US fintech guru taking Irish firm Global
Andy Stewart is a founding partner at the private equity firm with a new $25m stake in Global Shares
While growing up in the 1980s in Danville, an affluent Californian suburb, 12-year-old Andy Stewart opened up an account with discount brokerage Charles Schwab in nearby San Francisco and put all the earnings from his paper round into an investment fund.
Living in California, "you couldn't help but be sucked into the technology universe", says Stewart. "People think fintech is a relatively new phenomenon, but Charles Schwab was one of the earliest online discount brokerages."
After getting his bachelor's degree from the University of California, Santa Barbara, Stewart studied at the Indiana University School of Law. His college friends made fun of him for spending his time scrutinising the Wall Street Journal in the library but, after qualifying as a lawyer, his interest in the markets paid off. Stewart went on to run alternative investment businesses at some of the world's largest asset managers and investment banks, including Credit Suisse and BlackRock.
These days, Stewart is a 44-year-old founding and managing partner at Motive Partners, a new private equity firm based in New York and London that specialises in investing in fintech companies. In the past year, Stewart has flown to Ireland "over a dozen times", scouting for deals and partnerships.
Repeat visits to Clonakilty culminated last week in Motive Partners buying a 40pc stake in the West Cork town's Global Shares, a developer of software and cloud-based services to enable global corporations in more than 100 countries manage share plans for employees. It counts pharma giant GSK and Italian insurer Generali among its some 250 blue-chip clients.
Financial terms of the transaction were not disclosed, though sources say Motive paid $25m (€21.4m) for the minority stake in the 13-year-old company. Global Shares is one of the world's leading software providers for share plan administration, a market worth an estimated $2bn a year and one that is predicted to grow an average 5pc a year.
Employee numbers at the Clonakilty company, which has posted a 60pc surge in revenue over the previous year, have jumped from 68 in 2015, to a current 175, and it now has 10 offices around the world.
Global Shares will leverage Motive Partners's capital, fintech expertise and contacts to accelerate its expansion. Stewart, who worked 100 hours a week in the run-up to finalising the deal, says job creation at Global Shares will likely continue at the same pace and that the investment will help the Cork firm open an office in Japan, extend its foothold in the US and Europe, and develop new software.
Motive Partners's stake in Global Shares values the company at $62.5m. Richard Hayes, the chairman of the Cork firm, had been mulling a stock market debut for 2020 and Stewart says he wouldn't rule out an initial public offering in the long term.
Stewart's trips to Ireland also resulted in Motive Partners securing a €25m cash injection at the start of the year from the Ireland Strategic Investment Fund (ISIF), an €8.9bn sovereign development fund.
After Motive Partners was established in 2016, it spent "quite a bit of time mapping out where the interesting parts of the fintech universe are and that included not only the sector but geography", Stewart says. "So we would look at how big the market is, how much competition there is, what secular headwinds and tailwinds are there, and one of the things that kept popping up was Ireland. It has a highly educated workforce with a long tradition in working in both financial services and technology."
Some of the €25m in funding Motive Partners received from ISIF went towards the purchase of the stake in Global Shares, Stewart says. The strategic partnership is set to yield even more investments, albeit not all necessarily in Ireland.
Motive Partners styles itself as an investor that builds, buys and backs the companies that will form the backbone of the world's future financial services infrastructure. Global investment in fintech ventures hit a record high in 2017, figures from Accenture show.
"Our model is predicated on our ability to add value beyond just dollars," Stewart says.
This year, the firm set up Motive Labs, a fintech innovation and investment hub that includes Allied Irish Banks among its founding strategic partners. Motive Labs has opened a 14,000-sq ft centre in Canary Wharf in London where fintech teams from AIB and other partners can work with startups to create new products and services for the sector.
"We work with financial organisations to collaborate on solving industry problems. Cybersecurity and data are a big concern, and there are challenges such as what regulations such as PSD2 (the second Payment Services Directive, which compels banks to open up their technology platforms to third parties) mean for banks."
Motive Partners is considering whether to open an office for Motive Labs in Dublin. Indeed, Stewart believes that because of Ireland's emergence as a global fintech hub, the country is a natural alternative to the UK for companies seeking an EU presence to hedge against the impact of Brexit - and for private equity firms seeking to capitalise on the growth of indigenous fintech companies.
However, Brexit hasn't deterred its commitment to London's financial hub. UK negotiators on Brexit have reportedly told their counterparts in Brussels that some 7,000 European-based investment funds that rely on UK clients will be hit by regulators unless the EU changes its position on the City of London after Brexit.
"I don't think it's in anyone's interest for a hard landing on Brexit to happen, so we are hoping for the best and preparing for the worst," Stewart says. "We are interested in working with other jurisdictions like Ireland, which is an English-speaking part of the EU, has regulations familiar to Anglo-Saxon businesses, and friendly regulators."
Motive Partners, which is staffed by veterans of the fintech industry and investors, was set up at the end of 2016 to capture a slice of the $700bn being spent by financial institutions on technology every year. Indeed, the firm cited Goldman Sachs estimates that $4.7trn in annual revenue is at risk of displacement by new tech-enabled entrants.
It also boasts a star-studded global advisory council, including Larry Summers, the former US Secretary of the Treasury, Microsoft chairman John Thompson, and former HSBC chairman Douglas Flint.
Stewart, too, has quite the pedigree. He joined Motive Partners from BlackRock, the world's largest asset manager. There, he was co-head of BlackRock's alternative investments, overseeing teams investing in property, hedge funds and private equity. He helped grow the business to more than $120bn in assets under management and more than $1.2bn in revenue. While working for BlackRock, he also spent time in Cork, where the American money manager was acquiring renewable energy assets.
Before that, Stewart was head of the liquid alternatives group at Credit Suisse, having moved there in 2010 from Man Investments where he was president and chief operating officer for its US business in the wake of the 2008 financial crisis.
He says being at Credit Suisse in the aftermath of the crisis was "a fascinating time" because "some banks and wealth managers were using technology as a way to become more efficient - a nice way of saying 'cutting costs' - but also to innovate things they couldn't do historically".
"I saw at Man how technology was taking more and more of a front seat, and BlackRock now has some of the best fintech technology and is working hard to present itself to the market as a tech company rather than asset manager.
"Those pressures to become more efficient continue. Consumers are used to having everything available on their phone and now demand the same from financial institutions. Consumers can use Netflix and Amazon to get what they want when they want it. But if their bank or asset manager is lagging 20 years behind, their customers are not going to put up with that."
However, investors shouldn't be dazzled by companies inflating their value simply by using buzzwords such as "machine learning" or "blockchain", Stewart believes. Blockchains, or digitised ledgers of cryptocurrency transactions without central record-keeping that were first developed as the accounting method for bitcoin, are now attracting financial institutions and stock exchanges eager to replace costly and inefficient accounting and payment functions.
Indeed, Stewart warned last year that fintech valuations were "frothy", or at prices that didn't match the underlining performance of businesses.
Motive Partners is "positive" about technologies such as blockchain and artificial intelligence but remains "sceptical about some of the companies behind it", Stewart says.
"They are definitely worth investing in but it depends which companies you are specifically talking about and at what prices you are buying into it," he says. "There is broad history of overestimating the short-term impact of a technology company and underestimating the long-term impact. Just look at the dotcom bubble - lots of companies that were built around the internet and don't exist now."
Sunday Indo Business