FactorResearch to replace expensive ETFs

I just caught up with Nicolas Rabener of Factor Research, who is the latest Tech Founder to join Techcelerate. This increases the number of FinTechs to 3, the other two being My Digital Accounts headed by John Whelan and RDVault headed by Shoayb Patel. For those who do not know, my very first tech startup was a FinTech (electronic invoicing and payments).

FactorResearch currently provides quantitative solutions for factor investing. Previously Nicolas founded Jackdaw Capital, a quantitative investment manager focused on equity market neutral strategies. Before that Nicolas worked at GIC (Government of Singapore Investment Corporation) in London focused on real estate investments. He started his career working in investment banking at Citigroup in London and New York.

Nicolas holds a Master of Finance from HHL Leipzig Graduate School of Management, is a CAIA charter holder and enjoys endurance sports (100km Ultramarathon, Mont Blanc and Mount Kilimanjaro).

 

1. What got you into tech entrepreneurship?

Growing up I was torn between becoming a scientist like my father or working in finance, probably as a result of playing the game Monopoly too often. However, after interning at a genetics laboratory that focused on making pig organs genetically compatible with humans, I became quickly disillusioned by the slow pace of science and committed to the fast-moving world of finance.

I started working as an analyst in investment banking at Citigroup, specifically in their real estate team. After spending two years in London and one in New York advising companies on M&A, debt issues and IPOs, I moved to the real estate investment group of GIC (Government of Singapore Investment Corporation) in the middle of the global financial crisis in 2008. Given their ability to invest across the capital structure as well as in private and public real estate, it was a highly educational experience.

However, I became quickly disappointed by the core investment process of the real estate industry. Essentially, it is all about forecasting macro variables like real GDP growth, inflation, and interest rates. It does not take long to find empirical evidence that shows that forecasting is a futile exercise and that this essentially represents a flawed and rather unscientific process.

Given this, I left GIC to create my first company, which was a hedge fund focused on real estate stocks. Our approach was purely quantitative and almost exactly the opposite of the fundamental investment approach that I learned while working at Citigroup and GIC.

Running a hedge fund and managing a company was fascinating, but we discovered that most hedge funds, including our own, are not offering much value to clients. Most provide simple exposure to systematic factors, which can be replicated at much lower fees and with higher levels of transparency. This realization ultimately led to the creation of my second company, FactorResearch.

 

2. What made you found the tech startup?

The change from running a hedge fund to FactorResearch was relatively smooth as the core of the business remained quantitative research and data analysis. The primary goal of FactorResearch was to disrupt the $3 trillion hedge fund industry by launching market neutral ETFs that could be used by investors to replace expensive hedge funds.

However, as an entrepreneur, hard work and talent are not sufficient for commercial success, luck is also required. Most factors, which are the building blocks of our ETFs, have performed poorly over the last few years, which would have made marketing challenging. Some of the large asset managers lost more than 80% of their assets in related products. Therefore, we put the launch of the ETFs on hold and are waiting for a more favourable market environment.

Fortunately, we’ve been quite successful at building a global brand by running a content-driven marketing strategy, which has led to reverse enquiries for creating diverse quantitative solutions to institutional investors and financial advisors.

One of these services is evolving into our core business and basically tries to provide an answer to the simple question: How good is your investment portfolio? We noticed that most investors are still unable to answer that question well or use inefficient tools to do so, which we are about to change.

 

3. How far have you got with your tech startup?

We have built most of the data analysis infrastructure, but need to develop the front and back end of the website. We debated hiring developers in London versus outsourcing this part to a technology partner earlier this year, but COVID-19 has made that decision somewhat easier. We expect to launch the new product in the coming months.

 

4. What made you join Techcelerate?

We’re very well integrated into the financial industry in the UK and US, but not well in the technology community and Techcelerate seems like an attractive avenue of doing so. We appreciate the hands-on approach to supporting startups and the wealth of experience within the network, which we would like to take advantage of.

 

5. What are your expectations from Techcelerate Network?

We hope to learn from the community and occasionally use it or certain members as a sounding board for tactical and strategic decisions. One of our missions is to educate investors by sharing research on financial markets, so sharing knowledge and insights comes quite naturally to us.