As a young undergraduate student in the mid 1980’s I ran small gardening business.
One of my clients was a businessman called Greg Poche – a veteran of the Australian trucking industry.
Many years earlier he had started a company called Discount Freight Express, and had grown the operation rapidly, despite having to take on transport giants TNT, Mayne Nickless and Ansett.
I was reminded of his story while reading a recent Fairfax article about the $18 billion in fees being charged on Australia’s $1.6 trillion in superannuation savings (amounting to just over 1% per annum).
Funds Management 2.0
What has this got to do with Funds Management 2.0?
As it turns out a lot.
You see, what triggered Greg’s entry into the trucking game was the fact that those transport giants were seeking to maintain prices above marginal cost – a common catalyst for market entry by start-up firms.
The Mclowd Model
I started Mclowd because the fees described in that article bear no relationship to the marginal cost of delivering funds management services, but rather reflect an outdated revenue model where individuals and organisations are remunerated on the basis of the assets they manage rather than the value they add.
However, unlike the transport industry – where price differentials are measured in single digits – the economics of cloud computing and crowdsourcing mean that Mclowd is developing an investment administration platform where costs are 70-90% lower than those described in the Fairfax article.
In fact, the Mclowd model is designed to deliver high quality investment management outcomes at 1% of Income, not 1% of Assets.
In the next few weeks the Mclowd Platform will pass the $100m mark in terms of assets under management, and then $1 billion, and then $10 billion, and on the process will go until prices in the funds management value chain have been reduced to a new marginal cost because:
In a competitive market pricing above marginal cost is not sustainable
How Did The Trucking Story End?
By continuing to invest in new technologies to drive down costs, Discount Freight Express thrived, and while few people would recognise the DFE name, very few would not recognise the light blue livery of Star Track Express, as the business was renamed in 2000, before being sold to Qantas and Australia Post for $750m.
Today the trucking industry is a highly competitive marketplace characterised by marginal cost pricing, and TNT Australia is a shadow of the firm that was (along with Mayne and various executives) ultimately fined $14m for collusive practices by the Trade Practices Commission in 1994.