Robos gain traction with distributors in Asia

Industry Interviews

Hong Kong-based robo advisory Magnum Research has partnered with a number of distributors and institutions in the region.

Hong Kong-based Magnum Research, the firm behind Aqumon, a B2C robo-advisory platform launched last year, now counts 30 clients across Asia, highlighting the impact that such firms are starting to have in this timezone.

The firm had announced back in 2017 that its initial clients for its B2B business included Shenzhen-based China Resources Bank of Zhuhai, Guodu Securities (Hong Kong) and Fortune Federation Financial Technology, a Chinese independent wealth manager with an office in Hong Kong.

The much-expanded list of partners as of now includes BOC International in Hong Kong, which Kelvin Lei, the firm’s CEO and co-founder, expects to roll-out one of Magnum Research’s robo-advisory services, Smart Global, to its private banking clients this year. Smart Global makes use of US-listed ETFs.

BOCI is also one of the firm’s largest shareholders, alongside Alibaba and the Hong Kong University of Science and Technology, where the firm was incubated.

China Resources Bank, meanwhile, another client, launched Magnum Research’s Smart XRay service to its clients in October, added Lei.

The product makes use of Chinese onshore mutual funds instead of ETFs, as the cost of investing in ETFs is higher on the mainland when compared with the US and Hong Kong.

Broadening its reach

Besides Hong Kong and China, Magnum Research has also collaborated with wealth advisers in Taiwan and Singapore. It is also meeting with institutional investors in the region, including China Investment Corporation and Singapore-based GIC, which Lei believes are interested in making use of the firm’s technology to help with their asset allocation.

Other partners of Magnum Research include asset management firms. For example, it has collaborated with China Asset Management in Hong Kong, with both firms co-launching the AI China Alpha Strategy in March 2018, targeting professional investors.

“It is a different robo-advisor strategy, because it does not make use of ETFs as its underlying investments. Instead it invests in individual stocks in the China A- and H-share markets,” explained Don Huang, Magnum Research’s co-founder and head of quantitative research.

“The algorithm also makes use of a covariance structure and finds the ultimate weighting for each stock,” he added.

Building up confidence

Partnering with various distributors and institutions gave the firm confidence to launch Aqumon to retail investors.

“Institutions and distributors are very strict with our algorithm, and it takes at least six to nine months for them to conduct due diligence. That’s why we are confident in providing the robo-advisory business to retail clients in Hong Kong,” Lei said.

The firm also obtained a licence from Hong Kong’s Securities and Futures Commission for dealing in and advising on securities (Type 1 and 4) in September 2017.

According to Dominic Gamble, previously chief digital officer at fintech firm Prive Technologies and now APAC head at Wealth Dynamix, it is also more feasible for robo-advisory firms to initially provide their platforms to distributors, as banks are better positioned to offer robo-advisor services to clients than start-up fintech firms.

“The problem for start-up B2C robo-advisory firms is client acquisition, which should not be an obstacle for the banks,” Gamble said in a previous interview with FSA. “The banks have clients already. The opportunity is to shift a lot of deposit, credit card or mortgage holders to more digitised investment services.”

Launched in April last year, Aqumon now has around 5,000 clients in Hong Kong, with an average investment of HK$200,000 ($25,498) from each investor, according to Lei. They have a choice to invest in either Hong Kong-listed or US-listed ETFs.

Like other robo-advisors, the platform assigns 10 different risk profiles to investors depending on their investment appetite. However, there could be up to 13,000 different combinations for every individual.

“Investors also have an option to choose a sector as well as a country or region preference. These create more combinations for your portfolio, which means you are not sharing the same kind of portfolio with other investors,” Lei added.

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