How Jacobi Strategies is revolutionising multi-asset portfolio management

Mackenzie recognised a need when he was working as a chief strategist of one of Australia’s largest wholesale fund managers, QIC. During this time, he said he was stunned by how much of the work and how many of the world’s largest investors were still managing key portfolio management processes in spreadsheets.

According to Mackenzie, the tools that traditionally existed in the industry were built around the more single asset class focus – such as fixed income and equity security level tools.

“Over time the job of the portfolio manager has moved somewhat away from managing just stocks versus a benchmark to being much more top-down focused, and much more focused on achieving objectives for the clients you’re managing. As a result of the job becoming more objective and outcome-focused, the tools weren’t really fit for purpose anymore,” exclaims Mackenzie.

With so many of the world’s largest investors still there using legacy technologies, Mackenzie spotted an opening. “For me, it was really just seeing that opportunity to try and build something specialised for asset allocators and investment strategists, which I thought spanned not just the institutional managers, but also right down to financial advisors, wealth managers, and consultants.”

The Jacobi co-founder cited the fact that many of the tools that the founders saw in the marketplace were really only used by ‘rocket scientists and people with PhDs in Mathematics’.

He added, “There weren’t the kind of tools that you would open up to have a discussion around your portfolio without talking to advanced concepts like tracking error or sharp ratios. You really needed to change the focus to talking to the clients about what they were trying to achieve with their funds, and why the strategy you’re building has a better chance of achieving that.”

Why is Jacobi unique?

What differentiates Jacobi, Mackenzie highlights, is the fact that the company allows its clients who are investment managers to embed their IP and their capital markets assumptions and their investment thinking into the ‘central nervous system’ of what is driving the decision-making process.

He continued, “Many of the existing tools were a particular type of risk model of a third-party outsourced view of risk. What we saw was that many teams had lots of smart investment professionals that had good ideas about investment markets and what was likely to happen in the future across the portfolio’s that they were managing – and they wanted that technology to be driven by their thinking and their investment IP.”

A key part of the Jacobi’s unique selling point is its ability to simplify unnecessarily complex solutions in portfolio management. He explained a key part of this simplicity drive is a reason why the company has seen a proliferation of internally built end-user applications to solve these problems.

“This is because many of the managers and many of the investment and wealth managers are really trying to say – ‘no, we’ve got our secret sauce here, and we want to bring that to life’. I think therefore one of the strong differentiators of Jacobi is that it allows our clients to embed that IP and then make it relevant to the client by being able to visualise the client’s portfolio and how it’s likely to achieve the objectives it wants.”

Jacobi works with large multi-asset investment managers, asset consultants, financial advisors, wealth managers and large asset owners. Mackenzie remarked that what was common amongst all of these clients were that they were all trying to manage and construct multi-asset portfolios and better communicate with clients

Investment model benefits

What is it about the Jacobi model that offers investment firms greater customisation and efficiency? According to Mackenzie, it comes down to believing in and investing in a platform for open architecture, and that comes down from initial decisions to say from day one that every client could white label the Jacobi system. © 2023 FinTech Global and Investor Networks Ltd WEALTHTECH100 Profiles

“It’s not just because they get to put their own logo and their own colours on the system, but they really start to think that what is driving everything that they’re using in the system comes from the investment team and from that central IP that is driving the decision making inside the firm.”

The company has also built tools in a software development kit that enables its clients to build further on its platform and develop their own tools, models, charts, tables and applications and deploy them to their investment managers that are using Jacobi for their workflows.

Build vs buy not a binary choice

In the area of wealth technology, investment firms have traditionally considered the choices of in-house build of tech or the purchasing of off-the-shelf solutions. However, Mackenzie agrees with the premise that these binary choices present limitations.

“This key question has traditionally been met by either fully outsourcing and finding a third-party vendor – which means that you’re saying that you’re entrusting the modelling and investment IP to the third-party – or that you’re going to build the tech in-house to represent our special sauce and our IP.

“However, at that point, we’re going to have to become technologists – and that’s a challenge because we’re believers in the idea that you should do what you are best at. If that is managing money and understanding clients and what they want to achieve, then becoming a tech shop at the same time is very challenging.”

Mackenzie highlighted that as people have moved to working in the cloud, many of them have had to come up the curve on cloud-based security and networking just to deliver applications. “If there are vulnerabilities found in underlying libraries or packages that are used, it forces the investment manager to keep the software up to the latest version – and that might not be something they’re trying to do, they might just be trying to find a solution to a problem they couldn’t find off the shelf.”

The burden brought about by in-house management can be a significant hindrance to wealth managers, with many clients cited by Mackenzie stated that while they built the solution they needed, they didn’t want to manage it anymore and really just want to manage money, client portfolios and the conversations with its clients.

Jacobi believes that there is an alternative to the build-vs-buy argument that investment firms should consider. “We like to think of ourselves as open architecture, and that we can fit into the technology roadmaps of our clients to solve problems that are related to portfolio construction and the client engagement piece.

Roadblocks and trends

For firms looking to establish themselves in the WealthTech space in 2023, there are a number of challenges and opportunities alike. In the opinion of Mackenzie, one key challenge and opportunity is the cloud.

“During Covid-19 many firms moved many more of their applications and workflows into the cloud – however, many of them hired more experts internally to build governance frameworks for how they can develop their own applications or work with the third parties in the cloud,” said the Jacobi co-founder.

He added that this means that what was simple to set up as a basic web app five or ten years ago now comes with many more challenges today – with the end-user having criteria about how they can assess your system before they can put data in or enable their own managers to use that system.

Mackenzie also highlighted the general current difficulty of the market. “Over the last year we’ve been seeing firms having to change their view on how they may spend on their operating expenses across their business – which means innovation is competing with many other objectives.

“This creates opportunity as well, as your clients are looking to consolidate their relationships with different partners and vendors. If you can add value to that client, you’re well placed to take on more responsibility.”

As for key trends in the WealthTech space, Mackenzie said there is currently a big push towards automation. He explained, “Investment managers are wanting to automate many of the tasks that perhaps previously would sit with investment analysts’ operations staff. This is due to two things – the cost of hiring is exploding with wage pressures expanding, so teams are starting to ask what tasks can be automated from a cost perspective.

“However, these companies are seeing these technologies in the form of AI, that are providing the promise of being able to automate tasks that previously looked like they were coming in ten years’ time. This includes technology like Chat GPT and a lot of the large language models that can automate tasks and potentially scale their firms without some of the dependencies on expensive investment technology.”

An exciting future

Despite the challenges facing the industry Mackenzie stated ‘It’s important to remember that these are the times that you see people build some of the best and most transformative next generation solutions.

“Jacobi has an exciting roadmap for future platform development including a range of new partnerships, data integrations, investment modules and workflows that will solve many of the problems of the modern multi-asset portfolio manager. You can benefit from what we’ve built and you can use techniques like APIs and our SDK to be able to programmatically connect from your own technology through to other platforms like Jacobi, so that you can leverage the tools and applications that we’ve built and still keep them inside your technology stack.”