Pontus Kristiansson - Kollektiva

Please welcome Pontus with Kollektiva. Thank you very much. Good morning everyone. My name is Pontus Kristiansson and I'm one of the four co-founders of Kollektiva, which is a robo-advisor. We didn't know it was called robo-advising when we started the company three years ago. No, we do. I will start by apologizing that some of the slides here contain Swedish language because I'm mostly doing this presentation for a Swedish audience at the moment. But as was mentioned, this is applicable to most Western European markets. I'll start by just explaining how the Swedish pension market works, which is similar to most Western European markets. We have a government-sponsored part. Most people have an employer-sponsored or several pension plans, and then some people also save personally for their retirements. So ages ago, retirement systems used to be benefit-defined, meaning you had a promise that someone would pay you a pension once you retired. Today, most Western European countries have gone to a contribution-defined system, where the government or your employer or yourself put aside contributions to your savings, and then you have to take responsibility for how to manage those money to make sure you get the best possible pension when you retire. We've started addressing this little portion of the Swedish pension market, which is the contribution-defined piece of the government-sponsored program. It's called the Premier Pension System, or PPM system, but we are expanding to the rest of us and then into other countries as well. Swedish people have now almost 3,500 billion sek, that's almost $500 billion, or one gross domestic product of Sweden invested in pension funds. About one quarter of that is invested in that little PPM system that we've started addressing. Annually, the managers of these funds charge 1.5% or so of the assets under management, which means that the fund management fees sums up to almost 50 billion sek annually that excludes insurance fees and custody fees and advisory fees. So, huge numbers, again, in tiny little Sweden, right? So, consumer insight number one for Kollektiva is that there are roughly 3,000 mutual funds available to the Swedish retirement sector, and as a consumer, you should go through and evaluate all the different investment opportunities with some kind of regularity for the PPM system, your three or four or five different employer-sponsored accounts, depending on how many employers you've had, your direct savings and maybe savings for your kid, which means that nine out of ten consumers, they simply just procrastinate the decision, they don't have the interest, time or skill to do it, which explains, for example, the following fact. If you ask 1,000 retirement savers what was the most important influencing factor the last time they made an investment decision for their pension savings, 54% says an advisor. If you ask the same people, the next time you're going to make an investment decision for your pension savings, what is the most influencing factor? Almost the same amount of people, 53% says low fees. However, if you look into the portfolios of these people, only 7% of us owns a single share in a low-cost fund. A paradox. And the paradox is explained by the incentives of the system or the industry. Every year, the fund management companies extract 50 billion SEC, $5 billion or so out of the assets on the management. To be able to sell these funds, they have to be listed on the different platforms. And so they pay 50 to 60% in distribution fees to banks and insurance companies. Let's put that into perspective. Someone that wants to distribute milk pays 5 to 10% in distribution fees, and then the distributor takes the cost of transporting the milk, warehousing it, and throwing away the milk that doesn't get sold. So 50 to 60% for listing a digital product on a list is a pretty high compensation, I would say. Problem is there are still 3,000 funds on that list, so the consumer is still as confused. So the fund management companies now pays another quarter of the fees, 12.5 billion SEC, to advisors. To who are like personal shoppers, but that doesn't get paid by the consumer for financial advice. Instead, they're essentially commissioned salespeople to advise people what funds to invest into. It's not like this everywhere. In the US, for example, consumers are more accustomed to paying for financial advice, which means it's more independent. Anyway, so as you can see, the whole system has a bias to sell more expensive products rather than anything else, because the more expensive product you sell, the more everybody makes, except for the consumer. So 75% of fees are essentially kickbacks. And we've set out to change the system, and that's a big, big piece. So we decided to start in this corner up here, so that's PPM advisory. Financial advice for that little PPM system, which is not as small as you might think. How am I on time? You're good, you're good. Okay. So essentially, we think people have two bad choices today. They either go through 3,000 different mutual funds themselves, which almost nobody does, or they hire an advisor which has a giant conflict of interest with you as a customer. So we thought about this and said, how do we crack this? We need, and we realized we had to come up with a third option that was as convenient as hiring an advisor, but by design, as independent and free of conflict of interest as doing it yourself. And that option was doing it together. So our first, we built a platform called Kollektiva, and it's a platform that allows every Swedish pension saver with four clicks on their mobile phone to compare their current investment decisions with each other. So in the first step, we retrieve whatever investments they have at the moment. In the second step, we compare their investments with other people born in the same decade, so with the same investment horizon. We filter out the 15% of the population that have been able to return the best long-term returns, and then we construct portfolios and let the rest of the population in the last step to copy those portfolios back onto their accounts. Essentially, we're using modern portfolio theory as pioneered by Herring Markowitz and then popularized by David Swenson, who essentially says, start by defining your investment horizon. Second, decide your asset class allocation. Third, choose your exposure instruments, so the instruments that give you exposure to the chosen asset classes most efficiently. And then rebalance regularly. And essentially, those are the four steps of the platform. So click, click, click, click, you're done. And performance so far has been pretty outstanding, actually. So I'm going to show you a couple of graphs. So we launched this September 1st last year, so we've been live just over seven months. And we publish the data compiled from the platform in a free report with some time delay. So this is data from May 4th. And we start by choosing a birth decade. So in this example, people born in the 70s. And we can see what the asset class allocation were of the people, of the top performers in that generation on May 4th. But more importantly, we can see what the performance was if someone decided to copy the portfolio once a month, hold it, to the next month. Copy it again, hold it, and so on. And it turns out that all the portfolios for all the generations, for any time period since we launched, have been outperforming the market with between 6 and 15 percentage units with lower volatility. So this is the 1970s portfolio, which has outperformed the market by 6 percentage units. People born in the 80s have been absolutely outstanding. They've been outperforming the market with 15% over seven months, with much lower volatility. And so, by the way, this is a free service, so people can use it for free. We don't charge anything for it. And more importantly, we don't accept any kickbacks from anyone. So instead, we asked our users, and by the way, in seven months, we've gone from zero to 21,000 customers and four billion sec on management. And we've asked our consumers, what would you prepare to pay for? And the answer that we get back is, we love the concept, want to continue to use the strategy, but it would be really nice if we didn't have to do the four clicks thing. So couldn't you do it for us and call us when we retire? So more convenience. So we thought about that and how to automate the service entirely. There were some legal issues as well as technical issues towards it. So we thought outside the famous box, which means that two weeks ago, the financial authorities approved five new mutual funds called Collectiva Besta 50s, 60s, 70s, et cetera, which are the first so-called smart beta index funds on the Swedish market targeting retail investors. And those are low-cost funds that have a strategy to emulate how the top former pension savers in each generation allocates their own money. So essentially, our business model is that we spend marketing money to generate users on our platform. We convert some of those into fund investors, which generates income for Collectiva. That's it. Thank you very much.