JPMorgan is following Goldman Sachs' lead in risk tools. It's been called an Aladdin challenger - but experts say it's not a threat to the BlackRock moneymaker.
- JPMorgan said last week that it is partnering with portfolio analytics company StatPro to combine cross-asset risk management tools for asset managers.
- The new platform, which doesn't yet have a specific name, has some similarities to Goldman Sachs' Marquee.
- JPMorgan's platform initially struck some in the investment community as a competitor to BlackRock's Aladdin. But experts said the two platforms are quite different, with JPMorgan's product focused more on streamlining its existing products rather than a full portfolio management system.
- BlackRock chief operating officer Rob Goldstein told Business Insider why it's hard for any new entrants to play catch-up to Aladdin.
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Investors' fear of a downturn is turning into another revenue source for big banks.
JPMorgan announced a partnership last week with StatPro to link some of the bank's existing tools with the London-based analytics provider's technology. The new platform, which doesn't yet have a name, brings together tools to make it easier for clients to understand risk and other information about their investments across asset classes, like fixed income. It's available to JPMorgan's clients first in Asia and Europe, with a test group in North America.
It's the latest example of a bank offering risk management tools to help clients better understand what's in their portfolios and how a major market change could affect them. Goldman Sachs, for example, is betting big on Marquee, a trading and risk-management platform that it hopes to turn into its next major business.
Banks are selling their services' seamless integration: Rather than logging into and sending data among asset class-specific platforms run by a host of vendors, one risk management tool purports to do it all. For clients - and banks themselves - wrestling with hundreds of internal databases, streamlining is a major selling point. So too is risk evaluation, as wary investors eye a late market cycle and try to position their portfolios for a downturn.
"Everyone's looking to enhance the value add with investors," said Dennis Gallant, a senior analyst at research firm Aite Group. "It's one thing to lower cost and increase alpha or yield; it's another to make sure that you're mitigating potential downside risk, which has been more disruptive."
JPMorgan's partnership was initially heralded by some as a challenger to Aladdin, the industry's most popular platform for risk analytics built by $6.5 trillion asset manager BlackRock. However, investment consultants and analysts said that title isn't deserved, since JPMorgan's product has a fraction of Aladdin's capabilities. BlackRock's platform has been described as an operating system for investment companies, akin to Microsoft Windows for computers. In addition to risk management, it includes rebalancing and compliance tools, order entry, order sizing, and trade execution capabilities.
Meanwhile, JPMorgan is more focused on bringing together some of its existing tools, including PricingDirect and DataQuery, with StatPro for a more holistic front-office tool. PricingDirect provides valuations for fixed income and derivative asset classes, while 25-year-old DataQuery gives cross-asset class historical data.
"We're really focused on the real-time nature of all these tools - how can we enable clients to make decisions quicker, and get back to managing their portfolios and trading with JPMorgan, rather than worrying about all these other services that they had to build themselves," Samik Chandarana, the firm's head of data analytics, told Business Insider.
JPMorgan is also an Aladdin customer.
Even if JPMorgan eventually wants to build in an order management system and other functions, it would be hard for the bank - or any other new players - to challenge Aladdin and its main competitor, State Street's Charles River, said Octavio Marenzi, founder of consultancy Opimas. A spokesman for State Street declined to comment.
"To catch up to that would take quite a bit of work," Marenzi said. "They're focusing on different parts of the market. There is a risk component in Aladdin and a whole bunch of other features as well. I wouldn't necessarily expect them to start eating market share away from Aladdin any time soon."
'Competition is always good'
Speaking about new entrants to the industry in general, BlackRock chief operating officer Rob Goldstein noted the difficulty involved with building products that can respond to market changes, such as benchmark providers recently adding countries like Saudi Arabia and China to their indices.
"I think it's very hard to start now and put the pieces together. The beauty of the investment world is that it's very dynamic," Goldstein told Business Insider. "The ability to figure it out not just for BlackRock but for the entire Aladdin community is a huge value proposition that we don't see going away. If you have 52 individual systems that you're stitching together, that kind of Frankenstein is going to be very hard to be ready in time for how dynamic the industry is."
About 250 groups, including asset managers and allocators, use Aladdin in total. Roughly 150 of those use components of the system, rather than the full platform, which is supported by over 3,000 BlackRock employees.
Not all Aladdin customers love the product. The head of a global manager with more than $500 billion in assets told Business Insider Aladdin is "very expensive" and he would switch to a lower-cost option if JPMorgan or other firms built a comparable tool.
Opimas's Marenzi said he's heard some dissatisfaction about Aladdin, including about price and lack of flexibility for a manager who wanted to change workflow processes.
"I don't know if it's greater dissatisfaction than we usually hear about for any pieces of software," he said. "They're expensive, but people have been happy with the solution as well."
However, Allan Emkin, a managing principal at Meketa Investment Group who works primarily with large pension funds, said his clients are increasingly interested in using risk management tools of all stripes.
"There will be more and more use of these tools and no one should be surprised that there would be competition," he said. "The one thing anyone in the institutional business knows is from the plan sponsors' perspective, competition is always good."
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