Platform Offers Hedge Expertise to Advisers
May 10, 2010
Two veterans of the hedge fund world are touting a product they say lets advisers focus less on investment decision-making and more on business development and client service.
The Hedgeable Advisory Platform, from Hedgeable.com, aims to solve what the company's chief executive officer calls the biggest problem portfolio managers face: what to buy and sell, and when.
"People have been burned over the last 10 years," said Michael Kane, who co-founded the New York company with his brother, Matthew Kane. "People are lost, and they want to [find] a new way of managing money."
The platform features portfolio management tools such as "The Dynamic Advisor," a risk management system that makes continual portfolio recommendations with an eye toward managing downside risk and maximizing long-term growth.
Another portfolio management system makes tactical recommendations designed to produce superior long-term returns.
Hedgeable's offering includes dozens of model portfolios and tactical allocations, and it models for long/short equity, absolute-return and commodities.
It also features a suite of analytics, including simulations, back-testing, securities analysis and news and commentary. The platform was introduced in September as a product for individual investors, but interest from advisers persuaded the Kane brothers to tweak the product for the financial planning community as well.
The Kane brothers come out of the hedge fund world. Michael's resume includes a stint at Bridgewater Associates LP, and he has a portfolio management background. Matthew has trading experience and is now Hedgeable's chief technology officer.
Hedgeable is positioning its platform as a solution for advisers who lack much time to spend on the investment end of the business. Advisers have a range of solutions to this problem, including farming out clients' assets to mutual fund managers.
But the start-up company's solution is distinguished by its use of technology to let advisers keep asset management in-house. Hedgeable also touts an alternative to the conventional asset allocation approach: It focuses on managing risk, with the sort of strategies found in the hedge fund world.
"Risk management, we think, is the biggest thing that's lacking in the industry," said Michael Kane. "It's really why we started the company."
"With all of our features, we try to show that risk management doesn't have to be sacrificed to achieve portfolio growth, aggressive portfolio growth, or preservation, whatever the goal may be," he said.
Hedgeable's risk management approach does not include exotic instruments such as derivatives.
Many advisers have been loath to leave much of their clients' money in cash or cash equivalents, especially when markets are generally rising. But the market crash may have changed investors' and advisers' attitudes about having a safe harbor, Kane said.
Investors' appetite for risk will return in the event of another roaring bull market, he acknowledged. "But this was the third time in the last 10 or 15 years we've had a big run-up and crash, and people are getting tired of it," he said. "Rather than wild swings, they'd rather have an 8% or 10% return every year."
Doug Dannemiller, a senior analyst at the Aite Group research firm in Boston, said Hedgeable's offering comes as many advisers, unsettled by the market crash, are wrestling with how to allocate properly. "They moved to cash after having been burned," he said. "They're now going back in [to the market] and saying, 'What do we do?'"
Hedgeable has designed its platform for advisers starting with $10 million of assets under management. So far, Kane said, the advisers who use it have an aggregate $4 billion of assets under management.
The company predicts that, within two years, its platform could boast $100 billion under management from independent advisers and high-net-worth investors. Kane says his company is discussing licenses with wirehouses, which would mean dramatic growth.
Hedgeable's risk management software can be used with portfolios that contain exchange-traded funds, stocks and mutual funds. But its model portfolios are built exclusively with ETFs. Kane asserted that their costs and flexibility make them superior to index-based mutual funds for gaining access to various parts of the market.
"The mutual fund did serve a good purpose over the last two decades," he said. "But if you have a choice, there's really no reason not to own an ETF."
Once his company has enough scale, it will enter the money management business, Kane said.
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