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Ever Wanted To Replicate A Hedge Fund? HedgeCoVest Explains How

Ever Wanted To Replicate A Hedge Fund? HedgeCoVest Explains How

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One of the problems with defining a platform like HedgeCoVest is being sure to include all of its features.

Evan Rapoport, CEO and founder of the company took a stab at it, telling Benzinga, "HedgeCoVest is a separately managed accounts (SMA) platform that replicates positions of actual hedge funds directly into client brokerage accounts."

HedgeCoVest is a finalist in Benzinga's upcoming FinTech Awards in New York, April 8.

How HedgeCoVest Works

The software that powers HedgeCoVest, called Replicazor, automatically synchronizes a client's brokerage account to the hedge fund portfolio in real time.

Each time the hedge fund makes a trade, Replicazor makes a corresponding (proportional) trade for the client –- within milliseconds.

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For example, if the hedge fund owns 2 percent Apple Inc. (NASDAQ: AAPL) stock, so does the HedgeCoVest client.

Investing Simplified

"Regular hedge fund investing requires investors to fill out documentation for each fund and send money to different entities," Rapoport said.

With HedgeCoVest, he noted, clients have one brokerage account that allows them to allocate to as many active hedge fund models as HedgeCoVest has available.

Fees And Minimums

HedgeCoVest charges investors 2.5 percent. Of that amount, participating hedge funds receive 1.5 percent.

The platform has an account minimum of $30,000 and is open to both institutional and retail investors alike.

Investor Protection

A HedgeCoVest investment account is separate from the hedge funds it models. This is known as a separately managed account (SMA) and considered the "holy grail" in hedge fund investing, according to Rapoport.

In addition, unlike with a regular hedge fund, the HedgeCoVest account is insured by the Securities Investor Protection Corporation (SIPC).

Only the client can touch the account. There can never be theft and there can never be fraud.

"That's pretty big, Rapoport said, "when you talk about the hedge fund industry which is riddled with both of those."


When it comes to transparency, HedgeCoVest goes much deeper than traditional monthly returns, Rapoport said.

"Because we are executing the actual positions into the client's account, they have position level transparency so they understand not just what the performance of the product is but they actually understand what the fund owns."

"This is important," he said, "for investors with large portfolios who buy a fund without realizing that 75 percent of that fund is correlated to stock they already own."

Performance Attribution

Another advantage of HedgeCoVest's transparency is something Rapoport called Performance Attribution.

"Sometimes a fund goes up," he said, "and when you do a deep dive you recognize it was one or two positions that drove it higher."

"That is not as beneficial as understanding that the performance came from 80 percent of the positions within that book. That's a well-managed portfolio, not just getting lucky," Rapoport added, "referring to the previous example."

Risk-Adjusted Return

Many hedge fund models offer a risk-adjusted rate of return, Rapoport said. It's why many people want to invest in hedge funds in the first place.

"A market neutral hedge fund on our site produces a 6 to 8 percent return with low volatility in all market environments," Rapoport said. "It is designed to capture 70 percent of the upside and 30 percent of the downside."

Media Often Misses The Point

According to Rapoport, members of the financial media often misconstrue the design of risk-adjusted hedge funds.

"We hear this all the time," he said. "'Why would (anyone) invest in hedge funds that can't beat the market?'"

"I think that's the most ignorant statement I've ever heard," Rapoport said. "They're not designed to beat the market – silly."

"We advocate you invest 10 to 30 percent of your capital in hedge funds," he noted. "And it should be complimentary to the rest of your portfolio."

Crowdsourcing Platform

Currently, HedgeCoVest has 60 hedge fund models signed up with 13 live and available to HedgeCoVest investors.

Available hedge fund models include The Boston Company ($50 billion), Fred Alger ($21 billion), and Cornerstone Capital ($10 billion) to name a few.

At the end of the day, Rapoport said, HedgeCoVest is about "giving the average investor the same tools the largest institutions currently utilize."

At the time of this writing, Jim Probasco had no position in any mentioned securities.

Image credit: Halfd, Wikimedia


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