions or other investments. This is because competition plays a key role in driving price and quality. Without healthy competition, costs could go up and service quality could get worse.”
FNZ chose to complete its acquisition of GBST without first seeking merger clearance in the UK, which it was perfectly entitled to do, Coleman said. This came with the risk that the CMA could call the case in for investigation and that, if competition concerns were found, FNZ could be required to sell off all of the business it had just acquired.
An FNZ spokesperson said: “We note that the CMA has published its final views on FNZ’s 2019 acquisition of Australian software company, GBST. We have no further comment at this stage.”
FNZ bought the former ASX-listed GBST for more than $260 million last July, beating competitors Bravura and SS&C with an aggressive last-minute sinking auction bid for the business.
According to the CMA analysis, the combined FNZ/GBST entity could represent between 40-60 per cent of the UK retail investment platform market. The CMA data estimates FNZ currently holds between 30-40 per cent of the UK platform market while GBST accounts for 10-20 per cent. Bravura and SS&C each report a similar share of the UK platform business as GBST.
In a 207-page final report (plus almost 100 further pages of appendices), the CMA dismissed FNZ analysis that painted GBST as complementary rather than competitive. The UK regulator also rejected claims GBST customers would miss out on better service and lower prices under FNZ ownership.
And, in a final blow, the CMA knocked back potential solutions proposed by FNZ including a partial sale of GBST or a software licensing deal. The CMA favours a quick sale of GBST with the process to be monitored by an independent trustee.
– Investment News NZ
