Morningstar buys a $30 million stake in SMArtX, gets two board seats — and a puzzle piece to launch direct indexing later this year — plus


The $251 billion Chicago fund manager previously said it was supplanting InvestCloud’s APL with a SMArtX lease; now he is buying a share of the success he will help ensure

Morningstar loves SMArtX so much it bought software company TAMP, and now it’s ready to use it to launch direct indexing, which gives investors more autonomy over an index mutual fund or index fund. exchange traded (ETF).

The Chicago-based investment and software firm bought an undisclosed part of the West Palm Beach, Fla., company for $30 million in a Series D funding round where it was the sole investor. He also enjoyed the spoils of exclusivity – nabbing two of the seven seats on the board.

Evan Rapoport: “We believe we will replace APL in the market.

The SMArtX plan is to run the table and replace APL’s software wherever it’s used, according to its CEO and co-founder Evan Rapoport.

“We believe we will replace the APL in the market,” he says.

The two companies launched a strategic collaboration last November and announced that SMArtX would power Morningstar’s turnkey asset management platform.

At the time, Morningstar disclosed that it had invested an undisclosed sum in SMArtX through a convertible note. The note was the first $5 million of the $30 million D increase.

Morningstar’s previous three rounds totaled just $6 million, according to Crunchbase. The valuation was not disclosed.

The latest investment marks confirmation that Morningstar is all in.

SMArtX, which manages $19.3 billion, accepts capital from Morningstar’s investment arm, which manages about $251 billion.

Easy sale

SMArtX not only manages assets, but sells its software to other TAMPs. Initially, Morningstar uses software from SMArtX to manage its $30 billion AUM managed portfolio business.

Morningstar has achieved critical mass – including approximately $32 billion in its TAMP – using InvestCloud’s APL software. But many industry analysts consider this semi-outdated. According to SMArtX, this approximately $32 billion will soon become AUM on the SMArtX ADV.

Now that Morningstar has verified and bought a stake in SMArtX, Rapoport says its sales pitch is attracting a lot more business.

The two main reasons it’s an easy sell, he says, are related to its real-time trading – which replaces batch trading – and its API (application programming interface) which allows TAMPs to build their own tech stack rather than being stuck managing a monolithic bundle.

“You can’t trade a day or two later,” he says. “It’s from the Franken model.

“When a customer says ‘Get me out’ and it takes days, the market may already be down 8%,” he says.

Fix a pain point

Morningstar monitors the workstations of approximately 180,000 advisors who use its Office and Workstation products.

Michael Holt, Morning Star
Morningstar chief strategy officer Michael Holt will take a seat on SmartX’s board of directors.

Its plan is to replace SMArtX to sell and provide a list of third-party fund managers that can be sliced ​​and diced into advisor-built portfolios without wild tipping and a wad of contracts – including using unified managed accounts ( UMA) for the first time.

UMAs solve a major problem for advisors because they can include multiple outsourced investment strategies, under multiple managers in one account, but execute them under one contract.

“We look for companies like SMArtX that push the boundaries of traditional technology to bring innovative new solutions to market,” said Daniel Needham, president of Morningstar’s Wealth Management Solutions group and one of two directors of SMArtX. .

The second director of SMArtX is Michael Holt, chief strategy officer at Morningstar.

Become a standard

Morningstar also revealed that it was about to launch direct indexing.

Morningstar bought Moorgate Benchmarks, a 2018 indexing startup, in September to launch direct indexing. SMArtX was also founded in 2018 and its technology will be a component of the offering.

For SMArtX, the partnership means it can go faster and reach higher to become a “standard” for such TAMP technology – something a few months of collaboration has made clear, Rapoport says.

“Morningstar has already demonstrated its ability to be a strong collaborator as we work together to set the standard in managed account technology,” he said in a statement.

“We continue to build the engine that will help grow Morningstar’s TAMP by consolidating its data, research and analytics capabilities into a platform designed for today’s advisor.”

Morningstar is entering the turnkey asset management platform (“TAMP”) market as both a large incumbent and a new entrant.

It has a critical mass of managed money but it is not known as a TAMP in the same breath with Assetmark, SEI, Envestnet, Brinker and others.

“SMArtX has a proven track record of creating products that provide greater flexibility, choice of advisors, and customization at scale, which aligns with our mission to drive investor success,” says Needham.

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