Before we get into this week’s topics for the Waters Wrap, just a reminder that WatersTechnology will be hosting its first event—the Innovation Exchange—of 2021 on March 22-25 (virtually, of course). That first day of the event will focus on issues pertaining to ESG. 

I bring this up because I recently spoke with George Mussalli, chief investment officer of equity investments at PanAgora Asset Management, and Mike Chen, the firm’s director of portfolio management and sustainable investing, about how the hedge fund goes about incorporating its ESG framework into the portfolio construction process. You can listen to the conversation here. The connection to the event is that Chen will be speaking on one of the panels, and I honestly believe that he’s one of the most insightful speakers when it comes to this topic.

So if you have questions for the experts, you’ll be able to ask them at the Innovation Exchange. If interested, you can register here.

Ok, enough shameless self-promotion, let’s get to it.

Enter, Microsoft

On Thursday, FactSet put out a press release explaining that it is partnering with Microsoft to allow users to access the research provider’s financial data on the Microsoft Teams platform. It didn’t make many headlines—we simply rolled it into our end-of-week press release round-up—but I do think this deserves some deeper analysis.  

“The shift to virtual working is here to stay and companies that add real value to clients in this environment will be the ones best placed to succeed,” noted Gene Fernandez, chief product and technology officer at FactSet, in the announcement. This is definitely true. And right now there are some big companies that are finding a new entrance into Wall Street as a result. 

Last May, I spoke with Patrick Starling, director of sales engineering at FactSet, about the company’s project to make its research platform Workstation available in the OpenFin operating system. At the time, Starling said that the web-based platform was getting “close to parity” with the installed version of Workstation. He also noted that they are still supporting a hard-installed offering because platforms like Microsoft Office—and those still-ubiquitous Excel spreadsheets—are not quite compatible when it comes to playing nice with third-party, web-based apps.

In recent years, though, Microsoft has slowly worked to build new ways to provide add-ins online through Microsoft Office 365—its online combined application service, which is built on the Azure cloud infrastructure. When I spoke with Starling, he also noted that Microsoft was starting to open up its services around Excel online.

“People are looking for things that are much more flexible, dynamic, cloud-native than they’ve had in the past. The older, black-box solutions don’t scale like that and people can find those very limiting,” Starling said. 

As best I can tell—and I haven’t had a chance to speak with a rep from FactSet on this yet, so I might be a bit off base here—but this latest announcement doesn’t have anything to do with Excel plug-ins. It does show, though, how Microsoft is using Teams during the pandemic to create a potentially stickier platform for capital markets firms.

To highlight this shift by Microsoft, I have two examples that we’ve written about. First, in 2019, State Street announced that the Charles River Investment Management Solution (IMS) would be deployed on the Microsoft Azure cloud platform, with Charles River also incorporating Microsoft Power BI (a data visualization tool) and Microsoft Teams into IMS. In April 2020, CRD announced that IMS had “achieved platform and operational readiness on Microsoft Azure,” and that the vendor was migrating “new and existing SaaS clients onto the new Azure infrastructure.” I think that it is interesting that a major buy-side trading platform was buying so heavily and publically into Microsoft. 

Even more interesting, though, was the announcement at the start of 2021 that Pimco, Man Group, State Street, IHS Markit, and McKinsey & Company were partnering with Microsoft to form a new tech company to build a cloud-based operating platform aimed at “transforming” asset managers’ operations technology. Microsoft will serve as the company’s technology platform provider.

How much would…say…I don’t know…Symphony?…like to have the backing of a group of institutional buy-side giants like Pimco, Man Group, and State Street to build a buy-side specific operating platform? Symphony has felt the warm embrace of sell-side giants, but it has had to work much harder to become a must-have collaboration tool inside asset management firms. Microsoft is getting to start on the 50-yard line (assuming this actually comes to fruition).

There’s no question that the pandemic has been good for collaboration platforms like Symphony and Microsoft Teams (and I’ll also throw in Slack). Microsoft, though, has the Azure cloud. It has those god-damn-dreadful-but-still-must-have Excel spreadsheets. It has 55,000 employees working in Research & Development with an operating budget in fiscal year 2020 of $19.3 billion, a $2.4 billion increase over FY 2019.

To be fair, though, Microsoft is not a specialist in tools specific to the needs of capital markets firms, but if the company wants to, it can close that expertise gap pretty quickly, I’m guessing. (Whispers softly: Also, if Symphony gets acquired in the near future, wouldn’t it make sense that it would be by Microsoft or Google? Or is that just me thinking that?)

Now I’m just recklessly speculating here, but I think that these moves by Microsoft to make Teams more accessible to the workflows of trading firms have to at least be a bit worrisome to the likes of Symphony, and even Refinitiv and potentially Bloomberg.

Everybody loves the cloud providers…until the cloud providers decide that they can do your business better than you can. And Microsoft, the second largest cloud infrastructure provider, is in an arms race with cloud leader Amazon Web Services and third-place Google Cloud Platform. It’s taken some time, but financial services firms are finally coming around the benefits of public- and hybrid-cloud models, and the pandemic has helped firms ramp up that adoption further. Azure, AWS, and GCP are now figuring how to extend their services (and, thus, their stickiness) beyond simply being the infrastructure provider.

Finally, let’s look at the other side of this coin. I know that this might come as a shock to you, dear reader, but I might be wildly incorrect in my read of the green. I’ve spoken with a few people recently who say that they don’t think that Microsoft has the appetite to make any kind of significant play to be the Wall Street collaboration and communication tool. Over the years, the tech giant has tended to appoint heads of financial services, announce an integration or two, but then always just fall back on Excel and Azure.

Additionally, as it pertains to the FactSet-Microsoft pairing, in order to allow people to share data in a meaningful way—and not just chat—they will need a way to allow people to refer to the same dataset licensed to each of them, without passing data between them in a non-compliant way—this has to be traceable and auditable. While FactSet might’ve solved for this on Teams, is the team at Microsoft going to want to keep on making those types of integrations with other data and research providers so as to make it the de-facto place for the buy side and sell side to come together to share information and trade? I’ve spoken with several skeptics on that front.

Lots of questions and guessing, few answers right now. What we can definitively say is that Microsoft is extending its very long reach into the capital markets. For some, that will be good news. For others, it could make things difficult.

Think I’m an idiot? Have ideas around winners and losers? Let me know: anthony.malakian@infopro-digital.com.

Some thoughts on Algorithmics and IBM

I recently caught up with Mina Wallace and Mike Megaw at SS&C Algorithmics. We talked extensively about how the risk analytics provider is charting a new course after SS&C Technologies bought the company in 2019 from IBM for $88.8 million, after IBM had bought Algorithmics just eight years earlier for $380 million.

The impression that I got was that the team at Algorithmics is very excited to be part of a company that is more tightly ingrained with capital markets firms. IBM is obviously a major player in the world of finance, but it’s more on the hardware front and as an infrastructure provider. SS&C—thanks to the acquisitions of Eze Software, Advent Software, DST Systems, and several fund administration assets—is one of the largest providers of capital markets technology, and it has a big presence on the buy side as a fund admin and trading platform provider. It’s simply a more natural fit for the services that Algorithmics provides, which has a roster of 200-plus clients, largely on the sell side.

Also, though, I’d be remiss if I didn’t bang on once more about how M&A is as much a people problem as it is a tech integration issue. Wallace was very happy to point out that during a pandemic, Algorithmics hired more than 40 new people, and 10% of those additions are former Algorithmics employees that left in the years after the IBM acquisition.

“We’ve hired more people in the last year than we hired in eight years at IBM,” she said. “That’s been an amazing opportunity for us. They went off to work at competitors or academia or practitioners, and it was less about us reaching out to folks; it was more about folks reaching out to us. It’s a very tight community in financial risk management, and it’s been terrific to have people reach out to us and ask if there’s an opportunity for them.”

As an experiment, I decided to pull up the LinkedIn profiles of some people that we’ve spoken with at Algorithmics in the past, or who were mentioned prominently in press releases around the time of the IBM deal. This is unscientific, and some of the dates might be off, but I think it shows that there were several long-time employees of Algorithmics who decided to look for new career opportunities post-IBM.

Michael Zerbs, whom we profiled in 2015 after he went to Scotiabank, joined Algorithmics in 1989, before leaving the IBM incarnation in 2014. Ben de Prisco, a 17-plus-year vet at the vendor, left IBM at the end of 2012. Andy Aziz, who had also been with Algo for almost 17 years, left IBM in 2016. Stuart Peterson joined Algorithmics in 1998, and left IBM in 2013. (He also rejoined IBM at the beginning of 2016 before leaving again at the start of 2018.) John Macdonald started at Algorithmics in 2005, and left IBM at the beginning of 2015. (Note: for simplicity, I put that they “left IBM”, but I do not know the exact reasons why they were no longer part of the Algorithmics team at IBM, I’m just going off what is on LinkedIn, which is not official.)

In 2011, after it was announced that IBM was acquiring Algorithmics, Aziz told WatersTechnology this:

“Our customers have been unanimous in their positive response towards the acquisition. Some of them have been verging on the ecstatic in terms of what they see as the potential synergies. I think that’s really what it’s about—it’s about a great fit for our customers, our products and our employees. … I think if we look forward, what coming into the IBM family is going to do is take that opportunity much further. We, and our clients, certainly see it as opening doors, to allow us to go to the next level in terms of technology and product capabilities. At the same time, our views on risk management are quite similar. We share the view with IBM that risk isn’t just about measurement or ticking the box, it’s really integral to risk-aware decision support. In a nutshell, the acquisition will offer us the ability to take Algorithmics to the next stage.”

Sometimes acquisitions don’t work out the way they were first intended. It happens. If the Algorithmics team is to thrive under the SS&C banner, it will have to be able to weed its tentacles into the platforms and services provided by other SS&C assets, such as Eze, DST, and Advent. If it does that, more data can flow into the Algorithmics platform. It becomes an ecosystem where users of those aforementioned platforms benefit from new risk tools, and Algorithmics clients will benefit from new insights the vendor will be able to deliver thanks to more data.

The one thing that seems clear to me is that Algorithmics can’t be an island at SS&C. When it comes to M&A, people start looking for lifeboats when on an island.

The image at the top of the page is “Jove casts his Thunderbolts at the Rebellious Giants” by Johann Michael Rottmayr, courtesy of the Art Institute of Chicago’s open access program.