Smartkarma, a new research distribution platform based in Asia, has signed a distribution deal with Morningstar to distribute its equity research. The distribution arrangement applies to all of Morningstar’s equity content although initially the platform will focus primarily on Morningstar’s coverage of Asian stocks.
Singapore-based Smartkarma was formed last year and began a closed beta at the beginning of this year. Currently, the platform has over 40 equity research contributors and is being used by 200 buy side users from over 70 firms, according to co-founder Jon Foster. The platform plans to launch before year end.
Agreement with Morningstar
Although the distribution agreement with Morningstar allows Smartkarma to include any of Morningstar’s stock research, Smartkarma intends to mainly use Morningstar’s coverage of Asian stocks. Morningstar analysts cover over 1,500 stocks globally. Analytic coverage in Asia is currently over 130 stocks from 30 analysts based in Asia Pacific. Morningstar covers an additional 13,800 Asian stocks quantitatively.
“The way professional investors access and consume research is undergoing dramatic change,” said Scott Burns, Global Head of Asset Management Solutions for Morningstar in a statement. “Platforms like Smartkarma are leading the way and facilitating this change by creating new, technology driven avenues for research consumers and producers to connect. Being on the Smartkarma platform will give our existing clients a new way to search and find our research while also helping us gain exposure to new clients utilizing the platform.”
A publishing platform
Smartkarma is first and foremost a publishing platform for independent researchers. The system incorporates word processing and graphics engines and all research is digitally native and mobile friendly in HTML5 format.
The platform also includes custom analytic tools. For example, the platform includes tools for analyzing Asian holding companies, such as the notoriously complex Korean chaebols, to facilitate sum-of-the-parts analysis. The platform features an M&A database, deal tracker and valuations and data on IPOs and Placements.
“Smartkarma is designed to foster collaboration between our Insight Providers because that is often how great research gets produced,” said co-founder Jon Foster in a recent interview. Examples of collaboration on the platform include a commodities/oil research firm integrating its analysis with an energy analyst and a macroeconomic research firm working with a fundamental analyst to map macro and sector level insights into stock valuations.
Spotify for research
The platform charges one fee to buy side users, who gain access to all the content available on the platform. “We provide a streaming service not unlike Spotify or Apple Music,” says Foster. “Like a music streaming service we can channel research to each user’s preferences.” Revenues are allocated back to contributors based on the level of engagement and usage by clients and peer analysts.
The platform has set up an agency-only brokerage affiliate, SKX, which uses ITG’s trading products such as POSIT, and ITG’s algorithms. The platform also has a relationship with Kotak Securities.
The founders of Smartkarma worked together at Aviate Global (Asia) before its acquisition by Religare Capital Markets. Foster had worked for many years on the buy side, including a stint as a portfolio manager at Millenium Partners. He and his partner perceived big changes in the investment research industry and decided to start Smartkarma last fall. The company executed an angel raise last winter and expects to raise additional capital as it scales.
Our Take
We’ve noted a boom in new research distribution platforms, partly in anticipation of regulatory efforts to unbundle research from execution and partly reflecting growing appetite for independent research in Europe and Asia.
One of the better platforms is also Asian, Hong Kong-based Seed Alpha. However, unlike Smartkarma, Seed Alpha is positioned more as a research management tool designed to help the buy side value research. In contrast, Smartkarma operates more like an analyst hotel, providing analysts with publishing and distribution.
Innovative platforms like Smartkarma are signals of change as well as change agents. The founders worked on the sell side and buy side for over two decades before deciding to plunge in a radical new direction. What they saw is also being perceived by the six to eight other new platforms out there, and by Morningstar. Collectively they are on to something.