Unhedged wants to bring algorithmic trading to retail investors, and demand on Birchal is surging
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CEO Peter Bakker says the funds management industry is primed for disruption.
Proprietary investing platform Unhedged has plans to disrupt the funds management industry with its AI-based investing app that uses algorithms to deploy capital.
Ahead of its launch, the company has found strong demand on the Birchal crowdfunding platform, where it targeted a minimum investment offer of $350,000.
Investors cleared that amount within 45 minutes of the offer going live, and with a week to until the close the platform has raised more than $1.7m to fund its next stage of growth.
In light of that strong momentum, Unhedged co-founder Peter Bakker caught up with Stockhead this week to discuss the raise and where he thinks the platform has an advantage.
Over the last decade, capital flows in funds management have towards passive investment strategies underpinned by the rise of exchange traded funds (ETFs).
But the industry itself is “pretty broken”, Bakker says.
Money is channelled through a network of financial advisors and asset managers, who allocate the funds primarily to ETFs which also charge a fee.
“By the time your capital is deployed, you’re already 3-4% down. What we want to do is realign the industry with investment performance,” Bakker said.
Instead of paying fund managers, the Unhedged app is based on proprietary trading algorithms that provide exposure to a diversified asset portfolio.
Developed by Bakker over a period of more than 10 years, the algorithms use a combination of industry data and qualitative indicators to trigger buy and sell orders with increased flexibility compared to the traditional model.
Bakker says the models have been adjusted so it’s suitable for retail investors.
“For example, we don’t go short, don’t use leverage and we don’t use derivatives,” he says.
“But what we know is that these algorithm-based trading strategies work. They work for big hedge funds, and they work for us.”
“So what we want to do is make them accessible for everyday investors.”
In line with its pay-for-performance model, Unhedged charges a base rate of 0.49% per annum and a performance fee — equivalent to 20% of the return above the relevant industry benchmark associated with each algorithm.
“The main reason why we believe this is a better investment is because we’re just more agile,” Bakker said.
“So if the market sells off, there’s no waiting period to get selling approval from an investment committee. The algorithm adjusts, and then we can also re-enter trades just as quickly.”
Bakker said the Unhedged platform will launch with three algorithms which are “more or less uncorrelated”
“So our clients can choose the combination they want to get exposure to a diversified asset base.”
Bakker added that the Unhedged platform will only be investing in the US market, with no Australian exposure.
“There’s a few advantages to the US market,” he said. “The first is that broker networks are much larger, which means that we can get very competitive rates which are close to free.”
The second key advantage is liquidity. “US markets are much deeper and have more liquidity, which gives more certainty around getting in and out of trades based on the algorithm,” Bakker said.
He added that Unhedged is still developing algo strategies for Australia. But given the ASX only comprises 2% of stocks traded globally, it was “more important we get exposure to other geographies.
Lastly, Bakker discussed the rationale for the crowdfunding approach, and its early success on the Birchal platform.
He noted that Unhedged got early backing with angel rounds from VC investors, and “could have got more capital from those investors”.
“But our goal for Unhedged is to build a platform that works towards democratising finance. So in that sense, we thought we should be open to different ways of funding our company,” he said.
“I really felt all the questions we got from Birchal investors were highly intelligent. They looked at the model, recognised its strengths and understood the risks.”
“So in general we felt that the Birchal investor base is very aligned in with target user base.”
That makes it an ideal fit for crowdfunding, where the most successful raises typically occur when there’s a significant crossover between investors and users.
“The people that invest in Unhedged could also be users in Unhedged. They believe in the view that this is a different way of doing things, because the industry is broken in design and primed for disruption,” Bakker said.
For more information about the Unhedged equity crowd funding visit Birchal here.
This article was developed in collaboration with Unhedged, a Stockhead advertiser at the time of publishing.
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