Part 3 If you pay peanuts you will get monkeys

What happened to Motif? If you believe that copy trading can disrupt fund management you have to answer this question.

“Motif allows individuals and investment advisors to invest in stock and bond portfolios built around everyday ideas and economic trends” (source Crunchbase). Despite Motif raising  $126.5M from top tier investors such as Goldman Sachs, JP Morgan, Balderton Capital and Renren, they fell on hard times, shut down and moved their portfolios to Folio Investing that had been competing with Motif. They have since been acquired by Charles Schwab (a big player in the Fintech 50 Index of publicly traded companies).

DailyFintech has covered Motif many times (see articles tagged Motif here).

Motif was based on the idea that you can assemble a portfolio of stocks based on your insights. Their Creator Royalty Program gave you $1 if another customer buys or rebalances a motif that you created.

When I first looked at Motif in 2014 I wrote “I don’t think $1 is enough”. If you built a Hedge Fund based on your insights you could make a fortune, but building a startup fund is hugely risky.

Surely there is something in between a hugely risky path to a fortune and enough for 25% of a cup of coffee!

The copy trader disrupt fund management thesis assumes that an individual can have insights that lead to successful trades and that other investors will want to copy those successful trades for a fee.

Investors pay “2 and 20” to Hedge Funds. The 2 = 2% of Assets Under Management (AUM) = high risk for investors and the 20 is 20% share of profit which is acceptable if the Hedge Funds is delivering great returns (= Alpha in Hedge Fund speak). Many investors will happily pay more than 20% )maybe 30%) of the profits if they take no risk on AUM fees. That makes it possible to pay a significant amount (not peanuts) to individual who has the insights that lead to successful trades.

Some subjects are too complex for our short attention spans, so we do 4 posts one week apart, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

Part 1

Part 2

Part 3

Part 4

Some may not be published yet.

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