We talked to Bernard Lee of HedgeSPA about sophisticated predictive analytics for hedge funds and institutions and here is what he said about it.
First of all, how are you and your family doing in these COVID-19 times?
Bernard Lee: We are doing fine. Thank you.
Tell us about you, your career, how you founded HedgeSPA.
Bernard Lee: I was a Managing Director at the Portfolio Management Group at BlackRock in New York City, where I build their award-winning multi-asset functionalities.
The work was based on my doctoral dissertation in the UK, so I owned the background intellectual properties.
That’s essentially how we got seeded by the Singapore Prime Minister’s Office to rebuild the whole idea from scratch with faster, better, and smarter technologies. In addition, Singapore “sweetened the deal” with a professorship appointment. All in all, we have received about USD 1M from Singapore from various cash grants, subsidies, and other in-kind support.
How does HedgeSPA innovate?
Bernard Lee: We provide a cloud-based investment analytics platform with end-to-end functionalities which is powered by deep tech ranging from artificial intelligence, big data, actuarial math to super and quantum computing.
The system automatically crawls data including market, historical, reference, fundamental data, news, and research from the free internet, paid subscription, or in-house sources for the best investment ideas, generating as much as 15% outperformance unleveraged in less than 5 months.
Most of us find Facebook to be somewhat addictive because it is pulling not just your and your friends’ posts but also topics of interest to you as if someone is curating your content. We use a branch of mathematics known as graph theory to reduce the dimensionality of highly complex graph data. These are the same hard data science techniques used by the internet giants to compute page ranks, on which we are collaborating on cutting-edge R&D with the Financial Signals Processing Lab at Imperial College London.
The net result is that we can create portfolios that are “starting” to outperform human portfolio managers because the computer can process so much more data.
More importantly, we spend a lot of time refining our delivery models. One example is that we follow our insurance users’ processes to pull policy pool data directly from Salesforce used for insurance customer servicing to generate investment recommendations for our users while meeting capital adequacy requirements. The following is a write-up by Accenture on that capability.
How does the coronavirus pandemic affect your business finances?
Bernard Lee: We were lucky in that the company was in the process of transforming from a development model to a deployment model when the pandemic started. We had taken down our burn-rate due to natural attritions, such as employees choosing to go back to their home countries after fulfilling their scholarship bonds, and we had not yet hired the replacements.
Did you have to make difficult choices regarding human resources, and what are the lessons learned?
Bernard Lee: There was a natural interest in our capabilities due to the pandemic. E.g., a lot of smaller asset managers were having difficulties dealing with automated daily P&Ls without a full back-office.
How did your customer relationship management evolve? Do you use any specific tools to be efficient?
Bernard Lee: Our relationships with investors or customers changed. Investors were keen on the traditional providers partly because of the “wining and dining”. Because of COVID-19, suddenly investors saw that they were not able to enjoy the benefits from the incumbents, and many traditional providers also failed to deliver interesting investment performance. Instead, traditional providers focus on offering model portfolios with limited customization or “transactional” advice to sell financial products.
One UHNW investor was getting typical private bank returns in the single digits. He wants to invest in the company as well once he realizes that, given the fees that he would pay to create “structures” at licensed institutions in order to access our analytics, it is a better deal for him to invest in the company to help us develop the ability to cut out middlemen costs. To him, it is just like paying rent vs. paying for a mortgage.
Because of the funding support, we can be more creative to deliver our solutions – instead of just delivering our analytics, and we are applying for licenses at different jurisdictions to deliver investment solutions as well. We are closing the first stage of our investment round of USD 20M.
There is an additional signed term sheet of US 60M for subsequent stages, as well as letters of interest to invest in our investment strategies in the 10 figures.
Did you benefit from any government grants, and did that help keep your business afloat?
Bernard Lee: Singapore offered us their pandemic grants (offered to all Singapore-based companies) when its economy was shut down.
Subsequently, the Singapore Government also approved their subsidy support to our 6-figure R&D program to migrate our algorithm to quantum computers. That’s a typical R&D grant not specifically related to the pandemic. The Japanese Government, and Tokyo in particular, is in the process of approving grants that will help us land in Japan and receive the appropriate regulatory licenses to operate in Japan. Japan is the most proactive with their support, such as how we were mentioned by the Nikkei newspaper because of a government-hosted event. Finally, the Hong Kong Government reviews our application for subsidized space and matching subsidies of up to USD 2.5M.
Your final thoughts?
Bernard Lee: This Friday, we are privileged to be invited to announce the launch of our Japanese Terminal product at an event hosted by the Tokyo Government and managed by Deloitte Tohmatsu Japan. We will be the only fintech company invited to present, and I was told that anyone who matters in the fintech community in Japan will be invited. This is the product video.
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