Digital Wealth: Roboadvisor StashAway raises $13MM after BlackRock distribution deal
The main investors are Hamilton Lane ($3MM), Square Peg Capital ($3MM), and Eight Roads ($2.9MM). Square Peg led StashAway’s $16MM Series C funding round in 2020
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Charles Schwab, Fidelity Investments, Citadel Securities, Virtu Financial, Paradigm, and Sequoia Capital have backed EDX Markets (EDXM), a new digital asset exchange. EDX will focus initially on tokens that aren’t securities (e.g., BTC) to avoid current regulatory drama. MEMX (Members Exchange), a securities exchange set up by nine financial services firms in 2019, will provide the tech infrastructure for EDXM.
EDXM differs from other venues as investors will access crypto through their traditional broker-dealer rather than via a crypto exchange. Thus, EDXM will use custodians to separate itself from investor assets (e.g., unlike Celsius). On September 9th, SEC Chair Gary Gensler stated that exchanges should separate the roles they play in the capital markets value chain, such as acting as a broker vs. custodian, into distinct entities per industry practice — Fidelity is not NASDAQ is not BNY Mellon, as an example. This approach is a competitive advantage from a regulatory perspective. EDXM claims it will settle trades on a blockchain connecting several digital custodians, though we are confused by the value of this concept as applied to crypto assets.
In related news in August, crypto exchange FTX partnered with liquidity network Paradigm to provide traders with “one-click” trading with “no leg risk” for the spread between spot, perpetual, and fixed maturity futures on eight cryptocurrencies (BTC, ETH, SOL, AVAX, APE, DOGE, LINK, and LTC). The feature would allow market makers to quote tighter prices and larger sizes, and the fees will be 50% less than executing two individual trades. This idea is more tailored towards experienced traders/institutions, but shows how much competition there is from the large players for volume of all sorts.
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FNZ, a wealth management platform-as-a-service firm with $1.5T in assets under administration, has acquired German wealthtech firm DIAMOS. Last November, FNZ acquired Fondsdepot Bank, a German B2B bank with €64B in assets under administration. In February, FNZ received a $1.4B capital injection, valuing the firm at $20B+.
DIAMOS offers solutions for traditional and alternative investments: DIAMOS-A Suite for alternatives is a data management solution that automates data entry and generates portfolio reviews. The review showcases portfolio-related risks such as regional distribution and shareholding structures. Moreover, the suite helps plan capital allocation and offers an overview of subscribed fund participations and executed capital calls.
Is it possible FNZ will compete with iCapital, a B2B fintech for the Alternatives asset class, with $130B+ in assets, in the alternatives market with this acquisition? Maybe, but unlike iCapital, FNZ is not an alternatives specialist. Their priority is consolidating position in the wealth management space horisontally. Previous Digital Wealth Week publications have showcased FNZ's acquisition spree, which aligns with Bain's prediction that investment firms must provide scalable and high-tech solutions to attract younger investors. We think FNZ's acquisitions are less about the particular acquired company, and more about completing the jigsaw puzzle of capabilities, product, and geography.
Singapore-based roboadvisor StashAway has raised $12.7MM so far in a Series D+ funding round. The main investors are Hamilton Lane ($3MM), Square Peg Capital ($3MM), and Eight Roads ($2.9MM). Square Peg led StashAway’s $16MM Series C funding round in 2020.
StashAway offers thematic portfolios, ESG portfolios, and last week they launched a BlackRock-powered strategy — the most aggressive option consists of 99% equities and 1% cash! StashAway also has a proprietary asset allocation using an Economic Regime-based Asset Allocation (ERAA), which seems to be Modern Portfolio Theory augmented with the state of macroenomic conditions.
The strategy is driven by (1) economic regimes, defined by observing the rate of change between growth and inflation, (2) risk controls, related to the momentum of growth/inflation if the economic data is unclear, (3) calculated valuation gaps within each asset class’s fair value to actual market valuations, and (4) asset-specific risk, in which there are asset limits based on the historical performance of each asset compared to a portfolio’s benchmark. Seems pretty hands on to us!
Endowus and KPMG published a report on Singapore’s wealthtech sector, highlighting that local wealthtech venture funding hit $161MM in 2021, the growth of which was catalyzed by the mass adoption of robo advisors. Further, in an Endowus Wealth Insights report, 90% of respondents mentioned they use roboadvisors, whereas only 25% use banking services for investing. If you’re not digital, you are the walking dead.
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Really insightful piece!