This Tech Company Profits No Matter Which Way Rates Go

By Michael A. Robinson Reviewed by: Jim Nelson

Talk about a change at the top. And I’m not just talking about Congressional leadership.

Just four months after taking over as Federal Reserve chairman, Kevin Warsh put his stamp on the world’s most powerful central bank.

And Wall Street got the message.

At its September meeting, the Fed raised its benchmark interest rate by a quarter point to a range of 3.75% to 4%. The vote was unanimous.

That’s quite a shift from a year ago, when Jerome Powell was signaling that rates were headed lower.

But here’s the thing.

Whether rates are rising or falling, rapid changes in monetary policy create headaches for the professionals who manage big pools of money.

Every move affects bond prices, currencies, borrowing costs, portfolio values and risk models. And with inflation still running hot, the Fed says uncertainty remains elevated.

That puts a premium on technology that helps financial firms keep track of their money and manage that risk.

Today, I want to tell you about a little-known tech leader that does exactly that.

Pressure on the Pros

Let’s step back for a moment and put this in perspective.

The economy isn’t falling apart. Far from it.

The Fed says economic activity continues to expand at a solid pace, while job gains are keeping up with growth in the workforce.

The problem is inflation.

The Fed now expects its preferred inflation gauge to rise 3.7% this year, well above its 2% target.

That helps explain why Warsh and his colleagues raised interest rates in September, although they voted to hold them steady at last week’s meeting.

And yet, the Fed has created a trickier environment for professional money managers.

They have to make decisions about stocks, bonds, currencies and trillions of dollars in other assets without knowing exactly where inflation or interest rates are headed next.

Even the most seasoned managers with advanced models and decades of experience can’t get it right every time.

That’s why the smartest firms are leaning harder than ever on technology that tracks every penny, reconciles every trade and helps them comply with a thicket of regulations.

And that brings us to the company I have in mind.

Financing AI’s Backbone

That’s where SS&C Technologies (SSNC) enters the picture.

Odds are you’ve never heard of it. Most investors haven’t. 

But behind the scenes, it plays a vital role in the global financial system.

SS&C started life 40 years ago as a financial software firm helping investment managers handle the nuts and bolts of running their businesses.

Since then, it has built an empire.

Today, SS&C is the world’s largest hedge fund and private equity administrator, as well as the largest mutual fund transfer agent. 

It serves more than 23,000 financial and healthcare clients from more than 100 offices around the world.

And the numbers are staggering.

At the end of the third quarter, SS&C administered roughly $3.12 trillion in alternative assets. That’s up over $600 billion in just two years.

But this is no longer simply a back-office story.

SS&C owns technology that stretches from trading and portfolio management all the way through accounting, reconciliation, risk analysis and regulatory reporting.

And increasingly, it is adding AI and intelligent automation to that massive financial technology platform.

That means tasks that once required armies of people checking trades, crunching numbers and preparing reports can increasingly be automated.

Think of it as moving SS&C from the back office to the AI backbone of global finance.

Building Through Smart Acquisitions

Another key to SS&C’s growth is its knack for smart acquisitions and outsourcing deals.

And it’s still at it.

In June, British investment giant M&G expanded its relationship with SS&C, handing over operational management of a platform supporting roughly $93 billion in assets.

As part of the deal, roughly 200 M&G employees are moving to SS&C.

That’s a big win. But it’s also a great example of the strategy SS&C has used for years.

Rather than chase flashy moonshots, it looks for businesses and operations it can plug into its existing technology empire.

Last November, for example, SS&C acquired CURO Fund Services, giving it a much larger presence in South Africa and the broader African fund-administration market.

That came just a month after it completed its roughly $1 billion acquisition of Calastone, the world’s largest global funds network.

And SS&C is already putting that deal to work.

This year, it began using Calastone to offer tokenized investment funds and is now expanding the technology to support settlement using regulated digital cash, including stablecoins and tokenized bank deposits.

Source: Yahoo.

The move shows how SS&C creates value from these deals.

It doesn’t simply buy revenue. It buys technology, clients and distribution it can fold into a much larger financial ecosystem.

Today, more than $45 trillion in assets run on SS&C technology.

Simply put, SS&C isn’t just selling software.

It keeps finding new ways to embed itself deeper into the global financial system with bolt-on buyouts.

It’s made about 70 of them over the years. The units bring in new tech, markets and clients. Then it sells more of its existing services across that larger customer base.

And with more than $45 trillion in assets already running on SS&C technology, each acquisition gives the company another opportunity to sell more products to more financial firms.

That combination of acquisitions and cross-selling has helped turn SS&C into a company with more than $6 billion in annual sales.

While no investment is truly “Fed proof,” this is an investment that turns changes in interest rates into long-term profits.

Best,

Michael A. Robinson

P.S. SS&C’s new expansion into crypto couldn’t come at a better time for its clients. Our resident expert Juan Villaverde just announced that the bottom is in! The next great bull market has begun.