FINTECH: $5 Billion Week in Private Equity for Fintech

  Source: Financial Engines

Source: Financial Engines

Where are we in the Fintech cycle? Two massive private equity transactions over the last week reveal the maturity of the space. It's not just startups promising a new world order, but cashflow investors making purchasing decisions to own tech-enabled financial services businesses. If even conservative firms like TPG, Carlyle, and Hellman & Friendman think that roboadvice and digital wallets are the wave of the future, good luck to the old guard banks still in the mode of disbelief.

Our first data point is the purchase of Financial Engines by Hellman & Friendman for $3 billion. Financial Engines had an early lead in digitally-delivered financial advice services, carving out a strong presence in the 401(k) market in the 2000s. After acquiring the Mutual Fund Store, they developed a large physical footprint across the country to target mass affluent investors. The acquirer will combine the firm with Edelman Financial, one of the largest independent Registered Investment Advisors in the US. Digitally enabled wealth management, driven by purpose and mission, supplemented by a physical presence across the diverse geography of the country is the right answer for the future of financial advice. Whether this particular mix of assets achieves that goal remains to be seen, but the rationale makes sense.

One could fault Financial Engines for missing out on the roboadvisor wave, while Vanguard, Schwab and others amassed over $150 billion of assets in low cost managed accounts. But a $3 billion price is a positive data point for startups like Betterment and Wealthfront, which have unicorn valuations with narrow exit opportunities. The largest roboadvisor exits to date were $250 million (Learnvest, a bust) and $150 million (FutureAdvisor), with much quiet since.

The second data point is the $1.9 billion sale of a majority stake in Baidu's financial services arm to to TPG and Carlyle. Western capital has long wanted access to Chinese tech companies, and Fintech especially. Unlike in the Western World, Asian tech combines personal data across social media, shopping, search, and finances to hone artificial intelligence on its users. Imagine if Goldman had all the data of Google, and offered payment wallets, money market funds, and wealth management inside the chat app with 100 million users. This is what regulation as a sword, rather than a shield, looks like. Of course, part of this are fundamental ethical questions about what kind of society we would like to live in, and whether a never-forgetting chrysalis of AI software controlled by a government aligns with our aspirations. 
 

  Source: Baidu

Source: Baidu