Scalable Capital has reached the milestone of €100m in assets under management (AUM) just 10 months after launching in Germany and four months after expanding into the UK. The impressive gathering of assets positions Scalable as one of the fastest growing digital investment managers in Europe and highlights the strong demand for online portfolio management services.
Adam French, co-Founder of Scalable Capital.
Adam French, co-Founder of Scalable Capital and CEO of its UK business, commented: “We are delighted to have convinced so many clients about the benefits of Scalable Capital and our risk management technology within the course of just one year. Reaching this milestone so quickly underlines the trust our clients put into us. Our growth story is just getting started, and we look forward to more success in 2017 as we build on strong momentum in the UK and our market-leading offering in Germany.”
The firm’s operational process involves an initial evaluation of its client’s risk tolerance, after which a tailor-made investment portfolio is constructed purely from exchange-traded funds, each targeting a specific asset class including equities, government bonds, corporate bonds, covered bonds, commodities, real estate and cash. The potential universe of ETFs invest in approximately 8,000 securities across 90 countries with each portfolio monitoring country and sector allocations to promote effective diversification.
The firm focuses on ensuring the risk preferences of its investors are met at all times, including during abnormal ‘stressed’ market conditions. One way the company achieves this is through using value-at-risk metrics at the core of its investment decisions. Value-at-risk analysis accounts for all previous market conditions and provides the investor with a concrete amount or percentage of their portfolio at risk of loss for a given probability (usually 5%) over the following year. .
This strategy has proven popular with more sophisticated investors – Scalable reports clients typically have a strong educational background, with more than 90% having an academic degree and around two thirds possessing a background in economics, technology or engineering. Bankers make up the largest occupation demographic for clients at approximately 20%.
“The majority of our clients work with data, formulas or software on a daily basis. They understand the quality and cost benefits of a technology-driven investment approach”, notes Dr. Ella Rabener, CMO and UK co-Founder of Scalable Capital.
While the mean portfolio size is reported to be approximately €42,000 (£35,000), the company has also captured growth by attracting several high net worth clients. The median portfolio size is over €100,000 (£84,000) and around 20% of total AUM come from portfolios of more than €500,000 (£418,000). The firm also expects future growth in AUM from existing clients with more than half already making use of a monthly savings plan with an average payment of €500 (£420).
“Our rapid growth shows that it is possible to convince savers to invest more of their savings in the capital markets,” added Dr. Rabener. “Using modern technology, providing full transparency about downside risks and offering lower fees allows us to convince our clients to move away from cash savings to investment accounts. Against the background of the growing pension gap in the UK, this is a welcome and required behavioural shift, and we’re proud to be able to help our clients to be better prepared for their retirement.”
ETFs continue to prove popular with digital investment managers, also known informally as ‘robo-advisors’, due to their ability to aid effective broad diversification, lower costs (the average total expense ratio of ETFs used by Scalable is just 0.25% per annum), while also maintaining high liquidity and transparency.
Scalable’s services are available at an all-in per annum fee of 0.75%, calculated on a daily basis. Investors must still bear the cost of holding each ETF (on average 0.25%), resulting in an approximate total fee of 1.00%.
The UK is seeing a growing number of such firms entering the market with companies such as ETFmatic, MoneyFarm, Netwealth, Nutmeg, and Wealthify already operating in the country. Rival digital investment manager Moola is set to launch in the UK in January 2017 having recently received authorization from the Financial Conduct Authority.