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An opportunity to disrupt the global fund administration market

Sarit Firon February 23, 2021
An opportunity to disrupt the global fund administration market01

It is not often in your career that you get the opportunity to digitally transform an industry that manages and administers more than $500 trillion dollars of assets. But when you do, you seize it with both hands. That is why today we are announcing a Series A investment in FundGuard led by Team8 Capital (a $12 million Series A investment with existing investors, Blumberg Capital and LionBird Ventures). It is a great example of how we invest in companies that solve problems of magnitude and use data, Machine Learning and AI to upend traditional legacy systems and infrastructure.

The global fund management industry has half a quadrillion dollars of assets under management and administration. Yet, the way these funds are managed has not really changed for over 30 years, with just a handful of legacy systems dominating the space. These systems, and the technologies they rely on, are archaic, primarily on-premise, prone to error, batch-based and non-scalable. As a result, current asset management isn’t as efficient and effective as it could be.

FundGuard changes all of that.

FundGuard is the first, truly Cloud-based SaaS investment funds platform, with the potential to spearhead the digitization of the entire fund administration market. This is quite a vision, and a big reason why we invested in them.

Bringing fund administration into the 21st century

What specific problem does FundGuard solve?

Asset management is costly, time-consuming and often ineffective due to a reliance on outdated, error-prone legacy systems.

To truly solve these problems and compete in this space, Fundguard had to 1) build an entirely new non-legacy, digital-first product and 2) build a product that was as robust as the leading competition. This is no easy task.

But in 3 short years, FundGuard did both.

By building the first AI-powered SaaS investment management and asset servicing enterprise platform, FundGuard is able to offer a rich suite of features to significantly improve the way assets are managed, as well as establish a clear competitive advantage in the market.

Let’s start at the beginning. To effectively and efficiently manage assets, asset managers, owners and banks need: 1) Real-time information, because they need to analyze risk, manage cash and investments, and detect anomalies as they happen, 2) A system of record — a single source of truth — to support various reporting and business requirements, and 3) Lots of information, because knowledge is critical to making good investment decisions, to name a few.

Yet, as mentioned earlier, most asset managers rely on legacy systems for these needs, and these systems were not built with these capabilities.

By creating a digital-first product, FundGuard is able to deliver all of these and more.

For example, most of the incumbent systems don’t provide real-time information about fund balance sheets, valuations or cash flow projections. Instead, managers need to wait till the end of day to get these updates. But this real time information is critical for investment decisions, cash management and risk management. FundGuard provides this real-time data.

Further, these organizations find themselves having to do duplicate work to support the business needs of different fund stakeholders. For example, portfolio managers need to look at real time information to make investment and risk management decisions; investment finance and operations generally look at T+1 information for the official Net Asset Value (NAV) of the fund; and tax professionals generally have a different set of information based on what the tax code demands. There is a need to maintain multiple copies of the fund and duplicate trades in different ways that match the business requirement of each stakeholder. FundGuard provides a solution for maintaining multiple views based on a single source of truth for the fund using a single trade and reconciliation between the various views.

Moreover, FundGuard leverages modern cloud technologies and applies AI to identify anomalies, auto resolve exceptions, and suggest operations improvements, all of which help asset managers make more informed decisions, faster. The benefits are clear: provide retail and institutional investors greater transparency and better digital engagement, all while making investment products cheaper.

And that’s not all. When we look at companies to invest in, we don’t just look at what they can do today. We look at where they’ll be tomorrow and whether or not they have built a product that can scale to support their long-term vision. This is where FundGuard shines — they have built a product that, from the ground-up, is capable of delivering on a larger promise down the road.

Team

We know that it is not enough to have a huge market opportunity and great technology. You need to execute and for that you need great people. The team we have invested in are top tier. Lior Yogev, the company’s CEO is an industry expert with a proven track record leading MultiFonds in North America, Yaniv Zecharya, the CTO, is a genius technologist, previously Senior Director of Engineering and Data Science at Salesforce, and Uri Katz, VP R&D, was a Senior Engineer at Natural Intelligence and Head of Financial Algorithms at TipRanks where he leveraged machine learning algorithms and NLP for the purpose of generating investment recommendations. All three founders are alumni of Israel’s elite intelligence corps Unit 8200.

Additionally, both Lior and Yaniv are second timers — Lior was Head of North America at Multifonds, which was acquired by Temenos, and Yaniv was Co-Founder of Bluetail, which was acquired by Salesforce. They are motivated to grow FundGuard into a very large, successful company.

And we’re ready and excited to help them do so. In fact, our decision to invest in companies is largely influenced by whether we believe we can help them reach their goals. And with FundGuard, the value is clear.

As an enterprise software, FundGuard can leverage our Village of Fortune 500 and Forbes Global 2000 executives, a large percentage of which are from the banking and finance industry, for further customer development, design partnerships and customers. For example, we pride ourselves on a deep due diligence process, and much of our decision to invest in FundGuard was informed by this network of industry leaders who stated loud and clear that this was a product that the market is crying out for.

Final thoughts

The market is indeed ready for a change. The investment funds industry is under huge fee pressure because of cheap and effective passive investments alternatives such as ETFs, and the emergence of digital channels and distribution such as robo-advisors. Indeed, we found that up to two thirds of a fund’s costs are in human-centered administration.

In addition, our conversations informed us that regulators are particularly keen to get more transparency and resilience into the fund administration market. FundGuard’s real-time NAV and cloud-based infrastructure tick both of those boxes.

Originally appeared on Medium

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