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The winner: Markit Group

So where did it all begin?
Rewind to the nineties and the start of the growth of the credit market. At the time, banks and investors in credit and its “derivatives” would make private trades (the so-called “over the counter” or “OTC” trades) with each other for these products. Because they were private deals, no information was shared and it was therefore difficult to get accurate prices. Uggla, then a top executive in the credit pricing world at Toronto Dominion Bank (TD), saw that, as the amount of transactions was growing fast, all this information needed to be consolidated and turned into an independent database.

He went to his superiors at TD and proposed this as the basis of a new business venture. He would start with the database that had been built around TD’s credit trading operations. The bank would supply the capital; Uggla and his small team would develop the plan. TD made it a condition that, in order for the new venture to be able to spin out of the bank, Uggla had to find at least another eight banks to support the idea and invest.

This was at the height of the dotcom boom, but by the time Uggla was pitching to the investment banks, the crash was happening and the banks were reining in their investments. Only five of them were interested. It was not enough to be certain.
Uggla regrouped with TD. They came up with the idea of offering each bank an option in Markit. In exchange for providing Uggla with the requisite data and technology, each bank would effectively receive a free option that could be exercised by investing after 12 months.

If Uggla and his team were successful, the bank would want to take up the option and invest. If not, the banks could either just carry on providing the data or pull out entirely.

“We went out and tried that,” Uggla recalls with a grin. “We got 12 yesses. They took up their options and we worked our butts off for the next year to make sure that the company was successful so that, when the decision came for them to invest in 2003, they all funded.” This raised £25m, paid off TD’s debt and gave Uggla a whole new set of shareholders. For a two year old, this was equity finance on a grand and complex scale.

So, in effect, Markit has had two distinct iterations. The first was the 50/50 venture between Uggla and his loyal former employer. After the 2003 reorganisation, the banks (including TD, which had agreed to dilute its share down to the same level as the others) owned 67 per cent; Uggla and his employees owned the rest. Crucially, Uggla had the platform for growth: “We had a valuation, 40 customers, the data and 13 banks as strategic partners. From then on, we had a competitive edge.”

With the quality of Markit’s data assured, other dealers and banks were confident to supply their price data. As the credit market grew explosively, even more data was generated, which then had to be refined and packaged. Markit was able to start creating indices, enabling traders to get further valuable insights. Markit’s ABX.HE
– one of several indices that it has created – is the most important barometer in the sub-prime market. The credit market now accounts for 40 per cent of Markit’s business.

With data collection and dissemination as the first plank of the business, Markit started to use that data to provide independent valuations for hedge funds and institutional investors. “This is now a very big piece of about ten to 15 per cent of our business,” says Uggla.Acquisition also plays a central part in the strategy, with Markit buying several firms each year. And that pace is expected to continue.

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