Following the relaunch of its Global Securities Master (GSM) solution in September, data management and reporting solution vendor Netik has been expounding the benefits of the upgraded managed services solution to the buy side community. This work resulted in a win at the very end of the year, with the start of a rollout of GSM at a major US West Coast asset management firm this month. According to John Wise, co-founder, Keith Hale, executive vice president of the EMEA region, and Colin Close, president of Netik, the vendor has high hopes for this offering, as well as two of its other flagship solutions, in 2010.
The new and improved version of GSM was developed over a period of 18 months, following Netik’s acquisition of the Capco Reference Data Services (CRDS) business in February 2008. Wise explains that at the time of acquisition it appeared that the solution was not being widely used by the buy side community and Netik therefore set out to tackle this challenge. “We analysed why the buy side appeared to be wary of the solution and it seemed to be to do with issues around local control of data. Asset managers were concerned about ceding full control of their data to a third party and so we began development of our Netik Container component,” he elaborates.
Wise adds: “Previously, a service level agreement (SLA) didn’t offer a compelling enough argument for these buy side firms in terms of safeguarding against vendor risk. These firms wanted an extra level of control over their data in order to be convinced enough to invest in the solution.”
Netik Container purports to give users more control over their reference and market data in the managed services environment, thus allaying fears around risk management. Hale reckons this solution should spark more interest in the current environment, as firms face pressures to outsource the commodity aspects of their business in order to rationalise costs. “The argument to outsource commodity business has been compelling, as has the possibility to improve data quality overall,” he claims.
Netik GSM essentially provides a managed service for the acquisition, cleansing, consolidation and distribution of reference and market data, which the vendor claims delivers an overall cost reduction of 30% due to scale efficiencies. The vendor’s ‘on site’ container technology platform was developed following Netik’s purchase of CRDS and the subsequent integration of components from Netik’s own data warehouse with the ex-Capco managed data service. The vendor contends that firms that use the solution can apply their own specific and proprietary rules to their reference and market data prior to its ultimate distribution to their consuming applications, but are not saddled with the costs of ongoing in-house maintenance.
Wise reckons the pressure on the hedge fund community to increase their transparency in general and on more traditional asset managers to provide more data around areas such as accounting and valuations will also act in the vendor’s favour. These firms will need to enlist the help of third party providers in order to avoid the issue of conflicts of interest and to provide more data around key areas such as asset pricing. “This all about the idea of smart outsourcing where firms pick and choose best of breed vendor offerings in order to help them meet their data challenges,” says Wise.
This climate could prove favourable for Netik’s more traditional outsourcing business, which is focused on providing middle office processing as well as reference data services.
The vendor is also focusing on its index and exchange traded funds (ETF) offering this year, which is currently being used by nine out of the top 10 global sell side firms, says Wise. The solution is aimed at data aggregation for the consolidation and comparison of ETF and index data within these financial institutions and it was also acquired with the Capco business in 2008.
Netik’s current revenue breakdown in terms of these three solutions is: 20% from the ETF and index offering; 30% from GSM; and 50% from its more traditional outsourcing business. In terms of revenue from clients, it is swayed towards sell side asset servicers at 60%, with 40% from the buy side. Over 2009 the vendor netted a total of four new clients: two from the US, one from the Middle East and one UK-based customer. However, Wise is hopeful these numbers will be even greater for 2010 due to the pressure towards outsource from clients and regulators.
In terms of vendor competition, on the holistic outsourcing side, Wise considers Eagle to be the strongest competitor in the market, whereas on the reference data side, the vendor faces competition from GoldenSource, Asset Control and Cadis. However, these other EDM vendors have a distinctly different approach from Netik, as firms buy these solution in rather than outsourcing, adds Wise.
On the ETF and index side, Netik’s closest competition is Markit, but Markit offers a much wider range of services in the space rather than focusing on data aggregation. Hale adds: “The main selling point of our ETF and index solution is around improving alpha and reducing operational risk.” Given the tier one successes so far, the vendor is now looking to extend its reach in the tier two firms. The number of client wins over the next 12 months should indicate whether Netik is successful in this endeavour or not.
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