We recently had the opportunity to chat with Clearwater’s President of NA, Scott Erickson, and Executive Vice President, Ivan Matviak. In our conversation, we dive into Clearwater’s evolution, growth, and why cloud-based solutions offer managers the opportunity for cost savings, innovation, and more.
It seems like this has been a big year for Clearwater in terms of global growth and bringing on new talent. What does Clearwater’s growth trajectory look like in terms of market expansion—both geographically and within new markets?
Ivan: I think there are three drivers of growth worth mentioning that underly why new clients are coming to us. First, clients across the board continue to look at more complex investment strategies and are getting into alternative assets. Because Clearwater is able to handle multi-asset class portfolios with private placements and other complexities, we’re seeing a lot of growth due to increased demand for this support.
Second is that regulation continues to increase in all geographies and segments. These clients need a partner that can stay up to date with and handle all the evolving analytics, accounting, and regulatory reporting requirements.
And then third is that clients need one place where they can see all of their assets across any geography, asset class, or firm structure. Historically, that has been very hard when you've got lots of legacy systems, multiple accounting systems, multiple reporting systems, and multiple data warehouses; Clearwater cleans all of that up.
Scott: In terms of Clearwater’s growth, it makes sense to think about what we view as our four standard markets. We started Clearwater with a focus on the corporate market—this could include any company that has investible cash on its balance sheet. The next market is insurance where we’re growing geographically right now. Our third market is asset management which can be broken down into its own segments but generally spans the largest global managers to small, boutique firms. The last market is public funds including cities, municipalities, states, public pensions, etc.
So taking those four markets, we can think about both market penetration and geography and those growth channels differ for each market. In terms of corporates, most of our new business is coming from new IPOs such as Snowflake or Doordash. Though corporates are a big part of our business today, our largest growing segment is insurance. Today, I think we have about 50 percent market share in North America, and we’ve had tremendous recent wins in Europe. We are also working on some very big, exciting opportunities in Southeast Asia and in Australia right now.
Over time, I think asset management will become our largest segment just because of the sheer size of the addressable market. We’re continuing to invest both from a product perspective as well as the go-to-market perspective in this space. Unlike with an insurer or a corporation, where a company brings all its assets at once, we typically work with an investment management group and a subset of their assets. And so as they grow, we grow with them and onboard more groups and more assets. With this in mind, our investment management clients are also some of our largest growing clients in terms of adding new assets to the to the platform.
One of Clearwater’s major differentiators dates back to its technology origins as a multi-tenant SaaS solution accessed through a web browser. Given that cloud solutions are now an increasing priority in our industry, can you talk little about how being cloud-native might put clients at an advantage over solutions that may have been ported into a cloud environment?
Scott: I think the key to this question is the true definition of cloud native. Cloud native is not running an installed version of the platform on behalf of the client and then giving them a Citrix connection to look at it. That’s still running that old software—it’s not cloud native. To be truly cloud native, there should be a single instance, multitenant solution creating a network effect.
Let me offer one example from a security master perspective. Say we have 10 clients with the same security and there's a data problem on that security, you go in and fix it once and it fixes it for everybody. If the software is not a single instance, you have to go those 10 clients and fix it in each individual platform. In addition, multiple instances of the software make it impossible to benefit from the network effect of leveraging an entire client base for more accurate data.
The reality is that to make a cloud-native solution that is single instance and multitenant, you must start from scratch. And many organizations don't have the appetite to go and try to build something again.
Ivan: You can put band-aids on some challenges by moving a legacy application to the cloud, but it will never be cloud native with the scale and operational benefits that you get out of a cloud-native platform. Ultimately, our clients need to think about addressing their needs both today and into the future and so they need a partner who has a technology environment that's going to last for the next 20 years. They need an infrastructure that can be easily enhanced and updated with the latest reporting requirements or asset coverage or regulatory needs. And that is only easily done in an environment that both sits on a modern architecture and continues to get substantial ongoing investment into the platform.
Clearwater is strong in both of those areas, whereas for some legacy platforms investment is no longer a priority for the parent company.
Did you see any change in terms of client interest or requirements as managers shifted to remote environments post-COVID?
Scott: Not to continue to beat the same drum, but when you’re cloud native you can go remote quickly and easily. This not only helped during the pandemic, but it also creates a world where the location of the technology doesn’t dictate where you recruit your talent. I think another element to enabling a successful remote transition is transparency, meaning daily access to exposure across all assets. With the pandemic, there was significant market volatility and Clearwater’s transparency created a more proactive management and understanding of portfolios. That said, to a certain extent, the remote transition was a non-event from Clearwater’s technological perspective because it was cloud native.
Ivan: In terms of client interest, I have definitely seen more desire to future-proof systems and mitigate business continuity risk in the wake of the pandemic. I think clients realized the risk that they bear running their own operations with a couple of key individuals and a narrow geographic footprint. One of the benefits of working with a service provider like Clearwater is that we have enormous depth of expertise in all our functions. From accounting to reconciliations to data management, we offer the benefit of mitigating key person risk and operating a truly a global model.
Clearwater recently surveyed investment managers on challenges related to ESG investments and produced an excellent whitepaper on the topic. Can you speak a little to these findings?
Ivan: I think it's an incredibly exciting area. There's huge interest—starting to a large degree in Europe, but now rapidly increasing in the US—around the concepts of ESG. In the study, we saw somewhere north of 50% of the flows in 2020 were into ESG related funds. That's being driven both by interest among asset owners and by individuals being more conscious about ESG.
Another element is that the regulators are evolving their mandates to address ESG reporting requirements. We now have this confluence of interest among the general public overlaid with new regulatory requirements that's driving a lot of interest in the space.
That said, there's a lack of standardization in the industry with many data providers and few common definitions of what ESG even means. So while there is a lot of interest, there is a real challenge putting that into operation. Managers need to take ESG reference data and connect that back to a holistic view of their assets so that they can do the types of analysis and reporting that they need to. That’s something that we’re helping clients with now.
Can you tell us about anything that is exciting in Clearwater’s roadmap this year?
Scott: When evaluating a system, people often look only at what a platform can handle today—but it’s what that platform will be able to handle in the future that often sets it apart. Clearwater continuously invests in the product to ensure that we can meet the evolving regulatory and asset class needs of all our clients.
Another area of Clearwater’s innovation is using the tremendous amount of data we have. We are not only managing the data process for large organizations but taking that data and leveraging it to our clients’ competitive advantage which is an area of continuous opportunity.
This is also where an open architecture comes into play. Being the central data management solution and then working with other platforms within an asset manager’s ecosystem in a seamless fashion creates a best-of-breed model as opposed to a monolithic model. A monolithic model might be best of breed in a few places but inferior in other places, which then leaves the client to solve for gaps and challenges. Our size, scale, open architecture and strategic alliance partnerships is an exciting advancement that enables organizations to have a best of breed ecosystem without having to cobble it together on their own.
Ivan: When a client uses Clearwater’s new data management capabilities to handle integration it makes a best-of-breed strategy feasible. Ten years ago, clients would try a best-of-breed strategy, but it was incumbent on them to handle the integration and the constant upgrading and regression testing of locally installed software.
With Clearwater at the hub, our clients can have that best-of-breed environment in a way that is now scalable and much more flexible. If you want to change out your portfolio management system, you can do that readily. You want to change out your risk system or your custody provider, you can do that too. With Clearwater at the hub, all of that becomes a fairly seamless process, which is dramatically different from what you would have had ten years ago. Today we’re able to provide our clients both flexibility and future proofing.