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Alibaba-backed robo-advisor tries to tame China Day traders

(Bloomberg) – Kelvin Lei and Don Huang spent several months in a corner of a Hong Kong university library, but they didn’t rush to take an exam. As early as 2015, the former colleagues at DBS Bank Ltd. start your robo-advisory startup and reduce office costs. “We were in the library for nine months,” said Lei in an interview from Hong Kong. “We had no money.” Today the robo-service company they developed has more than 130 employees. Aqumon helps people build portfolios of global assets using data science and artificial intelligence. The startup plans to raise around $ 50 million from investors such as banks, venture capital firms and even sovereign wealth funds in a Series B financing round this year. The company, which offers its services through an app and also through financial institutions, is aiming for a Hong Kong IPO that will be valued at at least $ 1 billion in three to five years, said Lei, the chief executive officer of Magnum Research Ltd., the company behind Aqumon. The entrepreneurs also plan to continue expanding beyond Hong Kong into the vast but potentially challenging Chinese market, where automated financial services are still in their infancy. According to Z-Ben Advisors Ltd., a Shanghai-based advisory firm tracking China’s wealth management industry, there are no large independent robo-advisors in China. Around 15 fund companies, banks and brokers as well as a handful of fintech companies, including Ant Group Co., offer the services. The Avant-garde group has abandoned plans to apply for a mutual fund license in China and will instead focus on expanding the Robo, an advisory platform that it launched with Ant last year, a statement said in a statement. Aqumon’s model of offering longer-term investment strategies tailored to different levels of risk tolerance is in line with the goals of the Chinese government, Lei said. This includes avoiding the hectic trading that led to boom-and-bust cycles like 2015. The app does not offer margin loans. It remains to be seen whether Aqumon’s offer would appeal to Chinese investors. They tended to focus on short-term returns, preferring to trade for themselves based on information from media reports, research notes, stock websites, and social media rather than trusting professional advisors with money. According to China Securities Depository and Clearing Corp. Chinese private individuals’ trading accounts reached more than 181 million accounts in February, more than 99% of all accounts. At the same time, the fate of robo-advisors in the US and Europe sounds like a warning. Many service providers struggled after being fashionable among Wall Street banks just a few years earlier. UBS Group AG closed its SmartWealth robo-advisor in 2018, while Investec Plc closed its service a year later. Like other large companies, UBS now offers a robo-human hybrid service. Among those that have been successful is Betterment in the US, which has around $ 21 billion in assets under management, according to its website. Those with the largest user base, like Intuit Inc.’s Budget Tracker and Planner Mint, often focus on general education rather than investment advice. China’s crackdown on the fintech industry is another potential headwind. Regulators have put pressure on smaller companies to reduce financial risk, as well as larger ones like Jack Ma’s Ant.Still. Lei said recent talks with regulators in Hong Kong and China made him optimistic. Aqumon has applied for a fund investment advice license to operate in China. The plan is to increase the number of employees to 200 by the end of 2022, opening an office in Shanghai this month and an office in Beijing later this year. The company that Lei calls “Quant Monster” after the Japanese media franchise Pokemon, which is short for Pocket Monsters – it will target China’s general public more than just the richest people, he said. It is particularly aimed at people between the ages of 25 and 40. Nicole Wong, a Hong Kong lawyer, downloaded the app in January. After rating her risk as moderate, she recommended five exchange-traded equity funds and three bond ETFs. Their portfolio rose as much as 5% before wavering in the face of recent market volatility: “You gave people a gateway to get on the investment train,” said Wong. “They simplified something that could be quite complicated for the general public.” Aqumon, who counts the Alibaba Entrepreneurs Fund as one of its largest shareholders, charges advisory fees on client assets, typically 0.4% to 0.8%, and commissions For securities trading in the short term, the biggest challenge is getting the license, Lei said. “But in the longer term, it’s still customer education,” he said. “They need to learn about asset allocation and passive investing, and increase their tolerance for volatility.” The global surge in equity markets over the past year has led many first-time traders to choose apps developed by Futu Holdings Ltd., Up Fintech Holding Ltd., operate. and Webull Financial, founded by Alumnaba Wang Anquan of Alibaba Group Holding Ltd. The recent slump in the CSI 300 Index, hurt by losses in once soaring stocks like Koftow Moutai Co., has cut the benchmark by more than 12% from its February high. “People can’t really tell if this is a robo-advisory portfolio has long-term benefits,” he said. “If we see continued or greater volatility in the market this year, different types of robo-advisory portfolios are likely to have better returns.” However, Shi noted that robo-advisors underperformed in a pilot program of the China Securities Regulatory last year opposite active equity strategies, Lei said Aqumon plans to grow its assets under management to 1 trillion yuan ($ 154 billion) over the next three to five years. The company declined to provide its current AUM because it contains confidential information for a startup. The robo-advisor market in China could manage over $ 660 billion in assets from more than 100 million users by the next year, Accenture Plc estimated in a report. This is the ideal time for us to “introduce our best strategies to investors in China”. Said Lei. The regulators want to “make the market healthier and more regulated. I think we are in a very good position. (Updates with Vanguard plan to focus on building a joint venture between robo and advisor in paragraph six.) For more articles like this, visit – most trusted business news source. © 2021 Bloomberg LP

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