StashAway’s Ferrario: “We grew 300% amid pandemic, 20% AUM from high net worth clients”

• StashAway has $1 billion assets under management and witnessed 300% growth in 2020
• It raised $36 million funding, including $16 million last year, which facilitated product enhancements and recent expansion in  Dubai
• The competition across digital wealth industry has increased, spurring consolidation

Artificial intelligence-based robo-advisor companies have democratised the asset management industry. Industry dynamics is shifting from a pure personalised primary relationship-based investment to technology-driven automated asset management platforms. The COVID-19 pandemic accelerated the growth of many platforms. However, the turbulent times also posed unprecedented challenges.

“COVID-19 and the ensuing lockdowns resulted in many people thinking about their finances more proactively. The market crash, the circuit breaker and the challenging capital market situation will have a few effects on the industry. There was a positive push towards digitalisation. Many traditional players struggled trying to serve their customers, limiting social interactions, and forced to try new solutions that players like us pioneered,” said Michele Ferrario, CEO and co-founder of StashAway.

Established in 2017, StashAway is a digital wealth management fintech company that operates in Singapore and Malaysia. It started operations in Dubai in November 2020. The company achieved a significant milestone when it crossed over $1 billion in assets under management (AUM) early this year.

The pandemic provided a positive push to the company. “In 2020 we have been consistently growing by more than 300% year-on-year in AUM. We more than quadrupled in size this year compared to same month in the previous year,” shared Ferrario.

“High net worth (HNW) clients make up 20% of this AUM. We saw our HNW clients increasing their AUM with us by 3.9 times within 12 months and 9.3 times within 36 months. New HNW clients onboarded have increased 19% quarter-on-quarter over the last two years,” he added.

Differentiating experience through technology

“We have differentiated firstly through our investment framework and secondly through our focus on technology,” pointed Ferrario.

StashAway uses investment framework called economic regime-based asset allocation that utilises economic data for systematic allocation decisions. It invests in 33 asset classes, has 12 portfolios to meet varied risk propensities and gives clients the flexibility to opt in or out of automatic re-optimisation of assets.

The company reported that it has given annual returns ranging from 4.35% to 18.68% depending on the risk profile of the portfolio. In 2020, its returns ranged from 3.36% to 21.94% depending on the risk index. It has a 154-member team. It claims to have beaten the industry benchmarks in the last three and a half years.

“We’ve put technology at the centre of what we do - in our trading system, our operational processes, how we communicate, and how our investment framework works, that is, an algorithm that looks at macroeconomic data to make decisions in a systematic way,” asserted Ferrario.

The company is targeting a wider market. “For us the market is Singapore - $1.1 trillion of financial wealth of which $400 billion sits in cash account and some in central provident fund.”

However, industry competition is becoming more intense. Globally, the industry leaders include Betterment, Wealthfront (both have AUM of over $20 billion), Vanguard, Charles Schwab, and Personal Capital. In Singapore, other robo-advisor companies include AutoWealth, Endowus and Syfe. Meanwhile, business-to-business (B2B) fintech companies like Bambu and WeInvest offer wealth management technology to financial institutions.

Several incumbents have developed digital wealth management propositions adding to the competition. In 2018 Singapore’s OCBC Bank launched its service called Roboinvest in partnership with fintech WeInvest, enabling 34 portfolios across six markets. DBS has implemented robo-investing through DigiPortfolio and UOB launched UOBAM Invest. The financial arm of ride-hailing company Grab launched digital wealth management through GrabInvest in 2020.

Ferrario elaborated how the company is differentiating its services in the wake of growing competition and said, “It is not just about technology. It's also how customer centric you really are, how focused you are on solving your customer problems and how the culture of the company puts making customers’ life easy at the centre of every choice, including for instance, having WhatsApp as a channel”.

Expansion and accompanying challenges

StashAway plans to expand in other countries in Asia. Sharing about the challenges, Ferrario said, “The biggest challenge in Asia is that expansion requires a lot of work on the regulatory side because you need to deal with different licensing requirements and regulators”.

The company also expanded its products and launched StashAway workplace, a value proposition for employers in 2020. However, despite the recent growth the company is yet to become profitable. Ferrario did not share their financials but said, “The unit economics work well but we are also investing very heavily in geographic expansion and products. We have plans to launch in a few more countries. We see a lot of customer demand and are trying to meet the demand as quickly as possible”.

“We are not yet at a point where the trade-off between investing in growth and steer immediately to profitability is there,” he added.

The company raised $16 million in August 2020 in its last round of funding. This was led by Square Peg and included previous investor Eight Roads, Fidelity’s venture capital arm. This increased the company’s total funding to $36.6 million, providing it foundation for expansion.

“We were actively hiring mostly in our tech department throughout 2020. However, for smaller players it would have been tougher to raise shareholders’ funds to invest in expansion. Players that are insufficiently capitalised may suffer and there might be a consolidation wave,” Ferrario opined. 

Changing industry landscape and consolidation in digital wealth management

Greater acceptance of digital services is driving the growth of global robo-advisory market. However, the competition and consolidation have increased. In May 2020, Franklin Templeton acquired AdvisorEngine, a digital wealth platform and technology provider in the United States. Expanding its wealth management business, Goldman Sacs acquired Folio Financial, a boutique wealth management technology company in 2020 and United Capital in 2019. Meanwhile, Motif Investing closed shop and sold part of its accounts to Folio.

In Asia, Vina Capital, a Vietnam-based investment company, acquired Smartly, a robo-advisory investment platform from Singapore.  In 2020, Singapore-based Grab Holdings acquired B2B robo-advisory firm Bento to launch digital wealth services. Expanding internationally, Sofi acquired eight securities and a Hong Kong-based investment and robo-advisor platform. 

Given the shifting market dynamics, it has become increasingly important for digital wealth management companies to rapidly differentiate themselves through their technology, evolve swiftly with changing market conditions, and provide unique experience to clients.