It’s not often that a FinTech Analytics company gets a full page article in a major London newspaper, but that’s exactly what the Evening Standard published: a business interview with with our CEO, Sebastien Roussotte, by Jim Armitage. This article is edited to focus on the business aspects of the interview, and you can download the full interview here..
Meet Sebastien Roussotte, the man whose Style Analytics fintech aims to make your pension bigger
French tech tycoon tell us what kind of shares will avoid the worst of the coronavirus meltdown.
Roussotte runs a fast-growing software business used by pretty much every company running big investment funds. Style Analytics’s kit ferrets deep into the investment portfolios of fund managers, analysing the characteristics of the companies therein. It’s not as easy as you’d think. Asset managers usually put money into many different funds which themselves include a multitude of investments.
Style aims to analyze each of those and assess their risk profiles with what Roussotte calls a “factor analysis”. It’s like a diet analysis, says Roussotte in a camembert-ripe French accent. “We can tell you how much protein, lipids [French for fat] and carbs you’re eating. When you know you’re having too much sugar, you know what to do about it. If you know you’re eating lipids, you know what will happen.”
Once they have this detailed assessment, asset managers can change their portfolio’s diet to suit the needs of the times. They say you are what you eat, so what have fund managers been chomping on through these lunatic times on the markets?
Roussotte talks in terms of “momentum” stocks – which have had high returns for the past three to 12 months; “value” stocks – which trade at a low price relative to their profits or sales; and “growth” stocks – which provide consistently above-average revenue growth. Size is another key factor, as smaller companies tend to everything has been going up, they’ve grow share price faster than bigger ones in troubled times.
Right now, he predicts: “Momentum and growth are going to experience a bumpy road in the coming months. There is going to be a recession. Value companies are going to be of interest and probably size will be important as well.”
Picking the right industries will also be key, he adds, more so than ever. “Where this crisis is unique is it will have a severe impact on specific industries – travel, entertainment, hotels, sports. In the previous crisis there was more a general recession. Here you have specific sectors
and industries that are going to be hammered very significantly.”
Momentum and growth stocks which did well in 2019, are likely to underperform, he predicts. “There will be a ‘back to normal’ but will there be growth for the economy? That has to be proven.”
Why, I ask, can’t investors just ask the fund manager what their portfolio’s characteristics are? You can, says Roussotte, but you can’t always trust the answer. More specifically, they may give you a general description but you don’t necessarily know what really drives the performance. He gives the example of a big sovereign wealth fund client he visited last week. It had not been having a good war.
“They said: ‘Sebastien, we thought diversification was the way to manage risk so we had a third in North America, a third in Europe, a third in Asia. Our investments were spread across multiple sectors. So how did we lose so much in all our markets?’
“Why? It was because while they were invested in different sectors and different geographies, the reality was that when we looked at their funds they were massively invested in growth and momentum; whether in the US, Asia or China, they were investing in companies that were overexposed to stocks that grow when the economy is growing. So, when the economy drops, their portfolio drops. They should have had more value stocks, some smaller stocks, to help cope.”
Roussotte should know a thing or two about the kinds of Armageddon the markets have felt like lately. His father was a physicist on France’s nuclear weapons projects. He seems a more passive chap, listing yoga and wine among his hobbies. Being from Burgundy, the latter is a given.
A product of France’s grande ecole system of prestige universities which spawns the nation’s leaders of politics, business and sciences, his career in financial software first took off at Tom Glocer’s Reuters news and data giant in the noughties. First he worked in the Paris bit, then at the historic 85 Fleet Street HQ.
Thematically, the products he looked after were similar to what he’s peddling now. Reuters’ Kondor+ kit collated all the trading information from a bank’s dealing room and gave a combined picture of the overall risk being taken by the various desks, continually updated.
He’s a fan of Reuters’ structure back then, which gave a decent amount of autonomy to the regional offices. “It was a very British way of running a big multinational operation, enabling teams to be sensitive to the local culture and way of doing things,” he says.
Glocer taught him a lot about management. The two men are friends, and Roussotte is a bit gushy about the American’s “humanity” and “openness”. Yaddah yaddah.
More concretely, he recalls how Glocer taught him that in big companies, you have to move fast with new ideas, even if they don’t all turn out to be good ones.
Glocer would hold brainstorming sessions where executives from various departments would pitch new project ideas to the board. Roussotte recalls: “I was surprised at some of the ones that got accepted; they seemed a little crazy or too ambitious. I told Tom I thought these looked far too dangerous, but he explained to me: ‘Listen, we start off with 10 projects, but in six months’ time we’ll have cut it down to six or fewer once we’ve tried them. In the time it would have taken to study all these 10 in detail before trying them, we may have missed the opportunity.’
“Pace; speed,” says Roussotte,”is important in business. You don’t always have the time to study, study, study as they do in continental Europe – that very German or French way. That’s particularly true in software, where innovation is so important. You should not be afraid of mistakes or projects that will fail.”
For all the love-in with Glocer, Roussotte was not allowed to pull off his dream deal at Reuters, which was to combine his software division with a peer called Sophis to create a bigger player. The proposal was rejected because the Reuters board had by that time begun a bigger merger plan – with the whole group tying up with Thomson.
Turns out he wasn’t the only one who’d spotted the opportunity. Private equity had a similar idea. Roussotte ended up quitting Reuters to become chief operating officer at Sophis. PE backers then merged Sophis into the insurance tech group Misys and his old division at Reuters, Kondor +. “It was very funny to see the project was the same project I’d proposed!” he laughs.
The business eventually changed its name to Finastra. In a weird repeat of events at Reuters, he proposed another big merger which again got the boardroom kybosh because of a bigger deal going on above him – the takeover of US fintech D+H. He won’t reveal his plan because it may still happen.
He was headhunted in late 2017 to Style, which for the last five years has been backed by private equity firm Horizon Capital. Hmm. Five years? That’s For Sale time in most PE firms’ investment calendars. I wonder what kind of an exit Horizon might be looking for, and when.
Roussotte ducks the “when” bit of the question, but says: “The natural exit strategy is either to grow more or merge with a bigger organisation. There are elephant organisations in asset management, like MSCI, Morningstar, BlackRock. They could be interested because we are best in class.”
Style is likely to do well in these volatile markets because active fund managers – those who make their own decisions on what to buy and sell rather than just track the market – theoretically should come into their own. The spiel of “the actives” is that you pay them a bigger fee in return for outperforming the market. For the past decade and more, where pretty much everything has been going up, they’ve lagged the trackers and been roundly criticized for overpromising and underdelivering.
With the mother and father of all recessions in the offing and market paroxysms every few days, this is the time they should live up to their promise. Will they? “I don’t know,” says Roussotte, pausing his rapid spiel while he contemplates his 300-odd active fund clients. “They’re good guys. I hope they do. It’s certainly their moment on the stage. Do I know how the show ends? Not yet, no.”
Roussotte says the current lockdown of his clients’ offices has highlighted the need for computing power to be totally portable, accessible anywhere from the cloud.
“It’s important that this crisis brings the end of software platforms with what I call Jurassic architecture. Where you need to instal it in the premises of your customers. This is over. Anything that cannot be delivered online is a problem.”
The computer gremlins strike again as if to make his point. When the line comes back, we grumble about being trapped in our homes for the past two weeks.
Roussotte is apologetic. “Yes, I wish we could have had this meeting over a bottle of wine and a nice meal,” he says. “A nice bottle of my favorite burgundy, Vosne-Romanee.”
I genuinely cannot wait.