HedgeCoVest has launched hedge-fund-replicator investment products at a flat 2.5% management fee without a performance fee or typical hedge fund gate provisions.
HedgeCoVest, an online alternative investments platform, is aiming to take advantage of the appealing aspects of hedge funds while overcoming concerns about hedge fund fees.
The registered investment adviser has 45 hedge fund firms, including Fred Alger, The Boston Company, Cornerstone, Kovitz and Sandell, signed on to its hedge-fund-replicator platform, which recently came out of beta. HedgeCoVest's technology, which the company calls Replicazor, recognizes when a manager makes a trade and duplicates it almost instantaneously in investors' separately managed accounts. The idea is to provide investment strategies that mirror the hedge funds that investors select.
HedgeCoVest charges a flat management fee of 2.5% with no performance fee, although users will also be charged a fee from their brokerage firm. So far the company has teamed up with Interactive Brokers. Other brokerages in the process of coming on board include BNY Mellon's Pershing, TD Ameritrade and Fidelity.
COMPARING RETURNS
A calculator on the website shows investors the differences between their net return with hedge funds' net returns. By using the HedgeCoVest platform, investors can access a pool of alternative investment options — something they may have had difficulty doing in the past due to high investment minimums, two-and-20 fee structures (2% management fee plus 20% of profits) and gates.
"There is a strong pent-up demand," said Evan Rapoport, chief executive of HedgeCoVest.
Mr. Rapoport said mass-affluent and other retail investors can use HedgeCoVest to diversify their portfolios with the use of customizable alternative investments that pool hedge-fund strategies.
Mr. Rapoport said the platform also has agreements with hedge fund firms to view the holdings in their portfolios and pull out individual positions to create new products based on them. Currently, HedgeCoVest has 14 investment products, including an investable hedge fund index that includes all available strategies. Other products will be specific to certain strategies and customizable based on investor preferences.
Many investors have been resistant to hedge funds, especially after the economic crisis of 2008, Mr. Rapoport said, due in part to concerns about fraudulent activity. This platform aims to address those concerns by maintaining that clients' money will remain in their own separately managed account and can be withdrawn at any time.
HedgeCoVest has been in beta for nearly four years and has $80 million in committed capital.
Mike Kane, chief executive of Hedgeable, a robo-adviser with alternative investment options, said with the commoditization of online automated investment platforms, investors' needs aren't always met. Investing in alternatives is one way of potentially meeting those needs or objectives, such as diversification.
Platforms such as HedgeCoVest and Hedgeable are tackling the issues that may arise for investors from investing with hedge funds.
This isn't the first online platform for alternative investments. Insight Advisors, which came out in November, is a hedge fund manager that provides strategies through an online automated platform. The company gathers data, profiles an investor and then creates a customizable plan.
"All individual investors should have access to these types of investment strategies in managed accounts," said Michael Tito, founder and head portfolio manager of Insight Advisors. "New financial technology makes this type of investment option possible.
“Success, however, will ultimately still be determined by investment performance," he said.
