Technology provider of the year: Privé Managers

Structured Products Asia Awards 2017: Risk profiling has grown in importance as the industry moves towards payment for portfolio advisory, making Privé Managers enormously innovative application of technology both timely and smart

Julian Schillinger, Privé Managers

The market has been driven away from seeking fees from selling financial products towards fees from services such as portfolio advisory, in part by regulation. Many organisations have found themselves without the technology to support the changing business model. Step forward Privé Managers. 

“Their tool is one of the first to allow simple modelling of structured products in a portfolio context for advisers and end investors,” says one Asian bank familiar with its platform. 

Incorporating innovative so-called robo-adviser artificial intelligence (AI), the company’s platform tailors portfolios as efficiently and effectively as possible, ensuring that portfolios can include structured products.

“The age-old challenge with offering a structured product for a portfolio has always been how this will impact a client’s portfolio,” says Charles Wong, Hong Kong-based chief executive of Privé Managers. “If you try to compare the impact of a structured product with that of a plain vanilla product, such as a mutual fund or a stock, it is like comparing apples with oranges. For example, if the structured product is new, it will not have a historical track record like a plain vanilla product. Using scenario analysis, we have created a way for the client to see how the structured product would have performed historically if it were reflected in the portfolio with the other asset classes.” 

The scenario analysis is part of an investment explorer module, which is one of a range of modules that now comprise the Privé Managers platform. Other modules include portfolio management, reporting, client relationship management, business processes and workflows. By exploiting new infrastructure technologies – the platform is hosted on the cloud and the modules are accessible as ‘microservices’ via application programming interfaces (APIs) – organisations can mix and match the functionality they require for their business. 
 
One area that Wong and Julian Schillinger, Privé’s chief technology officer, saw was ripe for improvement when developing their platform was risk profiling. Traditionally, this involves a client answering a questionnaire, which the bank scores to produce a risk number. That number is then used in constructing the client portfolio, while the detailed information gathered in the questionnaire is discarded.

“Our approach is different,” says Schillinger. “We wanted to keep the details from the scoring process and expand the scope of useable information about the client, such as their trading history and how often they look at their portfolio. For example, trading history can tell you things like their currency or regional bias. Also, if the client looks at their portfolio every day, we can probably surmise that they may be worried about daily volatility, whereas if the same client looks at it once every six months, they are worried about long-term draw-down.” Privé wanted to automate the gathering and use of this information to build customised portfolios tailored to the individual client in the same way that a private banker might do manually for a very high-net-worth individual, but which had not been cost effective or scalable for less wealthy clients until then. 

To achieve this, Privé used an AI technique known as an ‘evolutionary algorithm’, which mimics a Darwinian survival-of-the-fittest approach to construct a portfolio most suited to the client. The process starts with a set of potential portfolios – that can include structured products – and evolves these towards an optimal portfolio using a fitness function to select the most promising examples at each stage. Unlike conventional approaches that optimise in a single dimension, typically risk and return, Privé’s algorithm can also incorporate many other factors, such as currency or regional preference and expected risk.

For example, Citi, an early adopter of digital technology wealth management and private banking, has built a tool dubbed Portfolio 360 with Privé, which helps its sales teams make recommendations to their clients. The tool can help clients monitor their stock holdings’ correlations and concentration to their investment portfolio, as well as assisting them in carrying out stress test analyses and rebalancing their portfolios.

Another high-profile user is AMTD Group in Hong Kong, which uses the platform for its financial planning services. And Privé has more than 1,700 financial advisers using its platform to manage over 40,000 client accounts in Asia and Europe. But the company is not resting on its laurels. It has a number of research and development projects underway, including the addition of an AI-based chatbot that will provide automated responses to client questions, and the addition of trade execution to its platform to enable users to retain the margin on trades used to rebalance portfolios.

Privé Managers has already made a strong impression in the region. A global investment bank that has assessed the platform says: “We were particularly impressed with the breadth of the Privé offering and the innovation displayed, as well as the scope across regulation, portfolio management, analytics and robo-advisory. Our financial adviser clients are using Privé to help target and advise their clients on customised and specific product ideas.