Ex-Acadian Quant Pushes Robo-Advisor for Korea’s Retail Market

(Bloomberg) -- A former quantitative portfolio manager at Acadian Asset Management is looking to capture an expected surge in South Korean demand for robo-advisory services with an algorithm-based investment app.

AIM Inc. has accumulated assets under management of 165 billion won ($139 million) since it was founded by Jenna Lee in 2017. While that's dwarfed by global leader Vanguard Personal Advisor Services' $140 billion, low penetration and easing regulation in South Korea indicate room for growth.

The app, utilizing a machine-learning strategy, recommends exchange-traded funds based on the user's age, income and investment style. The ETFs are diversified in terms of asset class and geography, though all are listed in the U.S. Lee picked such vehicles to take advantage of Korea's lower taxation on foreign investment, she said in an interview in Seoul.

The service charges an annual fee equaling 1% of assets under management, higher than the sub-0.5% rates seen at many of the big U.S. peers. It's more in line with fees charged by Asian robo-advisors such as Aqumon and Smartly, and Lee argues that her service resembles a quant fund more closely than just passive allocation strategies.

Lee became versed with machine-learning driven investments during her tenure at Acadian, one of the largest quantitative fund managers in the U.S. Her app now employs a so-called “market cycle indicator” that focuses on early signals of large, seismic changes in capital markets around the world. It also factors for changes in liquidity, cost and tracking error, rebalancing every 12-18 months.

AIM says its users' portfolios gained 2.3% this year though February on total return basis, compared with a loss of 9.6% for the Korean stock benchmark and 8.3% for the S&P 500 index. Sustained returns, however, will be key to how long Korean investors will continue to pay up.

“The ability to charge a higher-than-average fee will depend largely on their ability to generate alpha and consistency in their track record,” said Bloomberg Intelligence analyst Diksha Gera. “The larger robo-advisors globally generated annualized returns of 5%-7% in 2017-2019 and charged fees of about 15-35 basis points, while some of them charge no management fee.”

Lee said that the app, which has been used by over 370,000 people since launching service, saw a surge in new accounts amid its outperformance of global markets in the fourth quarter of 2018, when the U.S. benchmark plunged 14%.

Easing Regulation

South Korea's Financial Services Commission has gradually removed restrictions on sales of machine-based financial services without face-to-face contract. Total AUM run by robo-advisors in the country should reach about $1 billion this year, with growth projected at 50% annually through 2023, according to Gera. Penetration remains low, with only 0.05% of the Korean population using robo-advisors compared with over 2.5% in the U.S, the analyst said.

One headwind for her app is that Korean local retail investors, who dominate the country's $1.3 trillion stock market, like to speculate on high-return equities, Lee said.

“Korea has two types of investors: those too speculative who love to trade stocks by themselves, and those too conservative who keep their cash in banks,” she said. “I think both are irrational approach to investing. They need something in between.”

--With assistance from Ray Song.

To contact the reporter on this story: Heejin Kim in Seoul at hkim579@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Kurt Schussler

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