Thank you for joining us today, I'm delighted to welcome Sandeep, CEO of Clearwater, today with us. Sandeep, thank you very much for joining. As a starting point, could you walk us through what you're seeing across the three core consumer groups, the insurers, asset managers, and corporates at the moment? Also, maybe if you could talk about some near-term headwinds that you're seeing in each of the respective segments?
Yeah, sure. I'm Sandeep Sahai. The first thing, we are looking for headwinds, so every time we come to these quarterly meetings, we're asked about the headwinds, so we are very consciously looking for these headwinds. I just gotta say that in the asset management industry, you know, I think we announced Bank of America Private Bank, then we also announced Merrill Lynch. We continue to see traction, and we can talk about why. It is not exactly the most vibrant market, and it's not exactly the market where people don't have cost pressures, but we continue to win because of what we offer them. Insurance companies, I think we announced two mega insurers last year. This year we expect to do more. We expect to do two and perhaps even a little bit more.
We continue to see traction in the insurance market. The third one is a little bit more about Europe. Europe continues to grow for us. I think last year Europe was 9% of our revenue. It's about 14% right now, so we continue to make advancement in Europe. I just think that what we are doing is following the bookings. If you look at our attitude used to be, let's assume the booking, let's grow the business, let's grow the number of people we have, let's make the investment sort of ahead of the curve. Over the last three or four quarters, our attitude has changed, and we are just following bookings. The booking's great. We just continue on our merry path, and we don't worry about headwinds, we don't worry about the economy, and we just keep going.
We are super watchful about it, but we just haven't seen the headwind quite yet, though we're looking. It's not a good answer, but it looks like, you know, you're out in the ocean looking for something, you can't find it. It's a little bit true. We are looking for signs of, you know, is the pipeline conversion growing? We don't see that. Do we see the inflows growing? We don't see that quite yet.
That's great to hear. Obviously vast majority of assets under your administration, they are more fixed income and alternatives. We obviously are now aware that Clearwater is moving more towards equities. If you could maybe talk about how the platform needs to evolve in order to service some of these clients.
It's a really good question about equities. I just want to make the point firstly that when you look at our client base, you look at insurers, we have the whole book. We are not making a choice about should I process their equities or not. Same thing with corporates. We just have the full book. Now, if they change, our assets on our platform changes. Is it mostly fixed income and structured products? Yes, it is. Is it approximately 20% equities? Yes, it is. We do process more than $1 trillion of equities on our platform today. If that scales, and I don't know so, and it's not like we will go seek it out, we should be able to scale that without much change on the product.
What has changed, Alexi, is that if there was a $10 billion asset manager who was mostly in equities, in the previous time we would have just walked away from that. It's not the best use of Clearwater's ability. Clearwater is powerful when you have investments in equities and fixed income instruments and derivatives and things which are more complex, if you will. The value for our platform is really high. Given the JUMP acquisition, our ability to service that market has definitely improved dramatically. I think we have announced two products. There is product work in making the front office of JUMP work better with the accounting performance reporting of the Clearwater platform. We do think our platform will evolve, because the market segment, Alexi, we're talking about is a little bit different, whom we did not serve very well.
I mean, that was the market... For example, we don't do hedge funds because Clearwater just wasn't a great fit for hedge funds. Once you have these capabilities, can you go to the $10 billion asset manager who may be mostly equities? Yes, you can. It does need work over the next several quarters to bring it to the market here.
Understood. I think it's worth discussing your SVB exposure. Could you maybe remind us what was it back in March? I think the typical reaction was obviously negative for many companies that had exposure to SVB. Could you elaborate on possible benefits that you were able to provide to your clients.
Yeah.
at this time of uncertainty?
Yeah. So it's. I like the way you framed it, that initially thought of the negative. Initially, we were really worried. You know? It's like when you build a model in life, and you know it's supposed to stand the stress, but when it actually happens, then you're, like, panicked. You're like, "Damn, it better work." But again, you just gotta think about what we do for SVB. We're not reporting on SVB's assets. We are reporting for their 2,000 institutional clients. SVB has literally on our platform 2,000 institutional clients, and we are reporting on that for their clients. The moment SVB happened, what we started to see was a movement of those institutional assets to other banks.
Because we get a comprehensive view on a daily basis, we could just tell you, "This is moving to this bank, this is moving to this bank." Obviously, our revenue sort of didn't get impacted because just the revenue in the other bank went up, right? Now, what we did was we gave all of these institutional clients direct access to our platform. Obviously, otherwise, they would come through SVB in a single sign-on. We gave them direct access, and they really used our platform. To do what? To understand the exposure, to understand the risk, to understand the compliance parameters, and really their accounting on a day-to-day basis. Literally, people used our platform and continue to use our platform really aggressively. That's how we think about it.
I think we also said that including SVB, if you think about regional banks, they make up, like, 3% of our, of our AUM or ARR, pardon me. It's not significant, but again, we sort of work for their institutional clients. In this case, they got bought, so we turned it back to SVB. For Citizens is a client of ours and J.P. Morgan's a client of ours. By the way, J.P. Morgan did really well. If you just see the asset movements, I talked to some of our clients in J.P. Morgan and said, "It's good for you almost." They wouldn't acknowledge that, but it was. It was really good for them. I think we were able to get clients a lot more transparency.
Your question about how do you think about growth and asset manager. Asset managers are on our platform at a level they've never been, on a daily basis, trying to understand exposure, trying to understand exposure to countries, to asset classes, to regional banks, to large banks, and all of that. That's a benefit of the cloud. It doesn't matter what the scale of inquiry into your platform is, it can scale as needed and sort of come down from there. I think we provided transparency, and if you look at our pipeline from asset managers, it is chasing that. It is chasing transparency where they have not had that level of transparency. We. Is it a net benefit? Not really. Is it a net negative? Not really. I think it's been going on for a month or two months.
The only big impact we have seen is the usage of our platform has gone up dramatically, and mostly on the risk and exposure side.
All the research that we have done so far appears to suggest that Clearwater is a top-notch platform for insurers. You're positioned to gain market share there. It seems like in other segments within asset managers, there is a bit more acute competition. Could you discuss what could be your competitive advantages?
Yeah, sure. Look here, I think that this I think we talk about asset managers, generally speaking. We don't do a lot of work in segments of the asset management. There, do we have competition? No, we don't even compete. If we talk about the whole hedge fund market, we simply don't have never had a product, never gone after the market. Do we have more competition? Yeah, but also because we're not there. We don't even have a product. When you come to our space, which is large institutions, asset managers, accounting and reporting for that, and then institutional clients of, for example, J.P. Morgan Asset Management, their clients, that reporting and analytics and accounting, I think we're hard to beat.
I don't think there is a difference in the win rate in the segment we work in. Now, if you're in the wealth, retail wealth space, yeah. Is there competition? Yes. We don't play in that segment at all. We play in a segment where you have institutional clients who have multiple desks in banks they work with, and they want a comprehensive picture, or they invest across countries, or they invest across a number of asset classes, and they want, every day, 9:30 A.M., or several times a day, they want an understanding of their portfolio and the exposure across asset classes. That's where we are strong. In that, we don't have any difference in win rates. You're right.
In equities, long only, if you will, if you had a hedge fund or if you were in retail wealth, those segments, Clearwater just doesn't play in. The additional JUMP allows us to build a capability for the $10 billion asset manager, and that is a new capability. We still haven't brought it to the U.S. so much, we did announce, I think, two wins at the end of Q1, we expect that to continue to gain pace because that market is available. The small asset managers and the higher end of hedge funds, I think, is where our product would fit really well.
With the promise that as they grew, the integration with the Clearwater, which is sort of able to do any scale of work, that integration would be really, really high.
Sandeep, I'm sure you're surprised that it took me 15 minutes to get to my AI question. Here it is. I'm interested in how you're applying AI in your existing operations and whether you think further adoption of AI could be a disruptor or a tailwind for your business.
Yeah. I'm sure everybody's getting asked that and it's gonna change the world. I really believe that if you look at generative AI, it is gonna alter everything. People will ask me, "You know, is it gonna change your business?" No, no. It's gonna change every business. I think the question is not right. I think when you think about the Internet, a lot of people said, "Maybe it'll change my business. Oh, it's not applicable to me." Wrong. It'll change it completely. I also feel that it'll change it, make businesses more efficient, and that's a different use case from transforming businesses, and yet it's a different business case from disrupting businesses. I think that Lyft's CEO was here talking before me. You could have said the idea should be, let's go to a taxi stand and make them more efficient.
The answer, calls faster. How do they get taxis to clients faster? Yeah, that would've been the improvement bucket. Really, the answer wasn't to improve the taxi stand at all. The answer was to come up with Uber and Lyft. I think all three are true, and as far as Clearwater is concerned, we are very focused on that, on how this technology will change. What is different about us, what makes us a little bit unique on our moat is not that we do US GAAP, but that among our 1,200 customers, no two clients do accounting the same way. Everybody has 5% different. They do some amortization differently. They do some bonded regulatory reporting differently. Our secret sauce has always been the fact that all these clients are just a little bit different.
If I can just give you another one or two minutes on generative AI, because that's the interesting one on the LLM. It's always been there. The problem with LLM was it was super expensive to build. I mean, if you think about LLM, you sort of have a sentence and you're trying to predict the next word. You're going through billions of documents to come up with what the next word is, what the best next word is. Then when you figured that out, you're trying to figure the next word and the next word. That's how you pull together the best report or the best sequentially the best paragraph or the summary. That needs gigantic amount of computational power. People like us just had no way you could do that.
What's happened now is you've got transfer learning, which is people like ChatGPT have built that model for you, and it's generic. Now you can adapt that pretty easily to your use case. Jim and I were talking about, you know, it's like training a dog. A lot of the work is in training the dog, and the trained dog is available now. If you wanna use it for hunting, you still need to train it a little bit more. If you wanna use it for as a service dog, you've gotta train it a little bit more. The basic work, the hard work has been done by several institutions, and you could do literally get it as a service, which many of us do. There's also this... I feel for Clearwater, you should be thinking about... One more minute on it.
The thing is, people think about, well, AI replace humans. Wrong question, I think. Will it assist humans to become massively more efficient? That is absolutely doable and will happen soon. In that, what I mean is, here's a client who wants to know how do you come up with this amortization number? Why is this amortization $21 million not $21.2 million? A normal human being they would've gone back, figured this out, wrote up the summary, and had it ready for the clients in, let's say, 25 minutes. What AI will do, generative AI, it will produce the way we would want to use it, is you don't respond to the client, not the regen AI should respond to the client. What should respond to the client, give us three options. I'm the analyst.
In about two minutes, one minute, I get three options and I click it. Yeah, this one looks right. Let me do it. You gotta be thinking about, is there something which took 25 minutes, can I do it in two? With no risk. Because we all understand the issue with hallucinating and... Well, those are real, by the way, right? The way you gotta think about this is, can I make every piece of our operation massively more efficient? I think that is there, can be done. There's the other issues around transformation and disruption. Those are a little bit further out. I feel like every company should wake up and address it now. ChatGPT 1 was, like, 15 months back, whenever. Every three months is becoming massively better. This is not something about 2024 planning. Yeah. Sorry.
I got lots of question.
Appreciate it, Nasen. You're very insightful. If you don't mind, I wanted to slightly change gears and talk about some of the element of your story, which I think is underappreciated, and that's the revenue opportunity related to sort of the fact that your platform is servicing clients with $6.4 trillion worth of assets. You have all this data that can potentially be monetized. Maybe if you could talk about what you see as an opportunity to monetize this information?
Look, we don't talk a lot about it, but I will give you what we have, and I'll explain why I think it's interesting. We have. All of you know this. We have a single-instance multi-tenant platform, which means we have a single security master, where if all of you were clients, and there were 1,200, all of your data would be on one database. It's in one database. It's like Salesforce or Workday, any of them. They all have everyone's data in one instance of the software, right? That, that's point number one. We obviously produce data every day, and so we know who sold what, when, where, how much, which tax lot. We know every detail. Why is that? Because we are doing accounting on it. You can do accounting at a high level.
You have to know exactly what, when, where, how it got sold. The level of detail we have is pretty high. The other point you gotta think about is when we work for insurance companies and corporates, we have their global book. We don't have their equity book or their LP book or we have the global book. Why is that? Because we do accounting, and we do regulatory reporting, and we do compliance checks. There's no sense of doing accounting for... It's like me sending you Clearwater's P&L for 80% of our business. Nobody cares. You want the full P&L, right? The data we have and the freshness of the data we have is a little bit outstanding. I don't know of one other competitor who has it.
If you think about all of our competitors, you think about how architecturally they sell the software and how people work with it, not one of them have this in a single security master. That gives us insights, which is a little bit off the charts. Unfortunately, it takes a while to come up with something which can be priced correctly and appropriately and not underpriced. Actually, Jim here is leading charge on a dedicated team, which is developing products which would work for asset managers, insurance companies, and corporates. Just to give you a flavor of what we could do is we can go to Jim, who manages our money, obviously, and say, "Jim, your return compared to every other corporate client we have on our platform is in the 34th percentile." We could be that precise.
Then we could say, "Your municipal bond portfolio, that's in the 17th percentile, and your equity portfolio is in the 82nd percentile." We are not providing opinions here. We are just telling you from the data today. Jim's next question would be, hopefully, "What are the best people doing? What are the people in the top decile doing?" We could say, "You know what? Their asset mix is different." There's so much in Treasury, there's so much in this, there's so much in that, and their asset mix is different. The managers are different. We could help change meaningfully your yield. That is a proposition which is, I think, very, very exciting. It's. We launch some products this year. I think it'll gain some momentum next year.
Two years out, two and a half years out, I think it'll be a big part of who Clearwater is.
You've mentioned pricing and pricing accurately. Could you talk a little bit about your recently launched new pricing scheme? How many of your customers have already onboarded on the platform? Maybe underscore the retention rates, which appear to be very high.
The pricing thing, look, we obviously had a big headwind last year. Our pricing was based on AUM. I don't wanna bore you with the detail, but the fact is, by the time Q4 came along, 80% of the clients at that time, the starting that effort that time, had either done a contract modification or done a price increase. The reason I say it like that is because from Q3, we started to onboard new clients, new deals, were on this model, and the resistance we have had to that is nonexistent. As a matter of fact, I think on the Q1 call, we said virtually all our clients in Q1 were on that model.
There was a historical set of clients who had converted at a 80% level, but for the last three quarters, essentially speaking, all of our clients are on this new model. We, at a management team level, have said, "Okay, this problem is sort of behind us a little bit." What is not behind is multiproduct pricing. Clearwater has always sold Clearwater. It's across the whole platform. That's kind of weird because we are spending, you know, close to $100 million in R&D. If you bought our product three years back, everything this year and last year is all yours for free. What we are doing is becoming super methodical about modules, features, functionality, and pricing them separately. It's not easy. You gotta build hard edges. You gotta do it correctly.
We are committed to launching that in Q2 and starting to see progress in Q3. Again, we're not trying to solve something quickly. We wanna solve it systematically. That's what we hope to do with multiproduct pricing.
May I ask you to elaborate on your land and expand strategy? At the start of the conversation, you mentioned the big wins with Bank of America and Merrill Lynch. Could you discuss what products you're offering to them and how that relationship is evolving?
You know, usually when you think about land and expand, everybody does that. Land and expand is such a big thing. For us, for insurance company, there was no way to land and expand because you got the whole platform. What am I gonna expand here? Corporate clients, same thing. There was no way to land and expand because you got the whole book and you've got the whole platform. As you know, insurance was 50% of our revenue, 16% is corporate. 66% was just no way to land and expand, right? What we are doing, obviously, with multiproduct, we are going back to those same clients and selling PRISM, which is a comprehensive view of the asset. We are selling LPs.
You could say, "You already had LPs." Yes, what we sell now is something called LPx, which gives you all the analytics around your LP holding. We have another product called LPx Clarity, which gives you look-through. In the first one, you get what your cash flow is gonna look like, what your prepayments are, how does it look for the next year or three years. In the LPx Clarity, you get insight into what they hold. You may have 100 LPs, all of them have exposure to technology companies. You can now see an aggregate view saying, "My exposure to this asset class is this, my exposure is that." You can get down one level and two levels. Obviously, clients will pay you separately for that. Doing the same thing with mortgages, doing the same thing with derivatives.
We expect to do the same thing with options, bank loans. All of these super opaque assets, as you provide more transparency, clients I think are more than happy to pay you differentially for it. Our whole approach here is this multi-product is so important to us because we wanna invest in R&D, even our long-term model calls for 20%, but we wanna be able to charge for it. Frankly, the resistance even on PRISM is nonexistent. JPMorgan is a good example that you had a team of people doing this for asset manager or your institutional clients, you're doing the reporting. Now it's automatic, happens in a day instead of taking two weeks to get reporting ready, and it's dynamic. People can just log on to a platform and just do their own reporting.
I feel like multi-product is what drives this in the future.
Great. Earlier today you've mentioned the acquisition of JUMP, which was your first acquisition. Could you remind us what JUMP brought to Clearwater and maybe comment on some of those cross deals that you've managed to secure? As well as, you know, when you think about this relationship with JUMP, you know, what sort of new products it will help expand within your offering?
Yeah, as all of you know, look, 50% of our TAM is in Europe and Asia. We care about it a lot. I've built businesses in Europe before, and I know it takes a long time. When you talk about France and Germany, you have to go in there. There's garden leave, you're hired to be. It just is a pace. JUMP gives us 100 people in Paris right off the bat. It completely changes the posture of Clearwater in continental Europe. That was number one. Number two was there's an entire market for $10 billion asset managers, which is front to back, right? JUMP has a really solid product in the front to back market. We would not sell to, like I said, an equity shop of $10 billion.
Now JUMP addresses that exactly. Would we sell to hedge funds? I'm not quite sure. Can the product do it? Absolutely. We feel like we have a competitive product at the lower end of the asset management product just off the bat. The third thing was Europe uses something they invest in something called unit-linked funds. We could have either developed it or partnered with JUMP. In the case of acquiring JUMP, that ability is available right off the bat to our clients, and we would have ordinarily not done that. Lastly, they give us a really good OMS and PMS, order management system and a portfolio management system. We typically didn't have that, right? We were post-trade. Now we can go to our clients and offer them an order management system and a portfolio management system.
We feel like that will improve cross-sell. All of this a little bit in service of doing more in asset management, number one. Number two, having more products to sell to our current clients. You know, we brag a lot about our NPS. NPS are not super helpful if you can't go sell more to the client. Like, why do you have high NPS, right? We feel like JUMP really helps in many of these elements.
It sounds like, you know, JUMP has really strengthened your presence in Europe. It appears that you're now starting to do some cross-sell deals in the U.S., you're bringing some of that into the U.S. Could you maybe talk about your aspirations in the APAC region?
APAC is about 10-12% of our TAM. We care about that a lot. The thing is that in Asia, the problem with insurance companies and corporates is even more acute. Why is that? At least in the U.S., you go to California or New York, it's still U.S. GAAP. You go to Europe, it's still IFRS, though it's got French GAAP and German GAAP. They all derive from that. That's not true in Asia. You know, Taiwanese GAAP and Japanese GAAP and Chinese GAAP, guess what? They're all really different. Now if you're an insurance company who's got assets in all those countries and you want a single view of your accounting, yeah, best of luck. Which is why I think we are one, a little bit ahead of our time.
We've been investing in R&D, trying to get Asia off the ground at a certain speed, which is why you see this R&D being pretty high, like 26% of our revenue, because we are trying to do Europe and Asia at the same time. Europe is now starting to bleed off because much of the development for Europe is done. JUMP frankly helps with that also because we don't have to build some pieces we were. Asia is a big market. It is sort of tertiary to us because we think about the U.S. first. We want most of the growth to come here. Europe is second for us, Asia right now is third. We are building boots on the ground, we have a really good marquee client, which is in several countries.
It's in the top five insurers there. We have standing in Asia already.
Now that you've done, your first acquisition recently, what is your view on M&A opportunity, in your long-term perspective on that space?
The company had never done it, right? We did also JUMP because we wanted to do one and sort of build the muscle. I think now that we have done it, the question is the bar is really high because we don't need it in the sense that we have a growth rate which we are comfortable with. Our profit expansion plan is just fine, why would we do it? We'd do it because of geographic expansion. If we found something in Hong Kong or something like that'd be great. Adjacent markets. If we found something in other markets which are adjacent to us, that'd be great. Also, capability.
We found something which was great in risk, or we found something which was great in performance or something which was great in alternative assets, with someone who process bank loans really well or CLOs really well or... It would be for an adjacent market or an adjacent capability. Those are the two big ones we see, but we want to use it. We feel like you have to learn to grow faster than your organic pace. We want to do it, but we don't wanna ruin our business model. We feel we have a really clean story. It's really easy to explain what Clearwater does, and we don't wanna tie ourselves in knots with all kinds of random things. We are super cautious about it, about what we would do.
Great, Sandeep. My final question, I wonder what you made of the recently announced acquisition of SimCorp by Deutsche Börse. What are your thoughts?
Yeah
...the space and on this logic?
This one, I've been asked this many times, so I have a very stock answer for this, because you've gotta be careful with what you say here. It's a really good deal. I'll tell you why. It's really good for SimCorp. The shareholders did really well with this. It's really good for Deutsche Börse because they get a more comprehensive thing to sell. It's really, really good for competition, like us. This is great. If I had to find SimCorp a buyer, Deutsche Börse would work just fine. Would be great. I feel like, you know, just more seriously, I think that software companies haven't done brilliantly within financial institutions historically.
It doesn't mean they can't, but, you know, they have their own constraint sets versus SimCorp being bought by a private equity company, which may have put in $1 billion to fix their technology or something. I think this is a good thing, where all three are happy. Yeah.
Appreciate it, Sandeep. This has been great. Thank you for joining us today.
Yeah. Thank you.