I am walking down the isle of a trading floor of some JP Morgan, Goldman, or Deutsche Bank, and I am thinking of words that start with “H”.
They are all very theatrical and improvisational. Axes to hit, scissors to cut and fences for hedging.
I am now looking down my list of InvestTech startups for companies that start with “H” and most of them start with “Hedge…” and are focused in the hedge fund asset class. Some mirror trading hedge funds, others online fundraising platforms for hedge funds, networks, analytics, and research. The only one that doesn’t belong, is Hedgeable, not because of its foldable name logo but because it is a next generation robo-advisor that doesn’t even use hedge funds in its asset allocation.
The hedge component alludes to their focus on risk management and down side protection.
This is accomplished without any short selling, any derivatives (no futures, no options). It is a Long-Only dynamic portfolio design with a rich variety of assets to pick from. One of the founders (Mike Kane) with whom I spoke, knows this craft from Bridgewater. He brings the same high quality quantitative approach on the Hedgeable online platform.
Hedgeable is not a believer in “Buy and hold”. Their portfolio constructions result in a greater variety than those of Vanguard and their focus is on providing a sophisticated product offering. They seek true investment partnerships with advisors, lawyers, trusts, and other pooled assets like IRAs, 401ks, etc.
They prefer pre-tax, sticky pools of assets rather than taxable retail accounts that behaviorally are actually disposable income.
There are a couple of features of their offering that struck me as “alternative”:
- You can choose to invest in Bitcoin through their partnership with Coinbase
- You can choose to invest in private equity through their partnership with private equity platform CircleUp, who focuses on consumer and retail startups (and is in the Google Ventures and USV Portfolio). You have to be an accredited investor.
- They have an allocation for Real estate and Commodities
- They inquire whether you have a preference for social impact investing
- They construct and track a proprietary “Robo-index” . The company claims that its investment performance for 2014 was 7.4%, compared to 4.2% for “robo index”.
- They have an in-house research
They too have benefited from the billboard advertising of the Charles Schwab Intelligent offering and all the media that has created a fear-driven hype around robo-advisors. The large-size financials, like Wells Fargo, are contemplating whether they should buy a robo-advisory business or develop in-house. The intermediate and specialized wealth management businesses, like Aberdeen Asset Management, are meditating long hours on the right strategic approach. And, lastly the independent financial advisors are massively jumping off the ship, as if a tsunami has hit their cruiser and robo-advisors of all sorts are their life-rafts.
Overall, I still see a very complacent attitude from the asset management industry with regards to adapting some degree of automation in their investment products or financial planning services. The reactivity is more concentrated in the independent advisor cluster.
Hedegable has been backed up by Route66 Ventures and they recently received their second round of funding. Their niche within the online wealth management space is crystal clear.
And for a closing perspective, I take you back towards the Golden Ages in Greece to introduce you to Archilochus, a Greek poet from the island of Paros who lived around the 7th b.c. and who referred for the first time to the moral of Aesop’s fable of the Fox and the Hedgehog:
“The fox knows many things but the hedgehog knows one big thing.”
Jim Collins has dubbed the “Hedgehog” concept in business, to demonstrate the importance of doing one thing and doing it well. In his book Good to Great, he uses the Aesop parable of the clever and devious fox and the simple hedgehog. The moral of the story is that the fox keeps coming up with new ideas to eat the hedgehog, but the hedgehog finally defeats him by doing his one simple trick: rolling into a thorny ball.
To all robo-advisors:
Like This Post
“Pick your niche in automating the asset management business and do it well”.