Mesitis started out of a mistake that Santa made …
I had recently retired from banking after spending almost 20 years on various trading floors across the globe. The plan was to maybe play golf and trade my own money on the side.
The market was very bullish (this was April 2013) and I was no longer governed by my ex-employers’ rules that required me to get an approval before every trade and hold every purchase for at least 30 days. I was free to buy and sell as I wanted… I was going to have a lot of fun…!
Or so I thought. There was a problem… Santa had messed up. My list to Santa was very simple:
- Able to trade any asset class (bonds, equities, derivatives etc.) anywhere in the world at a reasonable (read cheap!) price with the best provider for that asset class in that location
- Custody my assets with a very safe bank and get cheap cost of leverage.
- Automatically track all my investments in one place and provide me with the analytical tools required to figure out what I was doing right and where I was going wrong.
- Benchmark my performance to other investors, see what they were doing differently, see how I was doing in comparison and if required tweak my style to better my returns
Unfortunately, it seemed that Santa got the addresses wrong. My toys got delivered to institutional investors like George Soros and others. I could even see my toys under their tree. They had to just snap their fingers and banks would come running to setup fund / prime broking structure giving them all of the above.
Individual investors like me were getting a raw deal. It did not matter whether you were mass affluent or high net worth. For trade execution there were only two choices, you could either
- Go to a broker and get relatively cheap execution on a few equity markets with a very high cost of leverage. Brokers usually didn’t do bonds and derivatives
- Or go to a bank and pay extremely high cost of execution.
The ability to trade at best price and custody separately simply did not exist. And as far as the rest of the list (tracking, analysing, benchmarking etc.) is concerned don’t even get me started.
Since Santa didn’t help, I had no choice but to build my own toys. So I put together a team and we managed to convince a few banks to let us ‘trade away’. We could trade with the best broker; we could find… and the bank would settle the trade, do the custody and provide leverage etc. as long as we could get more clients for the bank to make it worth their while.
We initially started by focusing only on the execution (i.e. the ‘trade away’) piece. We got registered under Para 5(1)(i) of the Second Schedule to the SFR(LCB) to conduct the regulated activity of fund management. . As a registered fund management company (RFMC), Mesitis is exempt from the requirement to hold a Capital Markets Services Licence for fund management. We then started acquiring clients.
Immediately, we realised that what we were doing had the potential of becoming very big. Our initial focus for execution business (due to a restriction of our license) was just the high net worth segment and even that segment was HUGE.
There are 12 million high net worth individuals in the world who pay approximately US$22 billion in trading commissions every year. Mesitis, to the best of our knowledge, is the only company in the world who provides the flexibility of ‘trading away’ combined with safe-custody in the customer’s own bank account (Mesitis does not handle or touch client assets at any time) at a US$299/- per month fee.
Singapore alone has about 100,000 potential customers (Asia Pacific ex Japan ex China is about 1.2 million) and we only needed about a 100 clients to achieve cash break even. We did not have a direct competitor. We could eventually (depending on licensing) target the mass affluent market, which is 438 million individuals worldwide. My mind boggled at the potential. It was a business case made in heaven.
We started test marketing our product using word of mouth and referrals. As further positive feedback potential customers kept asking to invest in Mesitis’ equity, so we figured we must be doing something right.
And then a strange thing started happening.
To address the consolidation requirement, we had been building a website where we showed our customers their trades / performance etc., but we were doing it at a lower priority as compared to the execution piece. The website was designed to have all of our customers’ trades on it, irrespective of whether the underlying was traded through us or not. For that we were willing to accept trade information from a customer in any electronic format (initially only spreadsheets). However, we soon realised that bulk of the data sits with banks, and since banks in this part of the world are largely not setup to provide electronic feeds, the only way we could get the data electronically was to scrape the PDF bank statements.
So essentially now customers just need to forward us their bank statements and we do the rest. We offer our customers a multi-currency, multi-asset class consolidation service across all markets and any number of bank / broker accounts. Initially, this was a ‘free’ add-on included in the same flat monthly fee.
The strange things that kept happening was that we would meet a customer and pitch our company and also demo the website. The customers would say that they would think about making investments through us, but can they get just the website. And they would be willing to pay the full US$299/- price for just this service. Initially, we resisted saying that we are not a software company, but after 5-6 customers in a row asked for this same thing, the penny dropped and we ‘un-bundled’ the software part and started offering it separately to the clients (it will be soon rolled out into a separate company that does software only. This company will not be able to execute trades at all but is not restricted in the type of investors and therefore can do analysis for mass affluent as well)
That was our ‘Eureka’ moment. We realised that customers needed proper analysis of their trades before we could discuss efficient execution with them.
We were suddenly having extremely high quality conversations with our customers. We were also gaining insights into how our customers thought, analysed investment opportunities and made trading decisions. Without formally marketing our services, we have already crossed US$250 million Assets under Reporting (we are currently operating at full capacity and have had to delay demo requests from clients). To clarify Assets under Reporting is different from Assets under Management. Asset under Reporting is simply the summation of assets of all users who are currently using our platform to consolidate and view their assets in one place. Mesitis Capital in no way advises or guides these investors.
Initially, we were only doing consolidation and P&L reporting. However, based on customer feedback we quickly added a lot of services (all for the same flat fee) like historical analysis of portfolio, portfolio income profiling and projection, scenario analysis, risk analysis. We also added idea generation, performance benchmarking to other investors on our platform, model portfolios, public information about holdings of large fund managers etc.
Our objective is to give our customers complete, relevant and actionable information. They should be able to make trading decisions based on the information provided by us.
And then the big data / wisdom of crowds aspect of the website started hitting us in the face. We are the only platform we are aware of where we analyse a customer’s entire portfolio (instead of part of a portfolio that a particular bank or a fund manager sees). That way our analysis of investor behaviour is much more complete. For example, we are already noticing that customers behave quite rationally, like to buy simple products that they understand well etc. They also seem to have a bias towards particular banks i.e. they tend to use certain banks only for certain types of investments.
Every single investor on the platform brings some value. Every single investor on the platform could learn something new from others on the platform. Collectively, that knowledge is something very impressive and even I learn something new every day. And the collective performance is good. Our investors have a strong fixed income bias and the weighted average performance of all investors on our platform over the last 1yr beats 98.9 per cent of all the debt focused fund AUM on Bloomberg (funds with more than 80 per cent debt and denominated in major currencies).
Maybe Santa did bring me a gift after all …