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Going institutional: a new way for HNWIs to invest?

Going institutional: a new way for HNWIs to invest?

Built along the lines of the institutional investment model, Bento, the brand name of Singapore-based asset management firm Mesitis Capital, is an investment advisory service that combines a human adviser with a customised algorithm to create a tailor-made portfolio specifically for the HNW market.

Chandrima Das, CEO and co-founder of Bento, and Tanmai Sharma, CEO of Mesitis, tell Citywire Asia how their part-man, part-machine approach to investment advisory aims to capture market share.

Introduce us to Bento.

Bento is an intelligent robo toolkit that helps human advisers to make them more efficient, acquire more clients and advise clients on a non-conflicted basis while charging very low fees.

Bento tackles inherent issues in the wealth management space, such as lack of portfolio-based advice, fee transparency and a conflicted fee model – whether the client makes money or not, the adviser must make money.

In the human plus robo construct, the machine decides how the portfolios are constructed, generates portfolio reviews and automates client reporting.

The human determines the expected return, the expected volatility and the co-variance across different asset classes.

To generate data, we have joined forces with Willis Towers Watson.

What’s the fee structure for Bento?

We are doing portfolio advisory/management and re-balancing for 30 basis points.

Bento’s all-inclusive structure has transaction fees and custodian charges built in when the client chooses a custodian of our choice.

We don’t want to play custodian and would rather clients trust our portfolio advice.

Therefore, the client may choose to have his or her preferred custodian and then pay the incremental fees to the custodian, if applicable, though we are happy to work with the client and negotiate the fees with their custodian.

What led you to create the platform?

Wealth management for individual clients works differently from that for the institutional investors.

Institutional clients have access to cheap execution and get price discovery across markets or brokers.

According to data from Mesitis’s account aggregation tool, Canopy, which aggregates over $5 billion of assets across 100 clients, 90% of HNW clients don’t outperform simple two-exchange-traded fund (ETF) auto-rebalancing portfolios.

Hence, we decided to work together to bring the institutional investment model into the HNW space.

What was the biggest challenge you faced when developing Bento?

Implementing a fundamentally driven portfolio construction process and building an optimiser.

Most robos and investment advisers in the HNW and retail space rely on an investment office. We decided to go the institutional way and partner with Willis Tower Watson.

The second hurdle was building the optimiser algorithm that works on limiting portfolio drawdown while customising client portfolios as per their preferences.

Do you expect a lot of competition in the markets?

According to Ernst & Young research, the expectation is that 5-10% of assets will be managed by automated investments by 2020 in the US. We hope to see similar trends in Asia too.

In our markets, we see a number of robo services being launched, but less so in the HNW space.

Bento has a minimum investment amount of $1 million, and we therefore are targeting a niche segment.

We believe we have a strong proposition with an early-mover advantage.

What’s your outlook on robo advisory in Asia and its impact on fee structures?

It’s obvious that in investment management the fees aren’t justified.

The definitive trend towards lower fees has already started leading to increases in ETF flows, a downward trend in hedge funds and also private clients being open to robo advisory.

Furthermore, we find that regulators in developed markets across the board are talking about fee transparency. They want clients to know what they are paying for.

The day the regulator asks private banks to disclose the fee structure to clients will mark a significant win for the robo industry.

This is a period of wealth transfer in Asia. The next generation is looking for efficient options beyond relationships and is open to newer technologies.

Robo advisory fits in well.

What changes have you seen in the way Asian HNWIs invest?

There is a perception that Asian HNWIs don’t buy diversified portfolios and want trading ideas.

It’s not the reality. Second, the next generation reaching out to Canopy itself shows a huge trend that clients are seeking transparency in terms of portfolio performance.

What's your advice to tech companies looking to launch HNW products?

There is a space for your product as long as you understand your customer and know where to provide value. The client will not pay for content or news summary.

You need to find something that adds perceptible value.

This article was originally published in the December issue of the Citywire Asia magazine.

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