Austrian start-up Wikifolio is a fascinating example of technological disruption in the asset management industry, allowing individuals to have their own investment strategies securitised and followed by other investors. Financial journalist Anke Dembowski gives her take on this innovative way of investing.
Many aspects of the financial sector are becoming more cumbersome thanks to regulation: asset management, giving investment advice, selling life insurance products – the list goes on. It’s not that these jobs – if done well – have ever been really easy, but the number of formalities that need to be satisfied, combined with the mountains of necessary documentation, absorb significant time and energy.
But like in other industries, social media and the internet are providing solutions (or indeed loopholes) to these challenges, and it is not quite clear whether the regulators are aware of this and implicitly allow it, or whether they simply have no idea how to plug current gaps in legislation.
Beyond the financial sector we have already seen just how things can be simplified: Uber shuttles people around cities without the need for drivers to have a taxi license; Airbnb allows you to host paying guests in your own home, without having to meet all the regulations applicable to a hotel business… including hygiene or fire protection rules. Most hosts will nevertheless ensure they do fulfil these requirements and, ultimately, it all seems to work quite well. This might be due to the high level of transparency involved, driven in large part by client ratings.
There are similar uses in the asset management sector. Take Austrian start-up Wikifolio for example, a platform that allows traders to have their personal portfolios converted into real financial products or ‘wikifolios’. Anyone can run one, even my teenage son if he wanted to, albeit with the caveat that you must be 18 for your strategy to be accessible to other users. Financial services houses like Lang & Schwarz, HSBC Trinkaus, or Société Générale build an investment certificate that follows precisely your strategy. You just need a couple of other people to express interest in it – that’s all! Some wikifolios can be invested in via a savings plan and in a few cases it is possible to buy leveraged products or warrants.
Like YouTube, the aim of a wikifolio manager is to have followers that want to copy his or her investment strategy. Many investors already follow such managers, with names like Ritschy and KingKong. In turn, Ritschy and KingKong receive a commission – the more followers they have and the better their strategy is performing, the more commission they get. Considering these are active strategies, the prices for access to the investment certificates are reasonable, and there are no transaction costs involved. Charges amount to 0.95% plus a performance fee, with a fair high watermark.
In terms of performance, wikifolios are just as transparent as investment funds so it is clear whether or not they are making money. All related information is published: performance, maximum loss, high watermark, Sharpe Ratio… And transactions and fees are 100% transparent and available on a real-time basis – better than what is on offer in the fund business. Some wikifolio managers comment on each trade, explaining why they have bought or sold a certain security, and what they think of current market trends.
Wikifolio was founded in 2012 and has since registered 2.5 million unique visitors to its site. Now its shop window boasts around 12,000 individual strategies. Followers can track 4,000 of these via investment certificates. Some have only €15,000 invested, while others represent more than €1 million. The company is currently focused on the German-speaking world, but an English version of the platform is planned for later in 2016 so it could start making waves in other markets soon.
You may well be wondering whether or not this whole concept is a good thing. I think the pros probably outweigh the cons. Isn’t it great to have a sandbox with hardly any entry hurdles, where new talent can dip a toe in money management and over time build a proven track record? It also makes the more rebellious part of my heart happy to see that some of these Ritschys and KingKongs are doing equally well or even better than the big asset management houses with hundreds of analysts and offices all over the globe.
On the other hand, I don’t know how I would feel if I were an asset manager, duty bound to fulfil so many legal necessities just in order to register with the financial authorities, when it appears that any individual can start managing money without incurring these costs… I would probably be tempted to run my own wikifolio as well!