If you look at global markets and the typical institutional or retail allocation mix of an investor’s portfolio, it’s common to see a fairly high proportion of some sort of fixed income investment. In Australia, however, the market has traditionally been dominated by equities, with allocation into fixed income underweight by comparison. Fixed income as an asset class has been hard to invest in, requiring sophisticated skills and technology. But that’s changing. In recent years as yields have soared, there’s growing interest in bonds by retail and wholesale investors. More Australians are incrementally investing in the bond market to diversify and stabilise their portfolio. And this has given rise to fintechs focused on fixed income trading.
There are two main drivers for the growth of fixed income investment. Changing population demographics are a key factor. With Australians living longer and a wave of the population approaching retirement age, the portfolio mix of assets will naturally shift to an increased allocation towards fixed income. Although it’s still lower than overseas investors. On average, Australian investors currently hold about 14 percent of their portfolio in bonds, while investors overseas typically allocate 30 – 40 percent. Secondly, we’ve seen a rise of fixed income exchange traded funds (ETFs) and an increase in income securities being traded on the ASX which has made the asset class more accessible for retail investors.
Technology has played a significant role in reducing the barrier of entry for investors looking for exposure into fixed income. The fixed income asset class is generally more sophisticated than equities with varying instruments with discrete or complex characteristics and structures, including bonds, loans, asset-backed securities, convertibles and project debt. Not to mention issuers in this space can range from companies and financial institutions to sovereigns, superannuation agencies and municipalities, as opposed to equities which are mostly companies. As a result, they require more specialist technology to manage overall portfolios for clients.
Partnering with the right technology is critical to enhancing client outcomes. Technology providers need to be willing to partner and work closely with Australian wealth businesses to find the right strategic solution to help scale businesses as they grow and evolve, being proactive in their approach to technology adoption.
Traditionally, it’s been the large institutional firms that have been able to put resources into building an internal system that helps with fixed income data modelling, trading and execution. The likes of BlackRock, Alliance Bernstein, and Franklin Templeton have all created their own internal systems. Some who have done it successfully have started to outsource their technology for use by other external managers, like BlackRock with Aladdin. The growing interest in bonds has given rise to fintechs focused on fixed income trading, from both larger tech providers, such as Bloomberg, Broadridge, and Trading Technologies, and smaller startups, including Androit, Fixerra, Steeple Money, and upswing.
Seeing a gap in the Australian market for specialist wealth management software in between the institutional and retail market needs adept at handling all asset classes, including the complexities of fixed income securities, Suite2Go partnered with wealth technology experts, Chelmer, as their distribution agency. The partnership opened up opportunities for Australian-based fixed income and multi-asset wealth managers and advisers to elevate their technology in order to meet their business and client’s needs. Implemented by its first Australian-based fixed income client in 2023, Chelmer’s specialist software, Myriad, delivers a more efficient technology stack. The ability to operate on a single platform for the whole trade lifecycle, from booking the trade to reporting, is a key factor, particularly combining the Order Management System (OMS) and Execution Management System (EMS). As a result, companies have realised operational gains and have been able to expand their client base and support different fixed income asset types.
As the Australian investment market continues to evolve, the complexities inherent in fixed income investments will increasingly necessitate financial firms to adapt and harness the power of technology to manage and optimise portfolios. The partnership with technology providers underscores the importance of integrating advanced systems to enhance operational efficiency and client outcomes.