HedgeCoVest Insider

This is an unofficial HedgeCoVest development blog by HedgeCo CTO, Aaron Wormus. Opinions expressed in this blog are not those of HedgeCoVest or HedgeCo LLC.

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APIs and the need for interoperability in financial platforms

This is a repost of an article I wrote for our HedgeCoVest Newsletter (sign up here)

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Last November, HedgeCoVest demonstrated a preview of our platform at Finovate in New York. One of the best parts about attending industry conferences is meeting with your counterparts at other firms, brainstorming the challenges you face and bragging about the successes you’ve achieved.

Being a bit of a technology nut, I tracked down an engineer from the now publicly traded Yodlee (Nasdaq:YDLE) and spent an hour picking his brain. Yodlee has built a successful business interfacing with company data and providing it to their clients.

Here’s the problem: When a large enterprise, we’ll use Bank of America as an example, develops a platform, they will create enterprise level software and a nice website to display the data to their users. What they may not provide is a way for the users, or partners, to access their own data easily outside the confines of the Bank of America website.

I use Bank of America as an example, because they are Yodlee’s biggest client. Yodlee aggregates Bank of America’s data, and then sells it back to them for an estimated $25 million a year. True story.

With an API (Application Programmable Interface), developers do not have to reverse engineer archaic code & often-changing formats to retrieve the data that they need. They can simply code-up to the documented API and use standard technology (REST, SOAP, XMLRPC) to retrieve and consume the data.

What Yodlee has accomplished is due to their early understanding of the need for APIs and data aggregation. Because of their work in making data available, a cottage industry of data centric applications has emerged creating other successful products such as Mint (purchased by Intuit), Personal Capital, Balance Financial, Credit Karma and around 600 others.

The reason why I bring this up is to stress how much has changed over the last decade when it comes to building enterprise-level financial systems. You can no longer get away with building silos which keep data in, it’s imperative for future growth to create standard interfaces which provide for future interoperability.

At HedgeCoVest we have built all of our independent n-tier architecture to communicate with each other using standardized APIs from the ground up. This not only provides an easy way for us to interface with our technology and data partners, but also gives us the ability to develop, test and scale each of our mission-critical components independently of each other.

Technology trends are moving faster than we’ve ever seen. The current trends are developing mobile and wearable technology. We can only guess at what platforms we will be faced with in the next decade. We are sure that a focus on interoperability will pay off and we’ll be ready to utilize our current infrastructure to develop and provide our content and data on the next big platform.

Aaron Wormus Chief Technology Officer HedgeCoVest

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Vote for HedgeCoVest in the Benzinga FinTech Awards

HedgeCoVest has been nominated for the inaugural Benzinga FinTech awards.

We need 100 votes to move on to the next phase in the competition!

Visit the voting page on Benzinga OR Vote on Twitter now!

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HedgeCoVest presents: Everything you'll need to know about Hedge Funds

Over the last few weeks the HedgeCoVest team has been busy writing articles to complete the education section on HedgeCoVest.

This section tries to get down to the details of how, what and why of investing in hedge funds. With simple and to-the-point explanations.

And without further ado we present our newly improved Hedge-U-cation section.

Skip on over and learn about hedge funds.

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SEC on the trail of Ponzi Schemes.

Just off the wire - the SEC has tracked down 250 Ponzi Schemes since 2010.

Here are some examples from this year:

John K. Marcum – SEC charged an Indiana resident who falsely touted himself as a successful trader and asset manager to raise more than $6 million from investors. He squandered the money on personal luxuries and other ventures such as a reality TV show, and continued soliciting money from new investors to pay earlier investors’ redemption requests.

Trendon T. Shavers – SEC charged a Texas man and his company with defrauding investors in a Ponzi scheme involving Bitcoin.

Duncan MacDonald and Gloria Solomon – SEC charged two executives at a Dallas-based medical insurance company with operating a $10 million Ponzi scheme that victimized at least 80 investors by falsely promoting their start-up venture as a thriving business.

Mark Morrow and Detroit Memorial Partners – SEC charged a Cincinnati resident and his purported cemetery operations business with issuing approximately $19 million in fraudulent promissory notes and selling $4.5 million in equity interests through an investment advisory company that operated as a massive Ponzi scheme.

Alvin R. Brown and First Choice Investment – SEC shut down a $3 million Ponzi scheme that targeted seniors, including an elderly investor suffering from a stroke and dementia, by falsely promising high profits from commercial and residential rental properties in California and other Western states.

Walter Ng, Kelly Ng, and Bruce Horwitz – SEC charged three Bay Area real estate fund managers with operating a Ponzi-like scheme in which they solicited and secretly used $39 million in assets of a new real estate fund to make payouts to investors in an older, rapidly collapsing fund.

Five real estate executives – SEC charged five former executives at Cay Clubs Resorts and Marinas with defrauding investors into believing they were funding the development of five-star destination resorts in Florida and Las Vegas when they were actually buying into a $300 million Ponzi scheme.

Get the whole story at HedgeCo.Net

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Another example of clients thinking that their money is going into a legitimate investment but instead seeing it squandered.

Gilliams spent hundreds of thousands of dollars of investor money organizing and promoting a multi-day festival in Philadelphia that headlined Sean “Diddy” Combs.

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AutoAwesome shows that Innovation is not wasted on the young companies

When you get online, the feeling is that the Tech/Start-up community is full of "Serial Entrepreneurs" who are in their late 20s or early 30s. Brand new companies with "buzzword compliant" products are getting all the press, and Venture Capital firms are throwing millions at any kid in California with an app and a catchy domain name.

It can be a little depressing for a company (like HedgeCoVest) that has 11-years of experience in the industry to think that they can fit in and get the same type of attention that the kids are getting.

Then you look at Google.

Google+ is a good example of where an older company tried to break into a field that is dominated by the new kids.

Companies like Facebook, Path, SnapChat, Instagram, Vine, and Twitter have a stranglehold on the social mind-share, leaving Google scratching their heads as to how they can break into that market.

The answer is simple and the same for all companies: You have to innovate. And after a couple well-advertised flounders such as Google Buzz and Google Wave they came to this realization and stopped trying to play in the same field as their competitors, but take it to the next level. This is what they are doing with Google Plus.

How do you innovate? Find out what your users need.

Here's an example: I am an Android user, who happens to take a lot of pictures. Instead of putting a lot of work into setting up a picture, I enjoy taking 5-10 pictures quickly and then selecting the best picture to post to my social media sites.

The end result of this is that I end up with a lot of pictures of the same subjects. Google saw this and introduced the #AutoAwesome feature, which stitches these pictures together into an animated GIF.

While AutoAwesome may not initially seem like a killer feature, it takes on the micro-video services like Vine. Google used what they knew their users were already doing, taking multiple pictures, and implemented a very similar feature without making you do anything new.

New innovating features are exciting for your end user, and hopefully what we will see in the long term is that you don't have to be a new company to innovate. You just need to think of your users instead of your competition and innovate to give them what they need.

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Tips for Startups who are Hiring: Make non-obvious Hires

There are some fantastic tips here about how a start-up should structure your hires from Founder & CEO, Hearsay Social, Clara Shih.

Maybe being in Florida helps, but we've always had a very easy-going "company culture", as seen as last Friday's "business meeting" (picture below). You might think it's easy to find people who work for a company like this, but getting good people (and keeping them) remains a challenge in our market.

I've seen way to many companies start and fail by trying to fit into a corporate mold too quickly. The key is not to hire to fill spaces, but to go for quality and the rest will fall into place.

My favorite quote from the article.

Invent positions for people who are really special but don’t fit a traditional career path. Greg, one of our product managers, is another great example. He was living in Southern California, surfing and doing SEO for a surfing company. We didn't have a need for surfers or for a dedicated search optimization person, so we hired him and decided to figure it out later. He started our data science team and has gone on to become a talented PM.

Read the entire article here.

And here's our boat meeting picture! Tonight we go fishing down in Ft. Lauderdale... but that's another story.

Aaron Wormus CTO, HedgeCo Networks

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A couple of the #hedgecovest geeks enjoying the Bohemian Gravity video (yes, we watched the whole thing)

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Forrester's 2013 report: Traditional Online Media advertising still Trumps New Media

In July Forrester came out with their "State of Retailing Online 2013". HedgeCo has always been a niche product, focused only at hedge funds and the High Net Worth, Accredited, and Institutional investor crowd. However, due to the way HedgeCoVest is structured, our product is available to retail and the "mass affluent" investors.

Yup, you heard that right, with as little as $30,000 you'll be able to invest just like the big boys. (Our models show that the strategies could work with less than that, but because of the "Pattern Day Trading" rules from Finra we have to have a larger minimum account size.)

Anyway, back to online marketing. Here are some highlights from the Forrester 2013 study.

Email is still a strong contender: The Obama campaign highlighted the continued power of email subscribers. Once someone has subscribed to an email list (and lasted a week), they will tend to continue to read the messages. New: Make sure your emails are optimized for Mobile

Surprisingly SEO is still a thing

SMS Campaigns are not widely used, but are leading the charge in marketing campaign plans for 2014

Social Media is getting mixed reviews, with Facebook leading the charge with 11% of retailers saying that it was one of there top 3 acquisition vehicles. This is depressing when you think that direct mail is still used a whole lot more.

Marketers are using some new technologies such as remarketing in display ads with substantial success. 

So when all is said and done, fewer retailers are using new media, and more are advertising through traditional online media. 

The question is: Do more marketers use traditional online advertising because it is successful, or is traditional online advertising successful because more marketers use it?

I'll leave the answer to that as an exercise for the user.

The answer, no doubt, is that a successful campaign does not lay in a single technology or set of technologies/methods, but in a broad campaign that hits different demographics.

Aaron Wormus CTO, HedgeCo Networks

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Developers, Developers, Developers (really like having lots of screens)

It's one of the rare gray days in West Palm Beach. While it's stormy outside, we're coding up our own storm in the (relative) safety of HedgeCoVest HQ.

I want to take a few minutes to introduce you to a couple of our developers. One of the key business decisions that we made early on was to keep our core team small. We segmented off specific portions of the project (like our web-based front-end) and worked with independent local firms. This helps keep our core team manageable while still ensuring that we have access to the most skilled people in their independent fields to work with us.

Since my desk is by far the messiest let's start here. If you're in the start-up scene you'll notice a lot of buzzwords floating around, due to the simplicity, and low cost of entry, many start-ups choose to develop their products on a cloud only platform, like Rackspace, Amazon S3 or a PAAS product like Parse or Pantheon.

HedgeCoVest is different from these types of start-ups because of the tight integration we provide to third-party platforms and brokerage firms. These connections require dedicated hardware (routers, vpn, utm) and very specific configuration which a cloud-only solution would not work for. To combat this, we are deploying a hybrid network. I'll get into this more in an upcoming blog entry.

This means servers, and it seems like my desk is where they land for configuration. We have windows and linux servers in our network, these three 1U servers (far right) are scheduled to be deployed on Wednesday, then my desk will be clean again (yeah, right).

  Sunman is our Creative Director. Everything that you'll see at HedgeCoVest has been carefully crafted through his expert, and artistic hands. Omar (in the back) is the heart and soul of HedgeCo.Net and uses his considerable php-fu to keep the site up and running, developing new features and keeping all of our users happy.

Alex is our operations guy, financial genius  and the brains behind HedgeCoVest. He likes it when the little green lights flash on the screen.

  Moving to Chris who is busy developing the core windows components which power the Replicazor technology. THIS is where the magic is happening there is a LOT to talk about, look forward to future blog entries.

  And finally we get to Dave, who doesn't really work here, but due to the fact that he's a Android & mobile strategy expert (note the 4 tablets scattered around his desk) we let him crash in the office in return for our constant picking his brains about all things mobile

That's all I have for now, coming up next we'll discuss some of the specific decisions that we've made on the technology that we're rolling out. 

Aaron Wormus CTO, HedgeCo Networks

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Make sure that your hedge fund manager isn't buying Starbucks with your money

As an entrepreneur one of the hardest things to learn is that for a business to be truly viable it doesn't just need to be a "great idea" or "something that nobody else is doing" but it also needs to fit a very specific need in the market.

We see fraud as one of the big problems in the hedge fund industry, and are developing HedgeCoVest as a specific solution to this rampant problem.

This fraud is demonstrated perfectly by this press release with the story of Fredrick Douglas Scott, the 29-year-old Chief Executive Officer of ACI Capital Group who on Friday (the 13th) plead guilty to defrauding his investors out of $1 million.

How did he do it? 

Once potential victims were identified, Scott promised those victims a high rate of return for providing short-term financing to businesses purportedly associated with ACI. Once victims wired money to ACI, Scott stole the funds for his personal use. Bank records show that Scott used client funds to finance his personal lifestyle, purchasing personal items at establishments including Louis Vuitton, the Apple Store, Starbucks, Fair Bail Bonds, True Religion Jeans, Tao Restaurant, the Hampton Inn SoHo, and Dizzy’s Coca-Cola Club, among others. Bank records also show that Scott wired stolen client funds directly into his personal checking account. (source)

The scam is mind-numbingly simple and we see it happen over and over again.

Promise high returns to potential investors

Sign the investor up as an LP into your Hedge Fund

Investor sends you a check with their investment (usually starting at $250,000)

Transfer some of the money into your personal account.

Live the life (until you get caught)

The traditional structure of a hedge fund as a Pooled Investment Vehicle means that your capital is mixed up with capital from all the other investors, and you have to just trust the manager that he is investing your capital and not just spending it on nights at the Hampton Inn and Starbucks.

As simple as the scam is, the solution is also very obvious, Separately Managed Accounts (SMA).

Using an SMA instead of a Pooled Vehicle means that instead of you sending a check to your Fund Manager, you send it directly to your brokerage firm. All the money in your account is in your name, and while the manager can trade it, you have complete transparency, and the manager is not able to charge the new Louis Vuitton purse to your investment account.

Investing through an SMA is not in itself a unique idea in itself, the problem is that a fund manager has to jump through substantial hoops to manage both his Pooled Investment as well as your SMA. Because of this, most managers are not willing to take on an SMA unless it has upwards of $10mm or $20mm in it.

This is where HedgeCoVest's innovation comes in. Using our technology, the hedge fund manager will be able to trade your SMA with no additional administrative burden. 

Also, since there's no administrative or regulatory burden by investing in a pooled vehicle, there is no need to have high minimums & you'll be able to start out your account with as little as $30,000.

I plan to expand on additional benefits of HedgeCoVest in future posts, but it's exciting being able to bring one of the first truly innovative investing platforms into the industry.

Aaron Wormus CTO, HedgeCo Networks

PS: Just after I hit the publish button on this article another article came over the wire about a local Palm Beach Hedge Fund Manager who was sentenced to 63 months for the fraud of $500,000.