Magnum Research, a Hong Kong-based automated asset-management startup, has received investment from Bank of China International for an undisclosed amount.
Kelvin Lei, Magnum’s co-founder and CEO, says the deal originated last year when the startup won a mandate from Bank of China (Hong Kong) Asset Management, which wanted a robo-advisor tool to provide global asset allocation for their high-net-worth clients. Then, earlier this year, some execs from BoCI’s private-equity arm, Bohai XingWang L.P., took interest.
“They normally do large pre-IPO deals,” Lei said of the Bohai XingWang business. “But they could see the future potential to collaborate with us was huge.”
The BoCI stake follows a 2017 investment by Alibaba. Lei and his partner, Don Huang, still own a majority of the business.
Doing it all
Magnum’s robo offering is branded Aqumon and it runs the gamut of business models: B2B and B2C, customers in multiple Asian markets, and with algos to create different investment styles, using Hong Kong- and U.S.-domiciled exchange-traded funds.
It’s this breadth of activity – and ambitious vision – that has made it attractive to big Chinese capital.
Lei says the business now has around 30 institutional clients, including fund house ChinaAMC (Hong Kong) and China Resources Bank.
Lei and Huang met at DBS in Hong Kong in 2008. Lei, from mainland China, was a fixed-income sales trader, while Taiwan-born Huang was a derivatives quant. Lei went on to do fixed-income, currency and commodity sales at other banks, while Huang pursued a mathematics doctorate at Hong Kong University of Science and Technology.
They could see the potential was huge
Lei grew unhappy selling FICC, a shrinking business, and was intrigued by stories about Betterment and other U.S. robo advisors. He reconnected with Huang, then teaching at HKUST, and in 2016 they got accepted to the university’s tech accelerator program.
“The two of us were working in the library to develop our first algos,” Lei said. HKUST remains a shareholder in the company.
That's nice, but why not try this?
The business began focused on B2B, designing algos to help banks and brokers offer low-cost asset allocation to investors. The Alibaba investment in 2017 changed the equation.
“They gave us a lesson,” Lei said. “They knew we could be big, but we had no [securities] license, we were just B2B. But retail is what gets you a valuation – it’s how Alibaba became such a giant market-cap company.”
The company today has securities dealing and advisory licenses in Hong Kong, enabling it to turn Aqumon into a retail brand as well. Lei says retail investors are more likely to be sticky than either channel customers or asset owners; the company has about 5,000 users to date. The company’s algos attempt to cater to Asian investors’ short-term preferences by letting them customize allocations (within risk constraints), in the hope that personalization will encourage longer-term horizons.
Retail is what gets you a valuation
But the institutional buy-in from BoCI is what, to Lei and Huang, validate the notion that robo advisory is going to be a major force.
“Today in Hong Kong’s wealth-management industry, robotic investing is maybe 1% of assets,” Lei said. “That’s going to rise to 20% or 30%” over the next five to ten years.
That’s why he says that, although Aqumon is in the same field as a variety of other fintechs, such as 8 Securities, Pintec, Quantifeed or Yunfeng Financial, there is plenty of room for everyone to grow – and a need to drive more trust in the business model. “I’d like to see more competitors enter our space,” Lei said.
What’s next? Lei says the company will likely raise funds again next year to extend its app into other areas of personal finances. Helping users set goals for investments – retirement, buying a property – leads naturally to being able to provide loans, insurance, credit or other services. Lei says the company could consider obtaining a virtual banking license.
“Our algo and I.T. focus on low volatility,” Lei said. “We’re always pushing out the efficient frontier curve. So we can use that to fund other services.”
The company’s biggest challenge? “Managing growth,” Lei said.