Exclusive: HedgeCoVest Lowers Minimums And Goes Live All In The Same Week
This week, as the company went “live,” HedgeCoVest founder and CEO, Evan Rapoport told Benzinga exclusively, “We just brought down minimums on certain products to as low as $5,000. Instead of having to invest $100 million, now you can get the same benefit of a separately-managed account for $5,000.”
It’s all part of HedgeCoVest’s continuing attempt to democratize hedge fund investing strategies.
In part one of this two-part interview, Rapoport described HedgeCoVest’s unique approach to hedge fund replication and elaborated on the recent decision to lower minimums on selected products.
Benzinga: Hedge fund replication seems to be catching on. How will HedgeCoVest stand out from the crowd?
Even Rapoport: A couple things. First, the term "hedge fund replication" is currently being used and applied (by others) in a different way than the way we used it.
Current hedge fund replication companies are not actually replicating positions within that fund. What they're doing is they're trying synthetically to re-create the exposure of a hedge fund using ETFs.
It's basically guesswork. Trying to achieve the same delta, or the same sector exposure, but it is not the same as replicating individual hedge funds.
The way we employ replication is as if you're buying the same product, or a very similar product to the actual hedge fund, but within your own brokerage account.
There is no delta matching of exposure or position through synthetic recreation. We’re buying the same securities that the hedge fund is buying.
BZ: How is the HedgeCoVest approach unique?
ER: Nobody replicates hedge funds the way we do it. We're providing a separately managed account – the holy grail of hedge fund investing.
It affords you liquidity. It's your account; you can enter and exit as you please.
It affords you security. You own it. It's SIPC insured, FDIC protected.
And of course, it has transparency, because it's your account, you see all the positions within.
BZ: Aren’t separately managed accounts available through hedge funds?
ER: The opportunity to open a separately managed account with a hedge fund is limited because there's an operational burden placed on the hedge fund manager to manage a separate account outside of their fund.
Traditionally, a separately managed account is managed pari-passu, or side by side, to the hedge fund.
There's a significant burden placed on the fund manager managing multiple accounts across multiple brokerage houses with different commission structures, a different set of documents, investing management agreement vs private placement the list goes on.
BZ: That sounds both time consuming and expensive.
ER: Fund managers tell us that in order to justify the administrative burden, the account has to be sizable – $50 million–$100 million – to be able to support the burden associated with managing a separate account.
BZ: How does HedgeCoVest get around that burden?
ER: To alleviate the operational burden from fund managers, in order for them to be able to manage thousands of separately managed accounts, we utilize the Replicazor.
Note: The HedgeCoVest “Replicazor” uses proprietary trading technology that connects directly into the hedge fund’s trading operations.
That's where a software solution becomes very important. In designing HedgeCoVest, we built this with an open architecture so we can take in messaging from any firm.
BZ: What about the cost to investors?
ER: We just brought down minimums on certain products to as low as $5,000.
So, instead of having to invest $100 million, now you can get the same benefit of a separately managed account with $5,000.
Of course, it's still $30,000 to open an account, because that keeps you above day-trading requirement of $25,000. But, you can invest with as little as $5,000 per manage.
BZ: What’s the impact of all this on the hedge funds?
ER: Hedge funds we deal with continue to trade exactly the same way they did before us working with them. They changed nothing operationally within their firm.
Once we come in, code up, get the broadcast that we need, we're able to replicate the portfolio.
We handle the entire allocation process for the investor, and we send the manager a check at the end of the month. It could not be easier for the fund.
Coming soon in part two, Rapoport discusses HedgeCoVest’s first-of-its-kind investable hedge fund index, as well as some of the reasons hedge fund managers are attracted to what Benzinga CEO Jason Raznick described as "a completely new asset class."
At the time of this writing, Jim Probasco had no position in any mentioned securities.
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