Asia’s first so-called 'bionic' adviser, Bento, aims to launch by August and is busy hiring portfolio advisers in Singapore and a business development professional in Hong Kong.
The business is part of Singapore-based financial technology firm Mesitis Capital and targets high-net-worth investors, family offices and small institutional investors. It is headed by Chandrima Das, former head of fund solutions at Bank of Singapore, who joined in April.
The platform works like a robo-adviser, in the sense that it employs an algorithm to build investment portfolios. But unlike robo-advisers, it incorporates human input at all stages, from client onboarding to incorporating capital market data in asset allocation to portfolio review and rebalancing.
Mesitis Capital has a fund management licence from the Monetary Authority of Singapore and is fine-tuning the algorithm that will drive Bento's asset allocation models. Das told AsianInvestor the business would be ready to launch in the next couple of months.
Bento is hiring two or three portfolio managers/advisers in its headquarters in Singapore and will add a salesperson at some stage in Hong Kong and further expand headcount as the business grows.
The platform aims to service clients with less than $5 million in net worth, who tend to be targeted less by private banks, said Das. “This segment does not make money for the relationship managers, who prefer to focus on the bigger fish.”
Bento works like an independent asset manager, in the sense that it does not take retrocession fees, does not require clients to move money away from their custodians and can serve clients with private banking accounts in Singapore and Hong Kong.
Keeping costs down
The business keeps costs relatively low, at 30 basis points a year on assets, by mainly investing in long-only exchange-traded funds, with an overlay of strategic and dynamic asset allocation. This compares to 150-200bp typically charged by private banks.
Bento will use ETFs from the three largest providers – BlackRock, Vanguard and State Street Global Advisors. Active managers are not on the cards, because Das said it was hard to find firms that could consistently outperform the benchmark. In addition, manager and fund due diligence entails more costs.
According to Bento’s backtesting, the basic 60-40 dynamic asset allocation portfolio using ETFs outperforms more than 70% of client portfolios that are managed/advised by private banks, said Das. The firm has been able to access such data on Mesitis’s account-aggregation tool, Canopy, which it launched three years ago.
The firm is looking at outsourcing creation of 'capital market assumptions' to one of the large pension consultants, said Das. These are data points that feed into the asset allocation optimiser to help build efficient portfolios. They might include long-term expected returns, standard deviation, correlation and co-variance. Human portfolio managers/advisers will further overlay dynamic asset allocation and customise according to client needs.
Das declined to say which pension consultant the firm was considering, but Mercer and Willis Towers Watson are examples of players in this space.
Unlike Hong Kong’s 8 Securities and Singapore-based Smartly, which are pure robo-advisers aimed at the retail segment, Bento targets the HNWIs because it is less costly to acquire clients in this segment, as it involves spending less on brand-building, and AUM per client is bigger, said Das.
In the mass market, the cost of client acquisition could range from $1,000-2,000 per individual, she noted, citing industry reports. “In the retail business you are lucky if you can make $50 [in profit] per client.”
What’s more, targeting HNW clients means Bento avoids the issue of having to meet onerous retail-market regulations, and enables it to access a larger universe of ETFs. “After weeding out synthetic ETFs, double gearing and long/short, I am left with a good list of more than 2,000 ETFs,” said Das.
She does not plan to spend on advertising to promote the brand new platform, but will rely on existing users of Canopy, which has 90-plus HNW clients and $3.6 billion in assets under reporting.
“We also intend to work with referral agents,” she noted. “Building the brand takes time and lots of resources. We are happy with $5 billion in AUM in three years.”
Das said a future merger with a fund firm or private bank is not being ruled out, but Mesitis is not raising equity for the time being. The company will look at financing options from angel investors and venture capital firms when the business is fully operational in four to six months’ time.