Black Diamond seen unlikely to go the way of TechFi

Advent Software Inc.'s announced $73 million deal for Black Diamond Performance Reporting LLC is the biggest news in portfolio management and performance reporting in years

Advent Software Inc.’s announced $73 million deal for Black Diamond Performance Reporting LLC is the biggest news in portfolio management and performance reporting in years.

So after completing an initial news story a little more than a week ago, I let things simmer a few days and then asked a mix of financial advisers, industry insiders and analysts for their take on the deal’s significance.

First, some history for those unfamiliar with the parties.

Advent was founded in 1983, building automated portfolio accounting software — a new concept at the time — for the investment management business, which continues to be its core customer base. The company has grown global in scale with a half dozen major software offerings, though advisers are most familiar with its two portfolio management packages: the long-lived — some would say overly so — Axys system, with roots back to the 1980s, and the more recent “next-generation” Advent Portfolio Exchange, or APX, introduced six years ago.

Black Diamond, which launched its web-based performance reporting product in 2003, has 280 clients with almost 200,000 accounts and $75 billion in assets being tracked.

Unlike many acquisitions or mergers, where unacknowledged or Machiavellian reasoning underlies the transaction, this one appears straightforward, if unexpected.

Advent founder and chief executive Stephanie DiMarco said in the joint statement announcing the deal that “Black Diamond has a well-earned reputation for innovation and client focus.” And in that same statement, Reed Colley, Black Diamond’s founder and chief executive, said that his firm “gains access to resources to accelerate both our product development and growth.”

Many of the people I have spoken with since agreed.

‘A GOOD FIT’

“Black Diamond is probably one of Advent’s strongest competitors, and while they probably need to iron out some overlap, this could be a good fit for [Advent], complementing them at the lower end [smaller firms] especially,” said Alois Pirker, research director at Aite Group LLC. “Black Diamond has a lot of traction in the market right now; when Fidelity [Investments] added it to the WealthCentral platform, that spoke volumes.”

Others in the industry sounded a more cautious tone.

“It could end up being a net loss for advisers,” said Eric Clarke, president of Orion Advisor Services, a popular competitor of Black Diamond’s.

“I think many advisers are going to fear that now Black Diamond will go the way of TechFi,” he said.

TechFi Corp. was purchased by then rival Advent for $23 million in 2002. Three years later, Advent discontinued development and support of the application.

“TechFi was a great and innovative competitor then, as Black Diamond has become now,” Mr. Clarke said.

In a conversation a few hours after the announcement, Advent president Peter Hess responded that advisers need have no fear of history repeating itself.

“The space we are in today is a different time and place, and Advent is a very different company than we were at that time. Our commitment to Black Diamond is one hundred percent,” Mr. Hess said.

Advent will create an independent business unit around Black Diamond, with Mr. Colley continuing to lead it as general manager, Mr. Hess said.

“We obviously expected this question; now let us prove it. We intend to keep the culture and focus intact and provide [Black Diamond] with additional resources,” Mr. Hess said.

When I asked TechFi founder Matt Abar — who a year ago launched his own web-based portfolio management product, FinFolio — about the possibility of history repeating itself with Advent’s latest acquisition, he said that it seemed unlikely and probably would not be in Advent’s best interest.

Hemant Moré agrees. As the owner of Arcons Technology Inc., he is very familiar with Advent’s Axys product, having built his own business around helping advisers migrate their data away from it to other portfolio management systems.

“It is a win-win for the industry,” Mr. Moré said. “Black Diamond has really robust reporting capabilities and will only make Advent’s offerings more valuable to end users.”

Greg Friedman is one of those observers who straddles both the advisory and advisory technology businesses. He is an adviser and principal of wealth management firm Private Ocean as well as founder of CRM Software Inc., which makes the popular Junxure customer relationship management software.

‘CAUTIOUSLY OPTIMISTIC’

“I’m cautiously optimistic. I like, know and respect Reed [Colley] and hope he did his due diligence,” Mr. Friedman said.

“If, as this would seem from the outside, is a move to better serve the [RIA] market, Black Diamond could serve to improve Advent’s reputation with advisers in terms of customer support and responsiveness,” Mr. Friedman said.

I also spoke with several advisers, most of whom were excited about the news.

One is Sheila M. Chesney, principal of Chesney & Co. Private Wealth Management, which manages $75 million in assets and has used Black Diamond’s reporting services for more than two years. She said that she is happy overall but thinks that the firm could learn something from Advent.

“[Black Diamond is] very, very good for a straightforward securities firm and [is] exceedingly good with [its] presentation in generating reports, giving the client a really good story. But [it is] not that great for firms using a lot of alternative investments,” Ms. Chesney said, adding that Advent has handled this well in the past because it has worked with some large firms.

“The one recommendation I would give to them is to pay attention to the world of alternative investments. My hope is that they will bring something to the table there, because advisers are not getting enough out of the traditional equity market,” Ms. Chesney said.