In Conversation With ......
Updated: May 5
SaepioX was formed in 2019, what was the motivation behind the launch?
Asset managers in particular were spending a lot of unnecessary time managing their FX hedging exposures. For many of the FX is not an asset class – it doesn’t generate revenues – but it can be a costly and expensive process if it is done manually and with incomplete data. So we wanted to develop a solution that automates managers’ hedging policies and gives them greater efficiency.
That’s a very specific issue to one part of the FX industry, who or what was the driver behind the idea?
Rasmus Grinderslev, our chief product officer and co-founder, was working on the asset management side at Nordea – all three founders have worked in asset management at some stage – and he witnessed first-hand the challenges firms can have when trying technology – and together with Tim Morillon, another co-founder and our CTO, we developed the software.
We actually had two ideas, the one we are pursuing now and another that helped small and medium enterprises in the corporate space. We may explore that area again, but we think there is more opportunity to help asset managers, pension funds and insurance companies, so that is where we are focusing now.
So you have decided to focus on the very important area of asset managers, how is the solution delivered?
It is hosted in the cloud – and the benefits of the cloud have been something of a revelation to me – this is the first pure cloud solution I have been involved with and it is so effective. We can go through the software with clients and if they suggest any changes or need something extra we are able to deploy it into the client’s systems really quickly.
The solution is a very light implementation, deploying software should be quick and easy and some products are too complex and implementation is onerous and expensive. The software has to be user friendly, but it is not always the case especially when it is based upon old technologies. We had the chance to make our user interface easy to use and based upon the latest technology – and at a low cost.
We wanted to do software development right, which means when you need to change something you can do it straight away. You need to be nimble and be able to respond to client needs and the evolution of technology itself. There is also a benefit for the business as well because what works for some clients probably benefits others – there is scalability there.
And scalability is important in any business or software solution…?
It is, and from the start, we made sure we built a scalable solution. I have never understood large software companies who have a client come to them and say “I have a great idea for what could work in my business”, and the first thing that software firm does is send an invoice for implementation. Developing an idea or a solution is a partnership, the best intelligence we get is from our clients and we want to leverage that to help them, our other clients and ourselves.
Our model is to charge a fixed fee, maintain a good dialogue with our clients, take their ideas and, where we can develop them.
There are several aspects to the service, all aimed at making managers’ FX hedging processes much more efficient. Too many managers were using Excel for their hedging, which made it a very manual process. They were also struggling to access the right data, and this meant their operational risk levels were high and they were spending valuable resources on something they didn’t need to. We have digitised those processes.
It is also important that the information is pushed to the user, who should not have to open a system to look for tasks and information, it should be automatically delivered.
This is achieved by connecting to the relevant data sources, in order to calculate hedges and netting opportunities within the firm to deliver a more precise overview of the daily hedging needs and rolls. We then deliver the right data to either the firm’s execution management system or trading desk for execution.
Users can drill down into the data to answer questions they may have about impending hedges as well as likely future requirements, but we also display unhedged currencies as well, the trading function must see everything about their FX exposures.
Our software package also offers basic level TCA, liquidity analysis, and relationship tools post-trade so desks can analyse their hedging performance and also that of their key liquidity providers, so it’s an end-to-end solution for asset managers looking to hedge FX more effectively.
We have also tested our solution to ensure it complies with the FX Global Code and, of course, there is a full audit trail and accessibility to the right information for compliance and oversight functions.
You mentioned TCA and liquidity analytics there, How deep do they go and what role do they play?
They are two parts of an end-to-end solution, and to be that type of product you need to be able to at least understand the quality of the FX execution and market conditions.
We collate the firm’s trading data and we are connected to New Change FX,
which delivers benchmark data to allow us to provide a basic TCA analysis.
We are not trying to be an in-depth TCA provider, but we felt it was important that clients understand how they are operating. If they want to go into more depth they can employ a TCA provider to do that, but the reality is most firms only want to make sure they are doing a good job and don’t want to spend time and money trying to save a tenth of a pip on a trade.
It’s effectively exception-based TCA – there are basic checks maintained and you only have to intervene if something looks wrong and you get an alert from our platform.
The liquidity analysis again offers a look into market conditions to help trading desks better time their execution – these are important issues and so our solution has to help inform their decisions.
We also provide performance statistics for liquidity providers to help the client understand who is quoting for their business, how much they are winning and what spreads are like. Again, the data is top-level, but it is all part of the process and should be provided to the trading function.
So these services very much support the overall product, which focuses upon the decision making processes of the client?
Yes, the core of our solution is data aggregation and the delivery of accurate hedging data. The client sets the parameters for their hedging programme, we can either deliver data as a batch at a certain time of day or throughout the day on an ongoing basis. The client then establishes the hedging rules, which we digitise and from there can send the trades to their platform of choice.
You mentioned accurate hedging data there, is one thing you found when building the solution that this data could be hard to get right?
In some firms yes. I am convinced some companies don’t see the right FX exposure because, for example, they don’t have their ADRs converted correctly, or they don’t have the proper break down of sub-funds. A firm that mainly invests in US finds can often also have a 10% exposure elsewhere – you need to be able to recognise and compute these nuances. If you can do that, you can save a tremendous amount of money and improve underlying performance.
There are also firms with complex legal structures, or with their own client base, who are all delivering data differently to different parts of the business. This means systems that can’t talk to each other and data sets that vary across subsidiaries or divisions.
We built a generic model that can encompass all business types, and if we find a new model it is a simple matter to enhance the solution to add it. Our clients want to be able to optimise their netting intra-company and that’s what we deliver.
Could this have been delivered five years ago? It seems to me a solution that takes advantage of the advance in data and analytics.
The advances in cloud computing and APIs have made this possible as has the growth in computational powers. Just a few years ago SaaS was hardly thought about in the financial segment because there was a perception that you had to have your servers in your own building. This is changing, for example, Blackrock’s Aladdin solution is only cloud-based and that has validated the model. After all, if you can have your entire portfolio in the cloud, you can have your FX exposures there as well.
The Solution is live with clients and therefore a proven concept, so what’s next for SaepioX as a company?
We are filling a product gap by launching cash management services to enable firms to manage their liquidity more effectively. Clients will be able to sweep accounts to ensure liquidity is available, which is important to their business. It is the same story here as with the hedging systems on offer in the market, many liquidity and cash management systems are very old. Our solution will bring more managers’ systems up to date and make connectivity easier.
For the company, we will target organic growth through adding new clients and processes as they are required, but we also want to partner with other firms where appropriate. We can deliver, maintain and enhance the software and our partner firms can help with the distribution and implementation. We also want to scale the solution. We are solving genuine issues for our clients and there is nothing local about the challenges they are facing, they exist in all jurisdictions. By accessing the right data, collating, analysing and optimising it, and then delivering it for execution, asset managers, pension funds and insurance companies are adding value to their business, and therefore their own end clients. That is a value proposition and it can be delivered through greater automation of existing processes, and that is what SaepioX delivers.