Halo Investing the first independent multi-issuer technology platform for structured notes in the United States which launched in 2017 has exceeded its expectations and claims the launch of its structured notes platform was a "real success and a great story for the US structured products market".
"We don't disclose the notional going through the platform but we achieved our targets for the year within months since we launched in May 2017 for notional, client reached, and the number of issuers plugged (10)," said Jason Barsema, co-founder, Halo Investing. "We have recently onboarded another three and the feedback we get is very positive. From a distribution perspective that was a highlight but from a market perspective the main achievement is that over 50% of our customers have never bought a structured note before and that is the best way for us to measure our success."
Halo is trying to solve a problem of access and to grow the pie for the benefit of the whole market which in the US "is pretty much dominated by a handful of players that are fighting over bigger pieces of a shrinking pie", according to Barsema.
"The market volume has stagnated over the last few years (US$50-60bn) and we don't think that is where the market should be," said Barsema, adding that the firm's forecast is for the market to be growing by 50-70% each year. "We want to play a leading role in growing the market and expanding the audience and the number of investors using these products."
Barsema, a former Credit Suisse senior private banker and relationships manager, is not new to the market and has been "buying and managing structured notes for the buy side for a very long time", and believes structured products "are one of the most flexible investment products you can find" although he acknowledges they "have suffered from bad apples (Lehman), lack of education and accessibility, but also as a result of lack of technology".
"As an independent technology provider we see that we can create a much safer and simpler environment for distributors and investors," said Barsema. "The good thing is that we have been able to proof that with data."
The firm also has plans to diversify its business and acquired a broker dealer in 2017 (Name??) after only seven months of activity with the platform. "This acquisition is aimed at transforming how the end consumer/investor interacts with structured products and we will unveil other initiatives around global liquidity and clearing of structured notes," said Barsema, noting that Halo's approach is aimed at moving away from the 'hit and run' culture surrounding the market since the Lehman Brothers collapse.
Impact before profit
"They key to retain customers is linked to a number of factors such as having a well-oiled and resourced marketing machine and have visibility in the market and in the press," said Barsema. "But you also need a story and a mandate to appeal to investors and our story seems to be resonating. We started this company with the aim of democratising structured notes and providing a safe environment for issuers and distributors to transact. Our focus however is on the buy-side because that has been the weakest link in the market for many years."
The hit and run culture is over and Lehman Brothers taught the market a big lesson, according to Barsema. "Our number one mandate is 'impact before profit' because we believe that if you have a positive impact profit will come and customers will return," Barsema said. "We also see education as a key element of our offering."
According to Barsema, not every single structured note is beneficial for a portfolio and providers have a responsibility to make investors aware of that.
"We are moving away from calendar offerings because most of the products issued by banks on a calendar basis are beneficial for the issuers but not so much for the end investor," said Barsema. "We believe in portfolio construction and every investor is different so you really need to cater for every and each of your clients, and you have to provide the right tools, either via technology or through human interaction, for investors to make informed decisions."
Halo's activities are based on three pillars including transparency, independence, and innovation, and although technology can help to increase transparency providers still need the human element to interact to the end client which is why the firm has invested in hiring former private bankers from top Wall Street firms as relationship managers, according to Barsema.
"This is the way to provide insight to investors," he said, adding that Halo also provides analytics and research to give clients elements of comparison and build trust.
"We believe that the marriage between technology and the human component will be key to our success because RMs wins business and technology scales it. Our research shows that clients need at least three trades with hand-holding and we want to be there to support that and also to respond to any needs once clients become more autonomous."
Technology also can help product providers and distributors to increase their reach "because a sales person can only be in the phone with one person at a time and the platform is never down and you have a real time presence for clients to interact with you", according to Barsema.
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