Wealthtech investment takes a breather

The year 2020 was tough for wealthtech, with only US$350 million invested. In the VC space, investors primarily focused on their own portfolio companies, putting little funding into early stage rounds, which made it difficult for new wealthtechs.

Wealthtech market geared toward well-established players

With a few notable exceptions, such as Wealthsimple in Canada which raised $86 million in H2’20, established players dominated the wealthtech market. The wealth management market is an expensive value proposition, making it difficult for completely new wealthtechs to grow and achieve scale. 

Total global investment activity in Wealthtech: chart

We’re seeing wealthtech businesses provide ways for retail investors to access the private asset classes that are normally out of reach. Real estate is a prime example where the threshold investment size, of $250k or much more, together with the liquidity have the funds have historically made them unsuitable for most retail portfolios. We now see investment in a number of platforms that address these points. It’s one of the hottest areas of innovation in the sector just now – and one where we expect to see significant developments over the coming years.

Bill Packman
Partner and Wealth Management Consulting Lead
KPMG in the UK

Partnerships seen as key aspect of wealthtech

While not directly seen in the investment numbers, partnerships are quickly becoming a key aspect of the wealthtech sector. In H2’20, robo-advisory company Nutmeg announced a partnership with JPMorgan to launch a range of ETFs specifically for the robo-advisors client base.1

Consolidation expected given number of small players

Consolidation is expected to be an ongoing theme in the wealthtech space as investors recognize that the smaller wealthtechs they have invested in might not get to the IPO valuation they had hoped for, and look for ways to pull together businesses or to sell them.

Real assets starting to gain some attention

During 2020, there was some focus on making real asset classes like real estate more accessible to investors, such as through the development of platforms where different investors share stakes in a real estate fund, with the liquidity to trade in and out without having to wait for the whole fund to liquidate. 

B2B services gaining steam

An increasing number of wealthtechs are focusing less on pure play solutions and more on B2B services, such as providing platforms to simplify and automate activities like dividends and reporting, or at providing wealth managers with tools and data to help inform their advice to clients. 

What to watch for in 2021

  • Growing focus on operational resilience as wealth management companies look to be better prepared for events like COVID-19
  • New opportunities focused on the real asset class
  • Continued consolidation among small wealthtechs looking to achieve scale and more established wealth management companies looking for synergies
     

Footnote:

1https://www.ftadviser.com/investments/2020/11/18/nutmeg-partners-with-jp-morgan-for-exclusive-fund-range/