Yet Another Value Podcast - Shomik Ghosh's $CWAN bull thesis

Episode Date: September 22, 2025

In this episode of Yet Another Value Podcast, host Andrew Walker welcomes returning guest Shomik Ghosh for a deep dive into Clearwater Analytics (C-WAN). Known for his detailed research, Shomik breaks down C-WAN’s business model, recent acquisitions, valuation metrics, and long-term growth outlook. They explore how Clearwater’s sticky, cloud-native platform is disrupting legacy financial systems and what makes its data architecture and integration vision compelling. From insurance to asset management and hedge funds, the conversation unpacks how Clearwater aims to become an end-to-end solution across the investment lifecycle. They also discuss private equity involvement, AI applications, and valuation rationale—providing a well-rounded view of a business undergoing transformation.Trata CWAN transcript: https://www.trytrata.com/cwan_________________________________________________________[00:00:00] Podcast intro and sponsor message[00:02:27] Shomik returns for third time[00:03:27] Clearwater Analytics business overview[00:07:06] Integration of three major acquisitions[00:07:42] Valuation metrics and debt impact[00:11:32] Revenue multiple versus peers[00:15:23] Product stickiness and competitors[00:22:05] Data moat and system advantages[00:26:31] Growth trajectory and market expansion[00:31:00] PE firms and private insurer trend[00:33:10] Board composition and comp concerns[00:38:08] Net retention and rate cut impact[00:42:25] Data integration and system of record[00:45:46] AI efficiencies and investment decisions[00:50:02] DCF valuation and fair price[00:51:55] Episode wrap and final remarksLinks:Yet Another Value Blog - https://www.yetanothervalueblog.com See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

You're about to listen to the yet another value podcast with yours, me, Andrew Walker. Today's podcast, we have ShowMick coach on. ShowMick is a super, super thoughtful investor. Does deep, deep research into, you know, growth of your companies than I normally look like. But we have just a fascinating conversation on Clear Wynn, which he has done a ton of work on. And I think it's a really interesting conversation. When I said I was going to have them on, I had multiple really sharp investors email me and say, I'm super excited for this one.

We've got big positions here. Obviously, nothing's investing advice on this podcast. See the disclaimer at the end. But I think it's just a fascinating idea. I think you're really going to enjoy it. And we're going to hop there in one second. But first, a word from our sponsors. This podcast is sponsored by Trotta.

Look, I've mentioned Trotta a few times. You're going to hear me keep mentioning them. Why? Because, one, they're a sponsor. But two, it is a fantastic product. I've heard from so many listeners who have listened to the podcast to advertisement, gone and tried it and have really enjoyed it. and have really enjoyed it.

Some of them have become maybe two frequent contributors because, look, Trotta is by side interviews that they turn into call transcripts. So you can use it in two ways. A, you can go use it to really quick, my favorite way, really quickly get up to speed on a company you're following that has an interview on there. Look, you're about to listen to a podcast on C-WAN.

Go to Try Trota, that's tri-T-R-A-T-A dot com slash C-Wan, and they've got a sample transcript up. You can see, you're going to learn a ton about the company if you read these. So that's one great way to use it. Another great way to use it is looking to get up speed, looking to talk to another smart investor, you can go be one of the people who does the transcripts, who does the interview and talk to another by-sider who they might be bullish, they might be bearish, they might

be skeptic, but whatever you do, you're going to learn a lot about the position from swapping thoughts with another smart, sophisticated by-side investor who's following the company. Look, I'm on there. You want to go talk some cable stocks? You want to go talk some beaten down biotech stocks? You might find me on the other side of your interview. People always say, oh, I recognize you by your voice. but I think it's a fantastic product.

I think if you try it, you're really going to enjoy it. So, look, go to Try Trota. That's T-R-R-A-T-A-A-com slash C-Wan. And you can see a sample transcript and kind of get to know the product for yourself. But I promise you, dozens of listeners have already tried it and really enjoyed it. I think if you enjoy this podcast, I think you're enjoying it too. So try trotta.com slash C-Wan and now to the podcast. All right, hello, and welcome to the Another Value Podcast.

I'm your host, Andrew Walker. With me today, I'm excited to have on for the third time. Show Mick, how's it going? Good to be here, Andrew. Thanks for having me on. And I feel like every single time we talk about, you know, very different stuff, right? First was Shopify, then it was Kelly Partners Group, and then now, you know, a completely different company. So it's fun to have a wide range here.

And not only that, I went and listened to part of the Kelly Partners Group for a second. I hate re-listen to my pods. I always have, you look the same. I have dramatically different hair styles. I had a real homeless beard then. But we're going to get there. Look, show me, I'm super excited to have you on because you're in that VC world, but we're going to lure you over to the public market worlds eventually because you do such

great analysis on these sort of stuff. Before we get to that, just click quick disclaimer, remind everyone, nothing on this podcast investing advice, consults, financial advisor, full disclaimer at the end of this podcast. Show me, the company we're going to talk about today is Clearwater Analytics. The ticker there is CWAN. You've done, I read your memo, I read the investor, you've done great work here. So I guess I'll just pause and toss it over to you. What is Clearwater Analytics and why are they so interesting?

Yeah, so Clearwater Analytics is, it's actually first, I guess we should start off with like what the legacy company is, which was, which was called Clearwater Analytics. Now they rebrand it as C-Wan. But Clearwater Analytics, as it stood, was started by these actually kind of failed fixed income managers out in Boise, Idaho, who ran it. And then as they were doing that, they actually had a reporting product that they were giving to their clients for, for. maximal transparency. And that led to actually the clients and other people being like, well, hey, we actually, we like that a lot versus like your fixed income investing. And so they actually went and stood up Clearwater Analytics, which is basically this

backend, it started off as a backend reporting and compliance automation platform, essentially, built cloud first, right? When they started, you know, AWS was out. So they built cloud first. And it just made it super simple to get, you know, when you have complex reporting needs of fixed incomes in different currencies, you know, loans versus bonds versus, you know, seek credit default swap, whatever, right? Like all sorts of different things. It can, it can report on them of where they stand, right? It can reconcile in different currencies. It can spread across all the different customers. So if one customer, like an insurance company, says, hey, listen, you know, this Q-SIP is actually, eh, something's wrong with it, right? They can go in and reconcile and push that across the whole platform.

So everybody who owns that bond or that, you know, whatever that is will have that, like, permeate throughout the whole entire platform. And that's really what's powerful about this kind of single source of truth, like cloud-based, about native platform. Now, that's where we're talking legacy, right? So that was a 98% retention business, gross retention business. this, you know, very sticky, customers don't leave mission-critical type of reporting and compliance software. We get to today, which is C-Wan. So now C-Wan actually has Clearwater

Analytics, right, which we just talked about. They then bought Beacon and Bistro, and then also they bought this other thing called Wilshire Analytics. And basically, that is their kind of alternative assets, quant modeling suite of things. And so, Basically, when you need to look at complex portfolios, you have a beacon, which helps you kind of model out those things. And then you have like kind of the risk analytics and alternative asset stuff in that suite. And then you have infusion, right, which is the largest acquisition to date. By the way, in total, they spent basically a third of their market cap on this, so $2 billion

dollars on these transformational acquisitions. And this was infusion. It was a public company primarily serving hedge funds. originally, then moved into asset managers. That business had traditionally actually grown quite rapidly, similar to Clearwater Analytics, where it was like 20% plus growth, was sticky software. They then started to move into asset managers and actually that degraded. And so all of a sudden the retention starts slipping from, you know, kind of call it, you know, 97% to 92, 93, 94%. And growth meaningfully slowed as well. And so basically, Clearwater saw,

the ability to take all these assets together, form a single end-to-end front office to back office platform, and go and serve their customer base better. And there's different segments that we can go into in their customer base. But anyway, that's what C-WAN now is. No, that's a great overview. And it's crazy, you know, reading the Investor Day and everything, when you do it, you hear it and I think it's the merger call that come on. And somebody says, well, congrats on three transformative acquisitions at the same time.

like, oh, you know, one transformative acquisition at the same time is something three at the same time. That's pretty crazy. I've got a lot of questions here. So let me just start high level. Look, the market's a competitive place. What are you seeing in the newly transformed combined C-Wand that you think the market is missing that makes this kind of a compelling risk-adjusted alpha opportunity? Yeah. So, so I mean, you know, it's funny because like normally I think we all like to start with valuation last, right? But I do think like part of what's interesting right now is the fact that the valuation is, in my opinion, quite compelling where it currently is. And the reason for that is, by the way, like, they just took on debt to make this acquisition, right? So now they are levered. They're paying down that debt quite quickly, but like at one point they were over 4x levered. And then on top of that, like, you know, it's a third of their market cap. So it's a big, big swing that they're taking. So that being said, currently right now, actually, you know, I haven't looked today, but let's see. I think it's like, Yeah, it looks like it's in the 19s, mid-19s.

So if you look at that, like kind of on an ARR basis, right, they're trading much less than the median that you would see in vertical SaaS, right? And so that's kind of interesting because like, okay, well, why would that be what's happening here? Well, it's because people are discounting sort of kind of where Clearwater stands. Now, in terms of my modeling, right, I have it out on like 2026, 2027 numbers is like 2.5% free cash full yield, 3.8% free cash flow yield going out. Those are quite compelling for a business that, you know, can continue to grow 20, you know, call it high teens to, you know, low to mid-20s for a pretty decent amount

of time, right? And so given that, that's where it's like quite attractive from the valuation standpoint. Now, why does that happen? The reason it's happening is because the market is just like, what did you? you guys do, right? You took a 98% gross retention business that was sticky that you were starting to show, you know, 115% plus net retention. So it was growing really nicely. And then you just put a shitty business. You put a shittier business on top that you're now saying you're going to transform, right? That I think is actually the opportunity, though, where so infusion, right,

Again, we talked about how it started with hedge funds, and then it started to move into asset managers. Where it started with hedge funds was actually hedge fund launches, or smaller hedge funds, right? So when you would launch, you need an order and execution management software. And so how do you place your trades? How do you make sure that they're compliant when you're placing them? How do you make sure that if you're buying them in different areas, the currency, like everything like that you need in one platform? That was infusion, right? And that worked very well for smaller hedge funds.

then as they started to branch out into asset management, they're actually profitability started to go down because they were starting to invest more in that go-to-market and more in the product to deliver that. But, you know, it just wasn't hardened enough. And so you had this weird thing where growth was slowing, right? Customers are getting unhappy because the product's getting more bloated. It's not, you know, moving us fast enough.

And then their profitability is actually slipping. So Clearwater is like, hey, listen, in our sort of end-to-end vision, if we take this and we now layer it on to our platform, we can now cross-sell and upsell, but also eventually completely integrate this, right, so that we can have this vision. And that, to me, is a compelling opportunity where right now all they have to do is shore up the gross retention.

And I say, oh, that's actually a hard thing to do. But, like, they've already actually taken steps to do that, and they've shown that 94% gross retention is starting to tick up for infusion. And so that's like, that's shoring just, the base. And then it's like, okay, if you get them to concentrate on hedge funds, you know, can you get them to start to grow from 13% to a little bit higher in a more profitable way, right? And then you start to cross-sell into the core insurance base and the asset manager base that that Clearwater already has. So that was a great overview. I want to get a bunch of things, but I

do just want to ask, so earlier on you said, hey, these guys are trading at an ARR that's attractive for they're vertical. I mean, I've kind of got them in the mid-19s as we talk September 18th, I believe it is. I've kind of got them at like 7x-ish forward revenue. You can tell me if you disagree or not. What would a good, what would a normal forward revenue company for a company like this? And I don't think there are perfect pure play comps here, but what would a forward revenue for something like this? What do you think it should look like? Yeah. I mean, like, you know, so like if you look at sort of the comps that I would say, I mean, I guess probably the closest you would get is like an app folio or like a pro core right where it's like they're each

growing call it you know 15 ish percent so actually a little bit slower right but they're kind of growing around there but like you know they've they've they've grown that for a while they have they have scale right um and and so if you look at where they're at right um they're basically right that sort of, call it, you know, 9x, 10x forward sort of multiple on error, right? But then if you look at like the broader set, like also there's a bunch of others, like in general, the average forward error right now, I think for, for kind of the vertical SaaS comps that I look at is like, you know, call it 13x, right? And so it's all a question of the, the quality of it.

Now, like I said, Clearwater is growing faster than ProCore and F4. portfolio, actually is higher free cash flow than them as well. And so really the negative is, is like, are they going to pull off this integration or not? So that's the key thing, right? It's like before people were very happy owning Clearwater, right, analytics, because they were just like, oh, we can under, we can underwrite it. It's very easy, stuff like that. Now you have this like, man, like, okay, is infusion going to go well or not? Like, what's this beacon and bistro thing? How is that going to integrate? Right. Like, all that sort of stuff. That's causing the noise. that's creating this delta between, you know, where the rest of, you know, the vertical SaaS

ecosystem is trading and then where Clearwater is. And by the way, comps-wise, like, you know, I put them in this bucket of like, like, Samsara, Viva, which would be like, you know, best of class, right, trading, trading way higher. And then you have like at folio, Procor, you know, guidewire, service tight-in. Those are sort of the names that would be in that list. And look, I guess the company probably agrees with your valuation math, too, because I hear two and a half percent forward free cash flow. And I think, oh, that's more expensive than most of the stuff I look at. You know, the last podcast I do, like, as I was prepping for this podcast versus the last podcast, I kept having to remind myself, well, the last company I did was, you know,

trading at two and a half times EBDA. So the answer to, hey, you don't like this asset, it can be, yeah, but it trades it two and a half times EBITO, whereas this trades for seven times driver. So it's like, it's good. It's just a question of how good. But I was going to say, I think the company probably agrees with you because at the start of this month, they announced a hundred million-dollar share buyback, and you generally don't see kind of levered integration, quick-growing companies announce big buybacks like that, I would say. Yeah, and I think also like the growth durability is something we would talk about, right? Like, I mean, you know, you look at waste management companies. It's like, I don't think any of us would say they're trading at cheap valuations,

but for their durability they are. Well, the growth durability, actually, that's where I wanted to go next. So there's two things I want to talk about. I think the simplest one to talk about, we can start with. And that's how sticky is the product, right? And I think there was a call on Trotta, the sponsor of this podcast, where it was a bull and a skeptic. And the one thing, I think it was the skeptic who said, hey, I was at a company that tried to rip out a competitor of products. And it was hell, if I remember the correctly. So this is a very sticky product. Like once these get integrated into the back end, but I'd love you to just quantify how sticky. You can throw an end and it to go, but let's talk about the stickiness of this product to start. Yeah. So, so first,

First off, I think we should kind of say that in general, everybody in this space is sticky. So who are their competitors, right? Their competitors are, well, the biggest is Black Rock Aladdin. They, you know, built this for Black Rock internally. When you were mentioning that this was started internally at a fixed income product, my first thought was Black Rock's Aladdin started internally. So this is really where people like dog fooded their own product. It's really funny how this whole industry grew up that way.

Exactly. Yeah, it's crazy. So, like, Black Rock, you know, Black Rock's Aladdin is like, you know, I would say best to breed, right? And they work with the largest, largest, you know, asset managers, sovereign funds, all that sort of stuff. And then you have like B&Y, which has Eagle, you know, State Street, which is Alpha. And then there's a Deutsche Borch, which is a European exchange that owns SimC. And then there's SS&C, right? Now, SSNC is actually kind of probably the most direct competitor right now to Clearwater.

and they're just a complete shit product, right? They're a share bleeder, right? Like, you mentioned this is, they mentioned on their call. Like, S&C, it's a legacy product. They update it once a year, once every six month. This is cloud, right? Like, these guys are cloud, so it's updating every day. But please continue, I'm sorry to come here on.

What's funny about SSNC, though, is it's a share bleeder, but not actually when you look at the gross retention numbers of SSNC. So they actually have, like, still fairly good retention, right? because like once again like it's just it takes a lot to change these systems right which is the pro and the con right because it does take longer sales cycles to make that change but then the question is like well what's the impetus to change which we can get into but like right now the reason why they're a share leader is actually just because like they they're retaining their current customers but they're not able to win the next customers right because of the fact that everything's changing with alternative assets transparency that you need to need, risk modeling, all these sort of things, right? So that's kind of a dynamic. One, everybody has really good retention, right? The other dynamic, which is kind of crazy, is like, so Aviva, which is an insurance

or what's a large conglomerate of stuff, right? But they have an insurance arm. They are, I think, I believe, one of the largest customers of Clearwater analytics. Funnily enough, Aviva wealth management is one of the larger customers of B&Y Mell and Eagle. So that's kind of weird that like within this thing, you have. you know, they're, they're buying two separate things. But that becomes like, you know, with B&Y, they can package in custody deposit solutions, you know, all that sort of stuff to, to the wealth management side, right, of the ETF. Meanwhile, the insurers, right, like,

what are they doing? They're buying fixed income. They want to make sure that they're compliant, that they're reporting on time, things like that. And so that's like the best solution that they can get is, in this case, Clearwater Analytics. And so that's where everyone is going to retain really well. But now the question is, who is going to take share in that world, given that retention is high, right, across the whole base. And that's where actually Clearwater's vision is kind of compelling, which is the sense of they are saying, hey, listen, we are truly the disruptor cloud native first, you know, kind of person that's taking on the incumbent. By the way, Eagle, SimCorp says they have a cloud product, state tree alpha. but they're mostly on-prem and then the jerry rigs some, like, cloud product on top of that, right? So it just doesn't work the same that a Clearwater analytics works or a Black Rock's Aladdin.

Those are the best of breed in terms of like where they play, right? And so now the question is, well, what's the trend? Okay, there's a couple trends. And one, there's some that are short term and some of our long term. So short term, specifically for Clearwater, like probably 50% of their base is actually insurers, right? Yes, they serve asset managers. They have, like, Apple and, you know, intuitive surgical and whatever on the treasury side. But, like, really, most of their money comes from, you know, the insurers.

And when you think about that, the insurers, you know, they're mostly investing in fixed income. And so the national, it's the NAIC. I don't even know what they're called, the National Something Association of Insured or whatever. They set this policy that's the first time in 30 years that made this change to the classification of fixed income. You can no longer just use like Moody's and S&P rating. to say, hey, this is like in this bucket, you have to kind of take into other factors and they have a whole series of things that you can read through, but you have to take into these other factors of how you classify it. Now, guess how to actually classify it? That's freaking hard, right? You either

need to have a team, you need to hire more on the back office to go and do that reclassification or you use a Clearwater or some sort of system or an SS&C with their services arm, right, to go and get you up to speed. And so that right now is professional services work for Clearwater, like this year, because it was implemented in January of 2025. But that's also a tailwind for people who are realizing, like, holy shit, our on-prem legacy system does not enable us to do this in an easy manner, right? And so that's where Clearwater can now start to take more share because of this trend, right? The other trend is alternative assets, right?

Private credit growing like crazy, whether it's sustainable or not, who knows, but like it's growing like crazy. right and then on top of that PE VC you know all those sort of investments and so once again like those insurance companies or asset managers who are doing it it is very hard like on the venture side right like we used SS&C at a previous fund and we it took a long time for us to you know actually reconcile the books and get the the get the quarterly reports out let alone the investment team trying to ask the back office for specific data cuts right and so that's what we were asking for, for like, hey, what's our risk or what's our exposure in, in infrastructure software?

Yeah. Or Germany, whatever, right? And to get that, the back office team would be like, well, but like, we're trying to do the accounting. We're trying to do this and trying to do that. And we're just like, guys, but this is how we make an investment, right? Like, you know, and there's this, there's this infighting, right? And so we actually stood up at a par, which is a private competitor specifically for

focus on alternative assets. But we stood that up and was really interesting. is going through that, I can tell you I'm just never going to rip out apart, right? It would just, it took so much time to get it right. But once we got it right, oh, my God, the investment team could go in for the first time and just have all these different data cuts and slices and things like that. And meanwhile, the back office team was like, oh, this is amazing. I don't, you're not bothering me.

I can just focus on my job, right? So that's the efficiency that you're getting out of these platforms. It's one of the things they talked about, hey, the hedge funds, like I think said, hey, all you hedge funders, you guys think you have better risk. models than are off-the-shelf stuff, better, all these type of models. That's great, but our underlying data is going to be better than yours. So all these guys build their models on top of their underlying data. And then, you know, if you've ever built, all my Excel models are built on Bloomberg. Guess what? It would be really effing hard for me to switch

Bloomberg. Like, that's the main use of Bloomberg for me these days. It'd be really even hard for me to switch out because all my models are built off Bloomberg's. Like, if all the hedge fund models are built off the data coming from them, and I love they had that, you can talk about it if you want, but they talks about their data mode. I absolutely love that. We can go to the back to that in a second. I do want to ask one quick question. Okay. You mentioned Aladdin is the best of breed product for generally the largest of the large firms. You and I tomorrow, we launch Show Mick and Andrews, you know, fund of funds or whatever it's going to be. And we take a huge position in Clearwater, which is obviously a great success,

and we use it to go from, we launched with 100 and we use it to go to, you know, a trillion dollars in asset under management, right? Are we going to switch over to Aladdin at some point because now we're just this massive person, or is it so sticky that, you know, Clearwater, yes, we started 100 million, but we're going to keep with them. So they're just going to, as their customers kind of grow, they're going to just grow with them, even though Aladdin is kind of the best of breed super large product. Does that make sense? Yeah, it makes sense.

So it depends on if we're talking about Clearwater or SeaWam, right? With Clearwater, you would have kept Clearwater in that instance because you would still be using their back office because it still can scale, right? And so you would still be using it because it works. It just, you know, the team's used to it. They're trained on it, stuff like that. And then you would look at whether it's Aladdin or whether it's Bloomberg for the order or an execution management side or, you know, other, there's other solutions out there.

But like at that scale, it's basically like a Bloomberg or Aladdin. And so you look at other solutions in that area. What's interesting, though, is with C-WAN, right? now that this is the N-10 vision, right, which is like, well, hey, as you are scaling and you're starting to now invest in more complex products, right? Like, let's say you start to invest in a bunch of derivatives. You need an order and execution management system for that because it's not as easy as placing like an equity trade or like a bid on a, you know, Coca-Cola's bonds, right?

Like, it's just, it's more complex. And so you need a system, right, that on the front office side. Then on top of that with the derivatives, you need to understand. your risk, right? What's the delta, gamma, beta, whatever, all these sort of factors of that risk. So that's where Beacon and Bistro come in. And then that's where, you know, legacy clear water, right? I hate to use the word, like, you know, the former Clearwater, right, analytics. That's when that comes in onto the back office and middle office side of like the investment accounting. So they're actually, that is why they made this move is because they're just like when those

clients start getting bigger, especially as they move more into asset managers, right? That is something that they want to not give up that share to somebody else because they're just like, we've already earned the trust of the customer. We, you know, we're embedded in them. We've shown them we can scale. And so now we can truly deliver this end to envision, right? That helps them. But as of stance today, you are correct that at some point, as they got to scale, they would look for a different OEMS, which is the front office. And then on the middle office, you know, kind of risk modeling side, they'd look for a different solution as well. Let me, so this company has historically been a 20% grower.

You know, they buy infusion and they, I think they say in the inverse say, hey, they historically grew faster us and then their growth. They took their after bar and their growth dipped to 12%, you know, having forbid. But let's just use the 20% number. It's not, maybe I'm too public markets focused, equity focus, but, you know, it's not obvious to me why this is a business that is growing 20% long term. Because underlying, like, the world has already been very financialized, right? Active public investing is shrinking, not growing.

Now, there's plenty of growth spaces, but, you know, it's not clear to me why they can grow at 20% because, you know, it seems like everybody's already got some of this. As you said, the products are completely sick. I just don't understand why they're growing. So, like, where is this huge growth come, especially, they were smaller historically, especially going forward. Where are they this huge growth for continuing to grow at 20% going to come from? Yeah, so a couple things. One, first of all, in the end market of hedge funds, right? I think you and I both agree that, like, that's probably not sustainable 20% growth over a long period of time.

Especially if you were originally focused on these smaller hedge funds that were launching, right? I think there's, you know, I don't know the numbers today, but like I imagine it's significantly down from, you know, 10 years ago. Look, no, I mean, again, maybe I'm two public market poses, but everybody knows small hedge funds are a dead and dying breed because for a lot of them are just going to the big pod shops right now, right? So if they're going to the big pod shops, that's some growth for whoever the big pod shops manager is, whether it's CWAN or someone else, but it's not 20% plus growth. And, you know, it's just incremental growth. And it's hard for me to see how that can sustain. Yeah. So that's really where it comes to this, you know, you almost have to bet that the P mindset, right, goes into optimization mode, which is like, hey, infusion, we're going to

optimize the hedge fund component to be profitable, you know, it'll be a call it a maybe, maybe low teens grower sort of type of thing. But we're just going to make sure that that's like short up and could be profitable and cash flow well. Maybe we can also cross sell some of our solutions into that, right? But it's not necessarily going to be a massive thing, right? In my opinion, that's not how I view it. On the insurance side, I think that is still a large market. Now, they, you know, I don't have exact numbers, but again, 50% of their base is, is, you know, insurers. And, you know, within the U.S., I would say they're, like, pretty well penetrate. They're not saturated yet, but they're, they have a good name.

They have a good brand. They're out there. Now, internationally, it's completely different, right? In Europe, APAC is a complete wild west. No one's even, like, that's wide open, right? And Europe is still pretty open as well. And so that's where, you know, actually Infusion had a lot of European presence. They bought this jump technology in France, which had a French presence, right?

They're really been focused on how do we get more of this presence in Europe to build this out because then those insurers, by the way, are actually longer running than the U.S. insurers because like Europe just has unique aspects around insurance. And so that's where they're going to get growth from, one, expanding internationally into those insurers with this whole vision, right? They just announced a German insurer that they sold all the components to, the full C-Wand platform, but also alternative assets for those insurers, right? Because they need to understand the risk. They need to understand the reporting, stuff like that. That's how you upsell Beacon and Bistro and the risk analytics modules onto that.

And then you have the asset management business. And so that's really where like the growth engine will be is like, can you with this end-to-end platform start to penetrate more of the asset managers and asset managers are still growing globally, right, as we talked about because it's becoming more, money's becoming a bit more centralized in that way. And so you have these more of like, you know, call them enterprise to, you know, small enterprise to mid enterprise to large enterprise. Now those large enterprise and mega enterprises, that's when you're going up against Aladdin.

and you still got to do a lot of back-end integration work before you can enter those conversations. But for those small to mids, that's where you can play in. And your pricing is more attractive than a BlackRock. The insurance sector, I mean, the size of the insurance sector literally boggles the mind when you start thinking about it. But there has been a big trend. And again, insurance is so big, it's harsh call. But there's been a big trend. You know, every private equity firm wants their insurance, they're captive insurer to invest in private acquired off of, basically to mine their balance sheet, right? They pull the Berkshire Hathaway. You know, Apollo bought Athene is the model everybody's going after. How does that play into

Clearwater? Because I could imagine two things, right? Lots of room for expansion. Your insurance company gets bought by a private equity firm and you just go and say, hey, why don't you just start rolling this out and we'll use our solution? And I still wanted to give the data fly while certain second. But I could also imagine the other where the private equity firm says, hey, we're the largest, biggest of breed as we buy these insurance companies. Yeah, it's multi-year ramp, but we're going to start putting them all onto Aladdin or, heaven forbid, our own internal product. How does that kind of play with that? And you can say, look, insurance is so big. It actually doesn't really bunch the needle either way. Yeah, I mean,

I guess I would say, like, there's so many people that have tried that very few have succeeded. So that's one thing just in general. Like, I think Apollo is certainly a standout with what they did with Athene. But also, like, you know, it wasn't easy for them either. Like, I've listened to a bunch of podcasts with them explaining like how it went through and like it was just really challenging for them to get that business turned around because it also wasn't like the best run business when they bought it either. So, um, so I think like a lot of other people are trying to do it. I don't know how successful they'll be just because of how hard that, that is and a different mindset. Um, you know, when we look across like who has done it well, like, I mean, you basically have,

I mean, Markell's not even doing that great with it, to be honest, like in terms of, um, in terms of their specialty insurance arm. You have Berkshire and you have Fairfax, right? And then you've got a couple others are trying to do this mini thing. But like I just haven't really seen it be besides a trend that people are all talking about as permanent capital. I just haven't really seen it take off in a way that would affect my underwriting of

Clearwater is my. Let me switch a different question. So when I said I was going to have you on the podcast, I had two really sharp software investors who I know, both you have good track records, long short, like you would email me and say, hey, I'm really excited for this podcast. This is a big position for me, right? Two guys who, when they say they've got a big position software,

I generally like drop something, especially because whenever I've run something by them and they've been like, I don't know, like they've caught red flags I've missed. But so I've got them to plus you, right? I've got the three musketeers selling me this is an interesting long. I read this. I'm like, yeah, I get it.

Great growth runway, buying back shares, integration. But then I look and I see June 16th, 2025, 5, WCAS, one of the private equity firms here, selling out basically their whole stake, right? And at the investor day that they recently had, they say, hey, a couple of years ago, the knock on our stock was it's too illiquid, there's super voting shares, the private equity firms control too much. That's been solved. All the private equity firms are gone, and I'm kind of looking around saying, oh, well, it's nice that the shares are more liquid, but why is private equity running for the door? So I'd love to just ask you, why is private equity running from the door here? Yeah, yeah. So a couple things. One, that was definitely actually an overhang, right, that they were trying to get rid of. That was an active thing that they've been talking about for a while. The other thing is actually ironic. Well, this is actually a pro and a con. The pro is like, yes, they've sold their shares. And so you could say they're running out the door. The con is actually, they're not running out the door because they're all still board members. The part that sucks about that is like, you know, so the way they're comps, right, and their proxy statement is wild. Like I still don't think.

that this is the best way, but they're literally comped on like 18% growth. You get X, 20% growth. You're not the only one. You're not the only one who's pointed this out to me. Yeah. And then 20% plus growth, you get, you know, you get some kicker on top of that, right? And so that's why you can see them. They're very focused on this 20% number. No shit. Because like, that's how they get comped, right? And that's, I wish that wasn't the case, right? The whole comp committee, by the way, is all PE guys. So the CEO was former at WCAS. He was an operator there for a number of years.

So he joins, there's, there's, I think, two or three members of the board from WCAS that are on the audit committee as well. The other people are Premierer, I'm forgetting the other, but there's four private equity funds, and like all of them are board members, and all of them are also on the comp committee, which is just like, what the heck, you know? Well, look, private equity, if you follow them, the one thing you will see is when they are on a board, they try to control the compensation committee. Like, invariably, I think I've heard from some more like corporate governance people, hey, the chairman's got a lot of power, but it's really whoever chairs the compensation committee that drives the most influence. So it's not loss of me that they're on that.

But please continue. Yeah, well, but I think that's like, so on the one hand, like, yes, they're very thoughtful in terms of incentives in terms of what drives like shareholder returns. right, because that's like what they're going through. But, I mean, at the same time, that just kind of, the fact that there's still so many P.E board members is kind of rubs me the wrong way. They are trying to diversify that, right? They added a former insurance leader, actually, from APAC onto the board. And they also added someone else, I'm forgetting.

But so they're trying to, they're trying to focus on building that. But like, again, if we go back to, okay, so they're incentivized to grow 20%. So one, like, by hook or by crook, right, they're going to grow 20%. And, you know, not the crook part, obviously, but I'm just saying, like, you can also get a sense for why, like, acquisitions might make sense as well, right? Which might be the bare case is like, well, then why are you doing this, right? That being said, like, I think given what we talked about of like, hey, as your, as your customer start to scale, like, will they stick with you? Well, yes, they'll stick with us, our core module, but like, you know, then we're fighting for the share against others, like how much pricing do we have, all that sort of stuff, you can see why

the vision makes sense for them to make these acquisitions to go after this end-to-end platform. I think a big thing, by the way, that we didn't talk about is like a significant portion, again, insurance companies mostly are going to be fixed income, right? Asset managers are still also going to have a decent amount of fixed income, and then corporate treasuries are also going to have a decent amount of fixed income. And so when you look at if we actually get three rate cuts this year or and some next year to get to some more normalized thing, what happens when, you know, rates go down, assuming that inflation, you know, is kind of steady, you have the long end fall as well, and prices go up, right?

And because they have an AUM pricing model, they take, basically, it's half of a BIP on AUM, you actually get this component where rate cutting cycles help in multiple ways. One, you know, software, longer term, cash flow durability, all that sort of stuff. So, you know, the software multiple will go up, but also literally their revenue will, their net retention will go up in the investor. They have a slide where they kind of break down how it's made up of. And they say like, you know, call it two to three percent is this AUM pricing. I think actually that that is, I think that will be higher in a, in a, you know, in a rate cutting cycle, especially depending on like how quickly those rates get cut and just sort of how bonds react. And so that to me is where,

like you can you can look at this 20% grower in the near term right and say like hey you know what I think core clear water's actually got some upside to what they put out in their numbers and then the question is well now like what does infusion do well again infusion they've said hey it's going to grow 13% you know kind of we're going to keep it steady but if they can fix the leaky bucket then all of a sudden that 13% right because if they're just adding the same net new air are they're not you know they're not increasing or anything if you change if you stem the leaky bucket then actually that leads to growth, right? So you can all of a sudden start to look like a 15% grower than a 13% grower by stemming that. I think the AUM point's really interesting

because, as you said, this is super sicky business. You're probably only getting ripped out every handful of times when a client grows so large that they want to risk the switch to a better product or, you know, unfortunately, small hedge funds go bust and, you know, a company goes bust. But aside from that, churn has historically been about 2%, I think they've got. And then as you said if AUM, and ignoring the near-term boost of the rate cuts that you're suggesting, AUM and asset managers just tends to go up because it's a nice thing. You know, people say you go to the casino, you pay the Vig to the casino, you invest in the stock market, the stock market pays the Vig to you.

AUM goes up. So you almost have a naturally, you know, NRR should naturally be over 100 as long as you're not just like bleeding share is really interesting. But let me come back to the private equity firm. Yeah. I just want to hit on that point one more time. I mean, again, I've got smart friends. who are looking at this. They do these deals. I'm surprising when I look and I see, I mean,

there were Class C shares and all this sort of stuff, so I don't know if the insider sales or stuff, but at least 500 million, probably well over a billion dollars of sales. I mean, this is 20% of the company getting blown out by these private equity firms over the past 12 months. I'm a little surprised by that. Now, the story has changed, as we said, three transformers, but I'm just surprised that private equities, you know, we can talk about sticking the board members on here, But I'm just surprised that they're letting go when, like, I'm seeing this attractive future here. Like, why aren't they stuffing it into a continuation funder? Why are they trying to retake this thing private?

You know, why would you sell when it seems like you've got this long runway here? Yeah, I mean, I think I, you know, this is where it's like, unless in contact with a private act, it's hard to know how they're thinking about. But I do think this is where I take Sondip at his word, the CEO, because he was a former private act, guide and he was just he has basically stated that like you know the put the biggest pushback was like well when are they going to you know so called get off lockup always yeah always and you know we we deal with that adventure a lot right it's like when's the lockup going to end who's going to sell what what's the sailing schedule things like that these guys actually held the stock for quite a long

time right considering that it was public and and they continue to hold it um it wasn't just like a hey lockup came and they sold right they continue to hold it so i do think like this was an orchestrated thing from management saying, like, okay, hey, let's like, let's start to sell this down. You know, there's different components to it. Like WCAS owned it for the longest, you know, they've reduced their position sizably. Again, some deep came from there. So that's where I think like, it makes sense to me that he would be like, hey, guys, I need you to like start to clear this out. So I get rid of this overhang. Permira though, right, still owns actually, they're still the largest private equity owner in the public markets. I think that was actually

because they were one of the later investors as well. And so there you do have this dynamic where, like, sure, everyone's selling down, but they're not selling down equal amounts of their stakes. Like the people who've been in there from the earliest and who the CEO came from, they're like, you know, for whatever reason they sold, I seem to think that that's because management told them to, right? And then Premiera is still like, well, yeah, we're going to sell, but we're still going to own, I think they still own like 3% or something of the shares.

of the company, I mean, because they still believe in the upside, right? So I think that's where puts and takes to that. I don't know if we'll ever know an answer besides if you know the private equity folks directly. No, I mean, I would guess because I think this IPOed in 2000, did they IPO in 2021 or is that when WCS made their investment? Yeah, yeah. I would guess, I mean, we're four years on.

I would guess WCS was kind of coming up on end of life, but it's still, it's still strange to me. I hear you all on all of that, but it just seems like you've got a company, this great run rate, but, you know, they're private equity from them. They could have been coming up and they're like, I'd love to quickly return. We've mentioned a few times, but I love, I hadn't even thought about this until I read your stuff and I started reading the Investor Day transcript, but, you know, they talk about how their data is going to be superior to their client's data. Do you remember the story? I'm happy to lead you into it if you want. But yeah, you want to tell that because I think it's such an interesting piece. Yeah. So, I mean, so I think like, In general, like what we like in software, right, as software investors, and we want to bet on system of records, right? And this is why I like Salesforce CRM is still such a big component of their business, because like when you become the system of record, you just get this data mode, right? It's not just even the data that's getting logged from like, you know,

you logging, like Andrew logging, hey, I, you know, I'm going to talk with ShowMick on this date and so on and so forth in the system and some notes behind that. But it's also all the other systems that are going to integrate into that, right? and transfer data in because it's because you become the system of record, and so things need to connect to it, right? And so in general, this is what we constantly look like. When you find these system of records, you're like, oh, my God, yes.

You know, this can compound for so much longer than anybody thinks, right? That is 100% the case in all of software whenever you get this. And that's what Clearwater kind of at least middle and back office solution is, right? It is a core system of record where you get this. data reconciliation, you get all this fixed income, alternative assets, everything all in one place. And then again, you have this use case of, okay, well, someone has an error. Well, that permeates through everybody, right? That's really big because like SS&C does not have that. Because Advent and whatever their, you know, alternative asset solution is and stuff, they actually

don't talk. And I've dealt with this, right? SS&C has a, it pays, you pay them a shitload in services because they actually go through and they're doing the reconciliation each time. between their disparate back office systems, right? And so that's really key to this story. And what happens is now, if you can get this where from trade execution, right, to risk analytics modeling to now back in reporting, you can get one Q-SIP to flow through all of that. Yes. That is a really, really rich concept, right?

Because you know end to end what's happened with that security in your whole life cycle. That is very powerful. And it's powerful in so many ways. I've just said like, A, your audit costs go down, right? Because, yeah, nothing on this podcast is invest advice or tax advice. But, you know, your audit costs, if you're doing it the old way, your auditors need to go and pull individually each Q-Sub and look at the summit. But with this, like, they're basically already handling it.

So they're just getting an Excel spreadsheet. You can do it. And I know I'm simplifying a little bit there. But you can just imagine all sorts of ways or, you know, for your risk, as you said, if you're looking and you're managing a heck of a lot more, you know, your show McNandrews fully realized trillion dollar asset manager, it's very possible that one provider reports the German currency position wrong and you think you have 5% exposure to Germany when you actually have 10%.

And that's a disaster when you're running a trillion. If these guys are fixing it, they're fixing it across systems. Like your systems are always just a little bit better, a little more integrated. You can just imagine so many ways that it's an improvement. it's a cost reduction across multiple angles. It's just, and I understand this isn't unique to them, but you can see how that's flywheelish and how that's encouraging people don't do this internally,

push this externally, how it makes this much stickier and how they can kind of say, hey, switch to us. It's one basis point, but it's going to actually save you quite a bit of money, whether it's external compliance costs or internal headcount. Yeah, and by the way, one thing we haven't talked about with all this data, right, is like naturally what feeds well off of data, well, modern AI.

Oh, actually, it's funny, said that I had minimized. My questions are my left side of speaking, which I minimize my AI thing, but they are pitching that they're a huge AI and a benefit of yours. Well, okay, so a couple different ways. One, first of all, how is AI currently affecting it's, by the way, kind of similar to how AI is affecting kind of everybody in the market currently right now, which is like mainly customer support, R&D, and just servicing your customers, right? And so that's what we're seeing right now where they are, you know, they've said, and

and they've been able to do this with like, they've been leveraging G&A. Now, obviously, with the infusion acquisition, that's different, but they're going to get some leverage on it pretty quickly because of stuff that they're doing on the AI side with call transcripts with, with when to route certain reconciliations to the India team or not, right?

Things like that. And so that's kind of where currently would stand, right? And that's going to be like, that plays really well into the P-E margin efficiency sort of story. But like where I get excited, right, is not necessarily that. Like I care much more about the great. growth, the side of the equation. And for me, the growth side is where I get interested because what AI is actually quite

good at doing is taking documents like OCRing documents, right? So like you said, you get a PDF from an investment manager. And it's got like a bunch of line items and it's got like, you know, German currency and this and that and blah, blah, blah. And taking that and inputting it into a system is really hard to do, right? It just, it's manual work. It's nobody likes doing it and stuff like that. And so right now it's like, okay, you have your team.

India that goes and uploads it and make sure it's doing that. But like, if you're able to leverage AI, one, you get efficiency on that side, but then two, also, now the AI has context of those documents, right? Where they're stored, where it's, you know, what database it's in, things like that. And you can start to now run agents on top of that to do different, do different things. So for example, let's just say you're like, hey, you know, imagine a query, a prompt. That was just like, I want to understand all of my exposure to Germany, right, or to the German currency across my entire asset base. And all of a sudden now, that can look at German equities,

that can look at German derivatives, that can look at fixed income, that can look at real, whatever, right? Everything across everything and start to give you a report and say, hey, here's where it breaks down, things like that. That is so freaking hard to do because right now, if you were to do that, there's only two ways. Either one, you pay professional service, is the Clearwater to have their team spin it up for you and do that. Or you hire an in-house team or essence and C or consultants to go and build that out so that you can get that view. And this goes to where I think like, you know, we talk a lot about like back office and margin efficiency and stuff like that. But like as me and you know, like a lot of times

we're just trying to understand like the portfolio analytics so we can manage our risk so we can make decisions off of that, right? And especially if you have this massive book across these different assets. It's really hard to do that. And so now all of a sudden, the investment team can make better decisions. And I'm telling you, when you can sell to the investment teams, like to the CIO, right, instead of the CTO, you can unlock actually more dollars and more ACV off of that because all of a sudden it's like, hey, I'm actually helping you make better investment decisions. It's like the equivalent of like I'm being a revenue driver for you versus a cost center. Yes. Yes. No, it's a great point. Let me ask with one last question. And we have talked

this podcast about, hey, these guys trade cheap on an ARR versus some of the peers. I think you think they're probably better than a lot of the peers that they trade cheaper than right now, right? What would a fear evaluation here look like? Because here's the crazy thing. Everybody knows Excel. If you plug in 20% revenue growth forever and these guys say, hey, our long-term growth algorithm is 20%.

Well, guess what? They should be valued more than the entire U.S. economy, the entire world economy. Obviously, that ends at some point. But how do you think about like a fair valuation? Where would you have said, if I had emailed you this morning and like, show me, I'm so excited for the podcast and you said, actually, Andrew, when you ask me if it's a risk addressed it out for opportunity, I'd say it's fairly balanced. How would you think about a fair value here? Yeah, I mean, you know, I kind of look at like, again, I look at more of like, okay, well, based on the comps, I actually wouldn't look at ARR in this case. Like, ARR, yes, like, it's great, but ARR is also hard because toast, for example, has payments in their ARR, right? So, like, gross profits actually much easier kind of multiple to go off of just because it's more.

normalized for everybody. And so if you look at gross profit multiples, you can kind of get to like, hey, this is where I think, even if you cut out like the samsars and the vivas of the world, like cut those out because they're so good, right? Like here's where, uh, where it should trade at. But the other thing I think is, by the way, like, we don't get this often in, in software. So it's kind of funny that, but like they actually do have free cash flow. Right. So, so, um, so I think like this is actually one you can run a DCS, DCF on. It is sensitive then to your, you know, the, the durability of like that growth. But I think like for me, as I look at, I'm like, hey, two years out, I would pay like 30x free cash flow for this, right? Which, you know, what is it? One divide by 30 is. 3.3. Yeah,

three foot. Yeah, exactly. So like 3.3% free cash flow yield, right? Which I think equates to like something in the, it's like the, you know, mid-20s share price or something like that, right? And so like not like crazy in terms of like I think that's actually still a very reasonable price to pay. That's hence why I'm like excited about today because like I'm like that's a reasonable price to pay for something I think has longer durability than the market's currently factoring in. And so like even at that price, right, I'll make a really good return IRA wise because like it's starting to compound this way. And like I've thought about, you know, you can put in all your assumptions and things like that. But, like, I've penciled out, like, in the middle of my range that, like, you know, I think you look at, like, 25% plus IRAs from, like, this current, from this current price

at, like, 19.2 or whatever it's at right now. Which is probably why those smart friends and you, those smart friends were emailing me saying, hey, I've got big position, clear water. Look, this is been great. I have a hard stop at 3 o'clock, though, so we're going to have the end here. But I've enjoyed having you on for the third time. You know, we're going to lure you over to the. public markets one day, and then you and I will just be doing a podcast once a month on the

best undervalued growth growth stocks. It's going to be awesome. Third time, fifth podcast, get the AFP shirt. So you've got that to look forward to. But show me, Gush, it's been awesome. Looking forward to chatting again in the near future. I'm lucky it to. And by the way, I know, I know Trout as a sponsor of this, but like, you know, love the work that they're doing. The Bull Bear sort of debates that they have is really cool. There's clear water call on there, but there's also a bunch of others I've enjoyed looking at. And so, like, definitely check it out. Well, my check's in the mail. I'm sure your check will be in the mail soon. I just, you know, I know, I know there are spots. So I got to help you plug up. But,

uh, but, uh, it's actually a pretty cool take on, on, on, on kind of expert call. So I, I appreciate. But dude, it's so awesome to do this with you. Um, and thanks for just, you know, doing all this. Like, uh, I will say I got from, from, uh, from Chris Waller, I got, uh, tara vest, right? Uh, when he came on, uh, and, you know, that ended up being a quite nice return for me over the past two years. And so, so, you know, I love you. Have you reached out to Chris? I'm going to put you in touch with Chris. I haven't. I haven't reached out of Chris. Chris is awesome. Cool. All right, man. We'll talk soon. I'll see. Andrew. A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during

this podcast. Please do your own work and consult a financial advisor. Thanks.