Edgefolio, a digital wealth-tech company originated in Norway but based in London, is moving into Asia with a service that aims to help hedge funds raise assets.
Its original mission was to establish a peer-to-peer marketplace that matched hedge funds with institutional investors. That didn’t work from a revenue perspective, and the company pivoted to a direct B2B play, says Rowen Pillay, CEO.
The company recently hired Andrew Bradshaw, a former director of prime services at Societe Generale, as its sales head for Asia Pacific.
Its manager-facing product allows hedge funds to privately market themselves to limited partners (institutional investors). It also has a service that allows LPs to compare hedge funds—a product the company can’t charge much for, but it brings investors to the table.
Edgefolio also white-labels its tech. Initially this was aimed at fund distributors, but in Europe it now counts one of the top global prime brokers as a client, using the tech to support its fund-raising efforts.
“Our tech is on their fund site, and investors use it to search for funds,” Pillay said. The bank has begun using it for UCITS funds, generic Luxembourg- and Ireland-domiciled funds that meet certain regulatory standards with regard to derivatives. Pillay declined to name the client.
Whether banks adopt the tech for more esoteric fund searches has yet to be seen. For now it seems to be a complement to salespeople to point potential investors they meet at conferences (for example) toward information about relevant funds on the platform. The manager can then see which investors have clicked on their information, and use such nuggets to target sales efforts.
Companies building marketplaces in our industry just fail
Edgefolio isn’t a hedge-fund marketplace: it’s just an information service with an enterprise tech capability. The P2P idea looked good on paper—investors want to access the best funds, funds need a place to meet LPs—but it only attracted smaller hedge funds. Moreover, managers were reluctant to pay a subscription fee unless they could see the platform lead directly to a sale, something difficult to track, given the long sales cycle. And LPs weren’t going to pay to join.
“We weren’t changing the industry,” Pillay said.
But the company was confident its technology was valuable in providing behavioral information to relevant players.
“Companies building marketplaces in our industry just fail,” he said. “You need to bring a lot of institutional investors to the space, and you have to get them to use it.”
Revitalizing cap intro
By facilitating introductions rather than trying to disrupt traditional, human matchmaking, Edgefolio hopes to improve the industry. This represents a turnaround from its original mission, which was to disrupt prime brokers’ capital-introductions services.
Prime brokers have struggled with cap intro. It was prized in the 2000s among investment banks as a tool to win the business of the most attractive hedge funds, at a time when prime-broking revenues underpinned top-tier bank P&Ls.
But following the 2008 financial crisis, which saw many hedge funds underperform and fail, these once-mighty teams of matchmakers have shrunk, as banks sought to control costs and questioned the value of introductions at a time when the tier-1 firms were looking to cut their less profitable clients. (It's starting now to take off in China.)
Pillay argues that information tools such as Edgefolio can enable banks to augment their matchmaking capabilities without expanding headcount.
The company has raised £2.5 million in funding, and will look to source more, although Pillay says the management doesn’t want to raise too much and burden the company with impossible expectations.
It is looking to grow by expanding into Asia, as well as add products to its research platform, including U.S.-domiciled funds, long-only funds, and funds for private equity and venture capital.
The company’s longer-term monetization strategy will depend on how many users it can attract, and to what extent it can discount today and gradually raise subscription rates, especially for leasing its tech to financial firms.