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Goldman Sachs alumni founded digital Scalable Capital has big plans for its offering
24/02/2016 , Will Grahame-Clarke

As the name suggests the London and Munich-based digital investment manager is looking to grow rapidly in the two largest European wealth markets and beyond.

“When we started this we looked around the market at what is already available and we thought we could do a lot better,” co-founder Adam French told thewealthnet.

“Digital investment management needs to have a pan-European approach. We don’t plan to stick to two jurisdictions.”

Scalable Capital applied for a licence in Germany and the UK simultaneously with the aim of a dual launch. They have been regulated by the BaFin in Germany since July last year and hope to be managing the first client money in the UK by the end of March.

“The FCA’s Innovation Hub were really helpful and there are a lot more discussions than there used to be which mitigates the risk for start ups and will help more new companies get to the market,” he adds of the UK regulator.

Scalable Capital closed one of the largest seed-funding rounds in the European FinTech scene, receiving funding of almost EUR 4 million in 2015.

Spelling out Scalable Capital’s differentiators Mr French said: “The way we see other players is that they have opened up a different (sales) channel, but under the hood they’re traditional services. They offer smooth on-boarding and the ability to scale and offer services at a fraction of the price of traditional wealth management, but in terms of money management not much has changed.”

The firm’s investment engine is inspired by Robert Engle’s work on volatility clustering - using simulations to project market risk-based on current and recent market movements, they measure each client portfolio’s value-at-risk (VaR) and rebalance portfolios daily, if required. The simulations are run on Amazon’s cloud to execute them with the required speed and cost-efficiency. The result is what Scalable Capital calls dynamic risk management: “Our investment approach is neither active nor passive, as we don’t engage in stock picking or contend ourselves with a simple buy & hold strategy. Instead, we apply a dynamic risk management logic by adjusting the portfolio composition as soon as the projected VaR doesn’t match the client’s selected VaR category any more.” says Mr French.

Scalable Capital is marketing itself to three groups: mass affluent smart professionals; HNWIs that didn’t have access to the technology-driven investment methodology Scalable Capital offers before; and traditional advisers looking for opportunities to cooperate. Many wealth managers in the UK and in Germany struggle to serve accounts of less than a million pounds or Euros cost-efficiently and are looking for ways to offer those clients an intelligent investment solution for their liquid wealth, so as to free up time for services in areas such as tax optimisation or inheritance planning.

“We are not looking to disrupt advisers,” explains Mr French, who is not a fan of the label ‘robo adviser’.

“Scalable Capital is not a threat to traditional advice but rather taking investment techniques previously only available to large institutional investors like sovereign wealth funds and making them available to clients with £10,000 plus.”

The UK team consists of Adam French (formerly executive director of Goldman Sachs’ Trading Division); Simon Miller (formerly vice president at Barclays Capital) and Dr Ella Rabener (formerly Founder and CEO of Westwing Russia and Associate Partner at McKinsey & Company).

Its risk management technology was developed with Professor Dr. Stefan Mittnik, Director of the Chair of Financial Econometrics and Director of the Centre for Quantitative Risk Analysis at the Ludwig Maximilian University in Munich.

The largest investor in Scalable Capital is Holtzbrinck Ventures, one of the most successful growth capital funds in Europe. Additional investors include international firm Monk’s Hill Ventures and the German Startups Group.

Several well-known business angels support the firm: Reiner Mauch, co-founder of Consors, Rahul Mehta, global managing partner of Digital Sky Technologies and Dr Steffen Pauls, former managing director of KKR.

The founding team are Erik Podzuweit (formerly Westwing Home & Living and Goldman Sachs), Florian Prucker, Adam French, Patrick Pöschl (all ex-Goldman Sachs) and Professor Stefan Mittnik.
 

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