Momentum in the financial services sector increasingly comes from agile, specialist businesses that develop innovative new routes to market and dynamic operational models. The influence of sheer financial muscle is waning in favour of expert execution and distribution capabilities, enabling fresh participants to earn great rewards in a sector traditionally dominated by giant banks and insurance companies.
As an active investor, 3i partners with financial services companies that break the mould by streamlining processes, identifying new ways to reach customers, and ‘democratising’ the capabilities of wholesale markets. Whether competing with financial giants, or providing them with outsourced services, our portfolio companies apply deep understanding of markets, demographics and technology to build highly-profitable businesses, with inbuilt resistance to the sector’s cyclical nature. The opportunities of most interest to 3i lie in five areas:
- Asset Management: Across the globe, assets under management are seeing strong growth, as western populations prepare for longer lives and emerging markets invest the fruits of success. With high levels of recurring income, and excellent scalability, this sub-sector yields great rewards for the firms that gather and manage assets, and the businesses that support them.
- Specialty Finance: Companies in this arena bypass the ‘commoditisation’ of finance through their unique ability to understand and access niche borrowers that general lenders find hard to reach and assess. Successful specialty financiers can achieve particularly strong results at low points in the economic cycle, when less-knowledgeable lenders have retreated to core business.
- General Insurance: In large parts of the world, the sub-sector remains inefficient, fragmented and remote. Nimble operators are prospering by adopting efficient electronic models, anticipating the impact of greater regulation, and bridging the gap between capital and customers – especially in Asia, where rapidly-rising wealth is matched by the growing need for insurance products.
- Outsourcing Providers: As industry giants continue to refocus on core business, there are many opportunities for smart providers to run their back-office processes and support services more effectively while delivering valuable cost savings. The payments arena offers a wide range of possibilities to add value, as the migration to web-based, electronic and mobile payment methods increases the need for rich expertise in areas such as compliance and security.
- Electronic Trading: The global, electronic nature of trading today creates valuable spaces for businesses that make prices, and satisfy specialist needs for a range of activities, from analysis and valuation to regulatory and accounting services. As access to prices and information widens, trading volumes continue to soar, with retail investors dealing on terms previously only available to industry giants.
