Finovate Debuts: Scalable Capital Brings Advanced Risk Management to Robo-advisory

ScalableCapital_homepage_UK_May2016

Why does the world need another robo-adviser, the founders of Scalable Capital, a Europe-based automated investment platform, asked from the Finovate stage in London earlier this year.

In the case of Scalable Capital, what’s new and noteworthy about their effort to make investing easier is its proprietary risk management technology. From Scalable Capital’s perspective, the average individual investor can never keep up with high-net-worth and institutional investors because they have access to superior risk modeling and risk management. Give average investors the same level of risk management as wealthier investors and watch the investment returns for individual investors improve.

ScalableCapital_stage_FEU2016

Pictured (left to right): Co-founders Erik Podzuweit, co-CEO, and Adam French. UK managing director, demonstrated Scalable Capital at FinovateEurope 2016 in London.

Scalable Capital’s technology is based on the research of German economist Stefan Mittnik who is known for his work on financial risk modeling and portfolio optimization. Mittnik is chair of Financial Econometrics at the Ludwig Maximilians University of Munich and a fellow of the Center for Financial Studies (located in Frankfurt am Main). He serves as an adviser to Scalable Capital, which he helped co-found.

Described as providing a service that is “so cost-efficient, so honest and transparent that even a banker could use it,” Scalable Capital uses exchange-traded funds to provide investors with a globally diversified portfolio. The portfolio is automatically monitored and optimized based on preset risk-parameters, as well as adjusted for market conditions. As French has emphasized, these efficiencies are part of what makes Scalable Capital unique among robo-advisers.

“What we do—and this is truly unique for private investors—is quantify the risks, and we attach an institutional risk measurement to it,” French explained. “We use ‘value at risk’ for each portfolio, which [shows] the maximum loss that won’t be breached with a 95% likelihood over a one-year horizon.”

This emphasis on risk, French said, is what separates the average investor from the professional or institutional investor, and it’s what Scalable Capital focuses on. “Risk, apart from costs, is the most important factor in investing,” he said. “Risk is the currency [that] buys long-term performance. And our clients should decide for themselves how much of that currency they want to put on the table.”

Company facts:

  • Founded in December 2014
  • Headquartered in Munich Germany & London, United Kingdom
  • Total funding of more than €11 million
  • Employs 35 in its Munich and London offices

We spoke briefly with Adam French at FinovateEurope in February. This was shortly after learning that Scalable Capital, the first independent “InvestTech” company to receive a license to operate in Germany, had received FCA approval to operate as a regulated digital investment manager in the U.K.  We followed up with a few questions by email.

ScalableCapital_overviewFinovate: What problem does Scalable Capital solve?

Adam French: Our mission is to revolutionize the current wealth management offering. We want to eliminate the historical shortcomings of wealth managers having high fees and human interference eroding the gains that retail investors should be making.

Instead, we want our clients to be confident that their money is allocated into investments with suitable risks to match their investment goals.

Scalable Capital is a unique new digital investment adviser that offers savvy retail investors institutional-quality products at a low cost. We use a smart, cost-effective, technology-based approach, which offers investors:

  • Globally diversified ETF portfolios, tailored to each customer’s risk preference.
  • A unique dynamic risk management technology, which controls the risk of loss while optimizing performance, developed in collaboration with renowned German economist, Professor Stefan Mittnik.
  • No hidden fees, and a total cost of 0.75% p.a.

Finovate: Who are your primary customers?

French: Scalable Capital meets the needs of savvy customers who understand the value of investing in the capital markets, but don’t have the time to structure their own portfolios. Our service is aimed at professionals too busy to invest on their own and smart enough not to get ripped off.

Finovate: How does your technology solve the problem better?

French: Our dynamic risk management technology takes the digital investment industry to the next level. In contrast to traditional wealth managers, Scalable Capital adopts a fluid approach to the weighting of asset classes in its portfolios. This allows investors to capitalize on markets where risk is rewarded, and limit exposure to excess risk in more volatile conditions. This state-of-the-art technology is an institutional class investment product, available, for the first time, to retail investors, at a fraction of the cost.

Scalable Capital ensures that performance is not eroded by unnecessary costs. The total cost is 0.75 percent p.a. of the average invested capital. This includes account-management and custody fees, as well as all trading costs for portfolio adjustments. For comparison, the total costs of using a traditional investment management service average around 2-3% in the U.K.

ScalableCapital_accountbalanceFinovate: Tell us about your favorite implementation of Scalable Capital.

French: During the recent market turbulence, we were able to really see the value of our solution. We use a unique risk management technology to dynamically adjust our customers’ portfolios so that the risk they are exposed to remains consistent over time and does not fluctuate in tandem with the market.

In Germany, we have dramatically reduced the equity allocations last autumn. We were able to keep the risk level in line with client requirements and significantly mitigate or completely avoid the dramatic market slumps since the beginning. That’s exactly what our model should do in turbulent market times.

Finovate: What in your background gave you the confidence to tackle this challenge?

French: Our friends often asked ‘how should I invest my money?’ but we didn’t have a good answer to that question, as we didn’t feel comfortable recommending any of the existing investment products and services available to regular retail customers. So we decided to build Scalable Capital, building on the investment knowledge we’ve acquired during our time at Goldman Sachs.

Scalable Capital is our answer to the question of what a modern, fair, and professional investment service aimed at retail customers should look like—especially for a digital-savvy target audience. We have focused on eliminating all of the costs of traditional investment management, which have no added value for the customer, and on managing risks in a way that allows our customers to stay invested in the capital markets in the long run.

Finovate: Where do you see your company a year or two from now?

French: We are intrinsically a European company and have already launched in Germany. We have received regulatory approval from the FCA this year, and plan to continue our European expansion in the coming months.

We have a very healthy funding position and limited operating costs which means we are well-positioned to run and grow the business for the foreseeable future. Last year we closed one of the largest seed funding rounds in European fintech, receiving funding of almost €4 million. Last week, we closed another €7 million in funding. Subscribers to the round included Holtzbrinck Ventures, Peng T. Ong’s Monk Hill Ventures, The German Startups Group, and MPGI, all of whom contributed to our first round of funding in 2015. New investors including Tengelmann Ventures also participated.


Check out Scalable Capital’s demonstration video from FinovateEurope 2016.

Finovate Alumni News

On Finovate.com

  • “TIO Networks Rebrands Consumer-Facing Billpay Site Chargesmart.com to TIO.com”
  • Check out today’s FinDEVr APIntelligence.
  • “Hip Money Launches Kickstarter Campaign”
  • “Finovate Debuts: Scalable Capital Brings Advanced Risk Management to Robo-Advisory.

Around the web

  • PYMNTS breaks down its discussion with PayPal CEO Dan Schulman.
  • Dallas Area Rapid Transit partners with PayNearMe to reduce cash handling by transit operators.
  • CSI globalVCard partners with MacNair Travel Management to bring virtual card payment solution to travel managers and procurement professionals.
  • Bangkok Bank’s mobile P2P service is powered by Mobiliti Edge from Fiserv.
  • FIS earns top honors at 2016 PYMNTS Innovator Awards and 2016 Pay Awards.
  • Credit Karma to deploy Anodot’s automated analytics and anomaly-detection technology.
  • Capriza names Lance Walter as its new chief marketing officer.
  • Payments Journal features Jorgen Nordin, CIO of Fastacash.
  • The Maven’s SME column interviews Ben Geoghegan, Currency Fair co-founder.

This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.

Check Out Who Took Home Top Honors at Last Night’s European Fintech Awards

GroupPhoto(Photo credit: http://www.fintech.nl/)

Last night in Amsterdam the 2016 European Fintech Awards celebrated innovators shaping the future of finance. A total of nine awards were presented to companies selected by a panel of judges for the quality of their pitch.

Four of the winners are Finovate and FinDEVr alums, including BehavioSec, who won the overall award of Best European Fintech Company of 2016:

BehavioSec
Category: Risk, Intelligence, and Security
HQ: Stockholm, Sweden
Founded: 2009
FinovateFall 2015 demo
FinDEVr San Francisco 2015 presentation

Backbase
Category: Innovative Banking Software
HQ: The Netherlands
Founded: 2003
FinovateEurope 2016 demo

Kreditech
Category: Financial Inclusion
HQ: Hamburg, Germany
Founded: 2012
FinovateSpring 2014 demo

Xpenditure
Category: Best of Show, selected for the best pitch
HQ: Mechelen, Belgium
Founded: 2011
FinovateEurope 2016 demo

A total of 29 Finovate and FinDEVr alums were recognized in the European Fintech Top 100 list. Companies awarded on this list were selected by a combination of online public votes (weighted 25%) and a panel of judges (weighted 75%).

  • AdviceGames
  • Kantox
  • Aire.io
  • Klarna
  • AMP Credit Technologies
  • Kontomatik
  • Azimo
  • Kreditech
  • Backbase
  • Mambu
  • BehavioSec
  • mBank
  • Cloud Lending Solutions
  • Meniga
  • ebankIT
  • Nutmeg
  • eToro
  • Qumram
  • ETRONIKA
  • Scalable Capital
  • eWise
  • SmartEngine
  • Fenergo
  • TransferWise
  • Holvi
  • Trustly
  • IdeaBank
  • Zopa
  • InvoiceSharing

The European Fintech Awards are organized by Amsterdam-based publishing company Alex van Groningen BV. The company offers a great explanation of the awards: “The purpose of the FinTech awards is not to scientifically prove who are the best FinTech companies. The judging is primarily based on the judges’ individual ideas and views on the nominating companies using their expertise, knowledge and ideas.”

Scalable Capital Scores $7.9 Million

ScalableCapHomepage2

This week Scalable Capital, a company that seeks to democratize investment management, closed on $7.9 million (£5.6 million) in funding. Subscribers to the round include Holtzbrink Ventures, Peng T. Ong’s Monk’s Hill Ventures, The German Startups Group and MPGI, all of whom contributed to the company’s first round of funding in 2015. New investors Tengelmann Ventures and Leonteq-founder Michael Hartweg also participated.ScalableCapDemo

Combined with a previous round in 2015, today’s installment brings the Germany-based company’s total funding to $12.4 million (£8.8 million). In a press release, Adam French, co-founder and managing director of Scalable Capital, discussed plans for the funding:

This new capital will allow us to continue building our business in the U.K. as well as support our operations in Germany and expand selectively into new markets. Our goal is to become the leading digital investment manager in Europe.

French (pictured above right) debuted Scalable Capital at FinovateEurope 2016. He began the demo by asking, “Does the world really need another robo-adviser?” and then answered his own question:

Where we fundamentally differ from the traditional wealth management world and the other players in this market is in the way that we manage your money. We’ve developed a risk management technology which was previously developed for institutional investors and … put it in the hands of retail investors.

Scalable Capital offers diversified and cost-efficient ETF portfolios. The company’s special sauce is in the way users select their risk preference. Instead of choosing from broad risk-categories (conservative, medium, and high) Scalable Capital quantifies the risk and attaches an institutional risk measure. The risk in every client portfolio is controlled by daily projections, and portfolios are readjusted if the risk limit has been breached.

Founded in 2014, Scalable Capital has received approval from the U.K.’s Financial Conduct Authority and will begin operating with its first U.K.-based investors this month.

Finovate Alumni News

On Finovate.com

  • “Scalable Capital Scores $7.9 Million”
  • Check out this week’s FinDEVr APIntelligence.
  • “Finovate Alums Dominate The FinTech50’s Inaugural Hall of Fame”

Around the web

  • New strategic partnership connects Klarna’s checkout solution with Modo’s digital payments hub.
  • NICE Actimize unveils its Actimize AML Essentials, AML cloud solution.
  • Ixaris spins off its payment technology division, Ixaris Technologies.
  • European payment providers partnered with TSYS to get access to alerts service.
  • Misys teams up with Dorsum to enable FusionBanking Essence customers to trade directly from their accounts.
  • Payroll in Xero now available in Georgia, reaching 21 states.
  • Richard Steggall, co-founder and CEO of Urban FT, chats with PYMNTS.

This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.

 

Finovate Alumni News

On Finovate.com

  • “EZBOB raises 20 million in Series C round led by Bank Leumi, Oaktree”

Around the web

  • Quartz asks, “Should Venmo Buy a Bank?”
  • HuffPost Business features Simply Tapp and Kontomatik in its list of the five most useful APIs in the financial world.
  • Algomi adds Glocer as strategic adviser, appoints Edelstein to board.
  • CityWire U.K. looks at Nutmeg and Scalable Capital in a discussion on the robo-adviser phenomenon.
  • NAB Asset Servicing selects Thomson Reuters as its preferred data partner.

This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.

FinovateEurope Sneak Peek: Scalable Capital

Screenshot_ScalablecapFEU2016_logo_withdateA look at the companies demoing live to 1,500 fintech professionals. Get your tickets to join us in London!

ScalableCapHiResIMG

Scalable Capital is a digital investment manager that creates personalized, globally diversified portfolios. Scalable is dynamically optimized with a primary focus on cutting-edge risk management.

Features:

  • Personalized, globally diversified portfolios
  • A unique, dynamic risk-management technology
  • No hidden fees, and a total cost of 0.75% p.a.

Why it’s great
Scalable Capital is not just using technology to solve a distribution problem. It gives private investors access to investment technology previously reserved for institutional investors.

ScalableCapPresenter1Presenters

Erik Podzuweit, Founder and Co-CEO
Podzuweit combines extensive capital market experience with online expertise. An ex-Goldman Sachs banker, he was also co-CEO at Westwing Germany.
LinkedIn

 

ScalableCapPresenter2Adam French, Founder and U.K. Managing Director
French spent the last eight years working at Goldman Sachs in London as an executive director of commodities trading and in derivatives trading.
LinkedIn

 

Finovate Alumni News

On Finovate.com

  • “Mark Shifke Named Green Dot CFO After Interim Term”
  • “PaySwag Helps Cloud Lending Solutions Go Mobile”
  • “Finovate Debuts: DAVO Automates Sales Tax”

Around the web

  • Utah Community Credit Union chooses DNA(R) account platform from Fiserv.
  • TechEU interviews Sebastian Siemiatkowski, Klarna CEO.
  • Tactile Finance CEO Nicole Hamilton earns spot in The Inman Group’s Top 101 innovators.
  • VentureBeat names Twilio as 1 of 36 tech companies that could go public in 2016.
  • Bankless Times: Pindrop can tell you who is really on the phone.

This post will be updated throughout the day as news and developments emerge. You can also follow alumni news headlines on the Finovate Twitter account.