Fund manager consolidation hits SimCorp as clients grow cautious

SimCorp, a Danish company whose software is used by roughly half of the world’s top 50 investment managers, is facing a tougher future as a wave of consolidation in the industry it serves has left many cautious on their investments.
Klaus Holse | Photo: PR/Simcorp
Klaus Holse | Photo: PR/Simcorp

Chief Executive Officer Klaus Holse says the mood is leading many asset managers to delay or abandon planned purchases of the products sold by SimCorp and companies like it. "It is an industrywide issue that all vendors in the financial services space are seeing," according to the  company.

Shares in SimCorp were trading down 5.5 percent on Monday, afte falling as much as 9 percent. The decline marked the company’s worst performance since November. “There are a lot of mergers and acquisitions going on today. It’s probably been the most hectic year so far and we’re only a short while into it,” Holse said in an interview. "Some of the firms we talk to think they’re going to be the acquirer, but things can change quickly and two months later they may be the ones who get acquired."

For SimCorp, that means the asset-management industry is “not necessarily investing in new systems,” he said. Last year, the designer of integrated portfolio management software signe up 10 new customers, only two of which were asset managers. As a supplier, Holse can see what’s happening to money managers -- lower inflows and pressure on margins.

It’s not all bad. “As they get through the M&A gauntlet, what we’re seeing is, when our system is involved in a merger, it often comes out as the system that stays,” the CEO said. SimCorp has increased sales among asset owners, as pension funds and insurance companies move  investment management in-house and need to invest in software systems to handle transactions and portfolios.

The Copenhagen-based company has forecast an increase in revenue this year of 8 percent to 13 percent, measured in local currencies. It reports first-quarter earnings on May 22. While European pension funds and other large institutional investors have moved a lot of asset management in-house already, it’s a trend that’s only just recently started to take off in the U.S., a key market for SimCorp. There, the company has “a lower market share of 6 percent, whereas worldwide we have on average a market share of 15 percent ” of all buy- side money managers, Holse said.

SimCorp signed on 14 new customers in North America over the past three years, and expects that pace to continue as it hires more people.
“There’s nothing that says we’re not going to keep doing more this year,” he said. “This is shown in our local resources and we’re getting close to 200 people in North America. We’ve grown at 20 percent, 30 percent a year over the last few years, and it is our aim to continue to do so.”

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