Sliced makes investing in hedge funds simple, transparent and accessible. We allow accredited investors to invest in hedge funds at minimums as low as $20,000. Through technology and data science Sliced has created a cloud based platform that makes hedge fund investing understandable and efficient.
Yet it’s easier than ever to make sure your building a solid future for yourself and your loved ones. A new crop of apps and services is springing up to serve first-time, as well as veteran, investors and help them make the wisest possible decisions with their assets.
Launching this month, and providing a solution for accredited investors to have access to hedge funds beyond most individual’s reach is Sliced Investing. Founded by Mike Furlong and Akhil Lodho who come with experience from Citi, Sliced Investing offers accredited investors the ability to combine their funds together to invest in hedged funds with high minimum thresholds if investing. - See more at: http://forexmagnates.com/sliced-investing-aims-to-lower-the-bar-for-hedge-fund-investors/#sthash.USfRfykV.dpuf
Sliced Investing today launched a tool to connect accredited investors who previously couldn’t meet the required minimum investment, to hedge funds.
You won’t be able to use Sliced to drop $1,000 into a hedge fund, but its service should allow qualified investors to deploy low five-figure sums into hedge funds that previously had mid-range six-figure minimums.
Sliced intends to get around minimums by pooling users’ capital into larger tranches. Users will be able to select a fund on Sliced that focuses on a certain strategy — say, equities or real estate — that meets their own investment bent. Other users can do the same, and after what the company calls a “threshold” is met, the accumulated monies will be disbursed into several hedge funds that match the selected strategy.
For individual users, this means they get to pick a hedge fund varietal, and invest their modest capital into three or four hedge funds at once. They will, if you’ll allow it, hedge their hedging.
Sliced hopes to have $50 million under management by the end of its first year.
The company’s founders, Akhil Lodha and Mike Furlong, declined to tell TechCrunch if they are raising capital for their business further than what they received from Y Combinator as part of its current class. That said, I’d be surprised if they aren’t.
Sliced plans to take a minor cut on customer upside. It won’t take a slice at first, but later on will pick up up to 50 basis points — 0.5 percent — of profits. So if its users see their invested funds grow, Sliced will absorb a minute piece of that profit. The company is also contemplating white-labeling its platform, something that could bring in more consistent revenue.
According to Sliced’s founders, there is around $2.6 trillion invested in hedge funds today. That implies huge demand. It will be interesting to see how quickly Sliced can grow, and if its strategy to bring hedge fund investment access to smaller investors will see similar appetite. The company is a bet that investors who pass the test of accreditation — with an income or liquid asset requirement — but fall below the traditional hedge fund net-worth threshold do in fact want access to hedge funds now and in large amount.
Sliced’s attempt to make previously rarefied investment vehicles available to a larger, more normal group of people fits next to AngelList’s work to make angel investing easier to access. I’ll check back with the company in a few months to see what sort of traction they have managed to pick up.
What are you building?
Sliced makes investing in hedge funds simple, transparent and accessible. We use sophisticated web tools and predictive data science to curate hedge funds. This allows us to surface the funds that are most likely to produce returns based on past performance and current market conditions. Investors can then invest in these funds for as little as $20,000.
How does hedge fund investing work today and how will Sliced make it easier?
There are three problems with hedge funds today: high minimums, pricey middleman fees, and poor predictive analytics. To get access, investors must either know managers in their network or use financial advisors who charge a 1% fee for ‘management advice’ and access to a small number of funds. But the most significant pitfall of the current structure is there are few resources for predictive hedge fund analysis.
Sliced lowers the investment minimums from high seven figures to $20,000 by crowdsourcing investors. We provide the access of a network and financial advisor along with lower fees as a centralized resource for investors to come and select from numerous funds. And most importantly we are one of the first to automate and apply predictive data science to the curation of hedge funds.
How are you picking funds?
We are changing the fund picking model from an arbitrary network based approach to an analytical one. Institutional investors, and even small retail investors don’t invest in hedge funds using data science. They generally rely exclusively on past performance which can be a poor predictor of success if market conditions change and a certain funds strategy is no longer optimal.
Sliced uses predictive modeling and data science to find high quality small funds with less than $200 million under management. Managers within that range of assets statistically outperform the larger guys managing billions of dollars, and that's why we choose this range. We aggregate data from across the industry to score these small funds, and our custom matrix then pairs funds together to optimize diversified risk allocation and return.
If these managers outperform, why are they small and how do they get such great results?
Small funds fly below the radar of most financial advisors, large institutions, and pensions. They’re not big enough to have a marketing or investor relations department, and spend all their time investing rather than soliciting investors. Most importantly, it is easier to implement a strategy that doubles $100 million than it is for $1 billion.
Data tells us that the good smaller funds measurably outperform larger funds. They’re just waiting to be discovered . We have the networks and technology to find these managers and make them available to investors.
Eventually we’ll be the on-ramp for all small managers to find pools of capital, allowing them to focus on strategy and creating returns. We’ll be a core asset to their business and retain them as they grow.
How are you building such robust modeling software, and where is the data coming from?
It all starts with the right data which we source via industry partnerships and publicly available databases. There are many public resources like Hedge Fund Research, Morning Star, and Eureka Hedge that aggregate fund performance. But they’re all unstructured data banks that do a poor job of presenting their findings. We apply our own custom built analytics software to organize and standardize the data in a way that any investor can understand.
We also include data that is not published in these databases. Hedge funds often report to independent third parties that provide trading or operational services. We can access these independent databases using their APIs and use our algorithms pull the right numbers for predict performance.
We take this data on fund strategy and performance, and map it against what we see the market doing in real time. A strategy that performed well in the last 6 months may not continue to do so if market conditions change. Our models take all of this data into account when scoring and recommending funds for our investors.
Can you elaborate on the predictive model?
It’s not as simple as finding the best performers over the last six months. We have a factor model that includes over 150 inputs across many different market scenarios.
Our model incorporates variables like Sharpe and Sortino ratios, assets under management, current investors (to ensure partners have invested in their own funds), etc. We cross-reference this data with market conditions and fund strategy to establish a score that we assign to each fund.
You are giving access to funds-of-funds, what does that mean?
Rather than investing in individual managers, we pool many investors and diversify their investments across 3–5 funds at once. Using our predictive scores and models we package uncorrelated funds that complement each other. Pairing managers lowers volatility, and results in more accurate predictive modeling. This also helps achieve industry benchmark returns that have outperformed the S&P 500 for the last 25 years. Diversification is crucial to minimize risk and maximize returns. We’re giving smaller investors access to diversified hedge fund portfolios for the first time.
How liquid are the funds?
We offer much lower lockup periods than the industry norm of 3–5 years. It’s hard to determine exactly what our periods will be, but our first fund has a lockup of 3 months with a 45 day redemption window. This allows investors to move money in and out of funds as market conditions change, and new funds become more likely to perform. While our lockups will be far below the norm, we still recommend a 3–5 year investment horizon for maximum returns.
Who is your customer?
Initially our customers are individual accredited investors that use us to access hedge funds they have been unable to get into in the past. Everyday, large managers and funds are looking for small funds with outsized returns, and our platform curates them all online. As we grow and our track record grows with us, the platform will become viable for small, medium, and large family offices as well as endowments and pension funds.
Small retail investors will use us to avoid fees and visualize data. Large institutions will pay for the most extensive data analytics and predictive hedge fund model on the market.
What is your traction so far?
We launched on August 5th with our first fund and have over $1 million committed from nearly 50 investors.
What are your plans for growth?
Over the next two months we’ll release two more fund-of-funds to bring total assets under management to ~$5 million. Then our goals are $50 million in assets by August next year, and $90 million in assets after 18 months.
At scale we plan to have 15–20 fund-of-funds available for investment at any given time — all with different goals and varying risk profiles. Customers will enter their target level of risk, age, and family size and be presented with a handful of investment advice and fund options to fit their profile.
Sliced will be the best place for every accredited and institutional investor to manage their alternative assets.
Will you ever attract the larger investors like pensions and endowments?
Yes we will, but need to build a track record first. Right now we’re establishing this with small retail investors. Several asset managers have approached us interested in white labeling our platform. Additionally, a handful of large funds have asked us to buy the platform or use our software to manage their own portfolios. Given how unique and powerful our analytics platform will be, the largest funds in the world will eventually use Sliced to diversify billions of dollars across many small funds.
What makes you the team to do this?
Our CTO Akhil, mastered in Computational Finance at Carnegie Mellon. He then created Citigroup’s automated options trading system that they still use today. The system prices 700,000 options in real-time. I worked on the municipal bonds desk at Citigroup trading every day with hedge fund managers. I then moved to San Francisco to work at Twilio.
How do you make money?
Right now we don’t charge anything. Eventually we’ll charge a .5-.75% management fee plus a 5-7.5% performance fee. Industry fund-of-funds are usually priced at 1% and 10% respectively. We can undercut everyone because our technology reduces the manual nature of current allocations and we’ll always align our revenue with performance to ensure our interests align with our investors.
What is the market size?
Our initial market are the 5 million accredited investors with a net worth between $1-$3.25 million who need our platform for access to hedge funds. But if we consider the larger picture, once our platform is so good that everyone will utilize us to allocate assets or visualize predictive analytics, the market could be the entire hedge fund industry which has $2.6 trillion under management.
Do you have any competition?
In many ways we are first to market with our technology.
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