AI Transforming Finance. Even For the 0.1%
AI is revolutionizing finance. It’s not just in the emerging and mass affluent markets either. Our AI Lab is working on disrupting parts of the market that would have been unheard of just a few years ago.
Did you know that Hedgeable automates the management of a family office portfolio? It’s true. Hedgeable’s ultra-high-net worth clients use automated investing as the tax-efficient and low-cost ‘core’ of their portfolios, while still holding private equity, hedge fund, and other illiquid investments outside of Hedgeable as ‘satellites’.
Graphic look familiar? It should, because it is similar to how Hedgeable structures core-satellite investing for our accounts over $100,000 in value. The difference being our satellites are made up of liquid investments of stocks and/or ETFs.
An Automated Portfolio Core
Hedgeable can manage a $10 million, or even a $10 billion portfolio, more efficiently than high-cost separately managed account providers like Alliance Bernstein, Neuberger Berman, Parametric, or Nuveen.
Our Tax Samurai service is powered by an artificial intelligence (AI) bot named Katana. With Katana, you are not handed over to a 22 year old analyst in a call center, rather a highly intelligent big data driven system that automates asset allocation, tax efficiency, and most importantly, downside protection.
With Hedgeable as the core, clients are allocated to ETFs designed to be optimized for the best possible risk-adjusted returns, while discouraging security selection and emotional biases that can stunt portfolio growth. Hedgeable allocates to over ten ETF fund families and dozens of individual ETF securities, providing investors with exposure to nearly every asset traded worldwide. Just take a look at the infographic below showing the diversity in our asset allocation:
Katana Slices Into Your Tax Bill
Achieving tax alpha with a core portfolio is one of the keys to maximizing overall portfolio returns. Our advanced AI bot Katana can help your family office reduce unnecessary taxes, without adding any portfolio risk.
These are some of the awesome benefits every investor can experience with a Hedgeable portfolio overseen by Katana:
- Tax-Efficient Transfers: Katana won’t sell any of your holdings if it doesn’t have to. That’s right, our investing algorithms are so powerful, they can manage your current portfolio!
- Tax-Loss Harvesting: Katana will automatically harvest losses for optimal tax alpha, although it will always try to protect you against losses in the first place! This automated feature has been shown by independent third-parties to add up to 0.53% per year in tax alpha.
- Tax-Efficient Portfolios: Katana optimizes every security for tax efficiency, mixing in legacy holdings where necessary to save money on taxes.
- Tax-Efficient Trading: Katana has advanced algorithms that analyze individual tax lots and the duration held of each security, automating periodic rebalancing and downside protection during high-risk times. Katana can minimize the short-term tax impact as a result of any allocation changes or withdrawals.
Allocating Like the Harvard and Yale Endowments
Who was the innovator in this type of core-satellite investing? Harvard and Yale University have been allocating a large portion of their massive endowments to low-cost, passive, core portfolios for decades. Satellite investments are sprinkled in to generate potentially uncorrelated returns. The high illiquidity, high-fee, and higher tax burden securities of the satellites complement the more liquid, low-fee, and low-tax core portion of the portfolio that Hedgeable manages.
Below is the 2016 asset allocation of the $25 Billion Yale University Endowment:
It is typical for family offices and endowments to keep 25%-50% of their portfolio in liquid stocks, ETFs, and cash instruments, while “locking up” the other 50%-75% of the portfolio in more illiquid private investments. For the core piece of the portfolio — in Yale’s case 27% — an allocation to Hedgeable would be low-cost, extremely transparent, tax-efficient, and protect against catastrophic losses. The last thing a large family office or institution needs is to see a 50%+ drawdown in the liquid portion of their holdings. Remember, in 2008 the Yale Endowments lost (-30%) of it’s value, through a combination of losses in the public markets and huge losses in their private fund holdings.
Downside Protection in Core Holdings
Hedgeable is the only manager that provides an additional, time proven Downside Protection overlay on all client accounts. No matter if that account is $1 or $1 Billion, this downside protection is applied on a daily basis. Think of it as the best of automated passive investing, with the best of absolute return investing.
What is downside protection? It is a proprietary technology system that can move a portion of your holdings to cash at any time to mitigate catastrophic drawdowns. Hedgeable has a 6-year real money proven track record as one of the top investment managers in the world, and we have used our downside protection technology from the very beginning.
Let’s look at the 2016 UK Brexit vote as a perfect example of how powerful our downside protection can be for an ultra-high-net worth investor. The chart below shows model performance of an aggressive core allocation on the date of the vote at Hedgeable, versus the equity markets, and estimates from some of our digital competitors.
Let’s assume you are a $1 Billion family office. If you allocate 27% to Hedgeable, as in the Yale Endowment example above, that would mean a $270 Million investment to the automated, low-cost, and tax-efficient Hedgeable core. Here is what your estimated loss amounts would have been on June 24th, when the UK voted to leave the European Union:
European Index Fund: (-$19,170,000)
Betterment: (-$14,067,000)
Wealthfront: (-$13,311,000)
World Index Fund: (-$13,230,000)
U.S. Index Fund: (-$9,693,000)
Hedgeable: (-$3,834,000)
Our downside protection would have saved your family office the equivalent of the fees you pay every other manager combined, for an entire year! We do this without using any of the risky derivatives, shorting, or leverage, that is typical in the satellite piece of your portfolio. Just imagine what you could do with another $10 Million in your operating budget. How many more philanthropic ventures could you fund?
Conclusion
Hedgeable is the only digital private bank. We are not just a tool for those aspiring to be rich someday, if you are fortunate enough to be in the 0.1%, Hedgeable can be a great resource for you to grow your core holdings in a low-cost and low-risk manner for decades, all 100% automated and hassle free.
In the year’s to come AI will be used to disrupt the entire infrastructure of the private banks. Tax, estate, and trust services? Automated with AI. Alternative investing (which Hedgeable is already doing for our mass affluent clients through our bitcoin and venture capital investing features)? Automated with AI. Client service? Automated with AI. It’s time the big banks take their head out of the sand.
Follow @mrosskane on Twitter
Mike is the Master Sensei of Hedgeable — the only digital private banking platform. Open an account with as little as $1!
