Following on from market data giant Xignite’s announcement last month that it will be powering the analytics tool of Verona based start-up Fairmat, SRP spoke to the CEO and co-founder of the Italian firm, Matteo Tesser, to get the low-down on the company’s origins and its plans in the structured products market going forward.
You are a young company with big ambitions in the structured product space. What is Fairmat’s unique selling point?
Our ultimate goal is to make sophisticated pricing and risk management tools available to retail investors as well as large institutional players, enhancing transparency in the structured product space and empowering investors with quantitative market intelligence to make independent financial decisions.
How was Fairmat developed as a business? Where does the idea come from?
Fairmat was founded in 2008 as a “quantitative hub” by a team of researchers and quantitative finance professors from the University of Verona, so it was born with a strong academic component at its core. A consultative approach is equally central to Fairmat’s culture. One of our founding partners, Matteo Carradori – now a director in the firm – ran a consultancy practice prior to joining us. He needed a service that could offer financial modelling and quantitative analytics, providing Fairmat with its first true business application. Fairmat therefore grew out of the necessity for detailed analysis and financial modelling, particularly for consultancies engaged with financial litigation cases. Around the time we started there were several high-profile cases in Italy concerning the incorrect valuation and subsequent mispricing of structured products, and we provided independent quantitative assessments for several institutional businesses, including Parmalat, UBS and the regional government of Apulia.
How was the IT infrastructure created?
Originally, Fairmat’s proprietary software was born out of a university research project on Real Options Valuation (ROV), designed to offer developers and investors a dynamic tool that could be applied to business strategy and complex decision-making, which could be anything from planning a project on shale-gas extraction to financing the development of a new drug. In essence, the application was designed to adapt the techniques developed for financial options to real-life decisions, so in this sense we have always been problem solvers.
What is your core business application now?
We have grown substantially in scope, evolving, through significant investment, from a pricing and back-office tool for research and consultative purposes to a truly commercial venture. In 2010 we began to develop bespoke quantitative risk and report metrics for several banks and insurance firms, building up an institutional clientele in Italy. Around this time, regulators required a tool for independent assessment, so we adapted our solutions to meet this commercial demand. This ultimately resulted in our targeted service for European Market Infrastructure Regulation (Emir) daily valuation requirements. In 2014 we decided to expand our remit to the retail space, developing an online, on-demand analytics tool for the assessment of OTC derivatives and retail structured products. This is the Fairmat Cloud Solution, a feature designed to deliver instantly accessible, pay-as-you-go pricing and risk management solutions.
Is the Fairmat Cloud Solution aimed at the sell-side or the buy-side?
At the moment, the service is aimed predominantly at funds, funds of funds, asset managers and independent financial advisers (IFAs). The app is also useful for distributors and brokers seeking to commission a custom-made structured product from a manufacturer. By running an independent, forward-looking analysis on the Fairmat Cloud Solution, one can create a product tailored to their needs in very little time. While pricing, portfolio analysis and individual product assessments are the Fairmat Cloud’s natural applications, other uses range from marketing to compliance. Given the independent nature of our software, issuers, distributors, legal consultancies and even regulators can use our unbiased mathematical models to run analysis on individual products.
You recently partnered with Silicon Valley-based market data provider Xignite. Can you tell us more about this collaboration?
When we started developing the Fairmat Cloud Solution, we quickly realised it would only work for the retail client if we were able to offer an all-in-one product. Big institutional clients usually already have a market data infrastructure with which to power our metrics, whereas typically smaller retail clients do not. Crucially, we wanted the Fairmat Cloud Solution to be an independent, universally accessible product, to fit in with the ethos of our company and our business model as a whole. We contacted the largest providers of market data worldwide, but ultimately none was willing or able to back our product on our terms. Xignite shared our vision. They are themselves a young company grounded in a start-up mentality, and they have managed in a small space of time to build an impressive track record of providing premium quality market data to many start-up businesses. The partnership with Xignite is in many ways the perfect match, as it was born out of a mutual drive to provide investors with quality data at non-prohibitive prices.
Did the fact that Xignite is based in the US factor into your decision?
Clearly, the fact that they are US-based gives us exposure to a large market which we want to tap into. Xignite already have an established suite of clients who use their data stream, and this gives us a credible platform from which to expand globally.
In terms of growing your brand in markets such as Italy and Europe, what is your strategy?
We already have a growing institutional client base in Italy, with banks and insurance firms such as Banca Mediolanum, Cattolica Assicurazioni, CBA Vita, Crédit Agricóle Italia, Fideuram Vita and Credem Vita all using our models both on a permanent and bespoke basis. With the launch of the Cloud Solution we have broadened our demographic reach to include the retail sector, and we’ve already seen a demand for our product. Ultimately, we aim to expand in markets across Europe as well. In the UK in particular, we are collaborating with Mu Capital who is well positioned in the structured product advisory space, and they are assisting the growth of our network in the UK.