HedgeCoVest Founder & CEO Talks Distilling Portfolios & Regulators

Financial expert and media personality Jeff Macke was the fireside chat host at the 2015 Benzinga Fintech Awards gala in New York on April 8.

Below is a video and full transcript of his talk with Founder and CEO Evan Rapoport of HedgeCoVest.

Jeff Macke: It’s the BZ Awards, baby. It’s all that and a bag of chips. I’m with Evan Rapoport. He’s nominated, he’s wearing Zing, he looks dashing. Welcome.

Evan Rapoport: Thank you. Thanks for that, for having me.

Jeff Macke: So, what’s your company name, what do you guys do?

Evan Rapoport: Sure. The name of my company is HedgeCoVest. What we do is democratize alternatives. Essentially, we code up to hedge fund manager’s trading activity. We replicate that fund in real time. And we open up hedge funds to the masses. So, anybody can invest in funds, because we essentially distill the hedge fund portfolio down to just simple basket of stocks and options.

Jeff Macke: Now, I used to have a hedge fund, and I didn’t hand out my trading information. How are you guys able to get this stuff on the funds?

Evan Rapoport: We pay managers. Right? So, they sub-advise up. We charge a 2.5% flat fee as opposed to a 2 and 20, because non-accredited investors cannot pay an incentive fee. We code up to the trading activity, their technology stack. We see their portfolios in real time. When they make a trade, we see the execution on that trade. Within 10-70 milliseconds, we make a corresponding trade for our clients and deliver it directly into their brokerage account.

Jeff Macke: And what kind of funds are getting ahold of there? Are they big? Are they name brand funds, funds that we’ve heard of?

Evan Rapoport: Sure. So, we’ve got 63 different products that we’ve assigned funds. About $90 billion managed by those firms, so we’ve got some sizable groups there. And the reason they’re doing that is we’re paying them, obviously, a large percentage of the fees that we charge. But more importantly, we’re opening it up to the adviser world, and to the retail markets, which are very hard, as you know, impossible to attract if you’re an average hedge fund, or a traditional hedge fund.

Jeff Macke: And do you worry that in a down market, if we go through another wrenching, horrible thing- I mean, hedge funds have under-performed, statistically, over the last few years, and over many years, actually. And I say that as an ex fund manager. Do you worry that in a downturn, that if you guys come under scrutiny, sort of, before people have made money on it, that the regulators might frown on something like this?

Evan Rapoport: No. First of all, the regulators love what we do, because there’s- it’s impossible to commit fraud, it’s impossible to steal. Because these accounts are held by the individual. They’re SIPC insured. They're protected. Their clients are the only ones who can move money in and out. Going back to your comment about a downturn, we hope for the downturn. Right? Because that's when a lot of these active managers do perform. When the market's being popped and going higher, 30% a year or so, it's tough to outperform when you're hedging. Right? What my clients are looking for is for an absolute return, a risk-adjusted return. That's impossible to find with other products, Jeff, as you know.

Jeff Macke: It's the quest for output, baby. So, what are you guys up for award-wise tonight?

Evan Rapoport: We're up for most disruptive. We're top three out of the 115 or so that applied, so we're very excited about that. And of course, we're up for best in alternatives.

Jeff Macke: Hey. He's Evan Rapoport, man. He's got a cool little fund product, why don't you check it out? Thank you my friend, good luck to you tonight.