iReturns_IQ_LLC_New_Ventures_Presentation.pdf

Transcript

1. INDIVIDUAL PROJECT COURSE PRESENTATION ARTIFICIAL INTELLIGENCE – BOOSTED INVESTMENT MANAGEMENT FIRM IRETURNS IQ, LLC INVESTING YOU CAN TRUST.
2. BACKGROUND AND NATURE OF BUSINESS OPPORTUNITY • As the US population increases and shifts the majority of the working force from generation to generation, the investment potential of varying generations also provides different opportunities for each. • With the significant number of investment management firms, there are a lot of choices for the investors and thus increasing competition in the market. • Technology focused on augmented intelligence and big data analytics provides faster analysis not prone to human bias and also provides faster processing and execution of trades. Changing customer demographics and millennials increasing in size also made digital service as an incremental change in the competition landscape in the investment management industry.
3. MARKET STUDY • The Financial Times published an article regarding the quant funds on the brink of surpassing $1 trillion in assets under management . • Based on the same report, quants took $438 billion in 2017 with 15% annual growth. • A New York City-based quant firm grew its assets under management from $6 billion in 2011 to $50 billion in 2017
4. THE COMPETITION • The investment management industry is very competitive as each firm tries to take a slice of the market and profit margins of its competitors. There is an ever-changing regulatory landscape in the industry and makes the barrier to entry high and complex. • Based on the 12 pioneer firms utilizing AI in their investment processes, there are various concentrations which are very broad and usually involves global investing as opposed to a target niche market. There seems no true competitor in the perfect sense due to different strategies, different customer types, different geographical focus and different investing focus § Man AHL § Simplex Asset Management § Euclidean Technologies § Trinnacle Capital Management § Sentient Technologies § SCT Capital Management § Cerebellum Capital § QuantBot Technologies § Point72 § MANA Partners § Numerai § Quantopian
5. CURRENT MARKET LANDSCAPE • A primary consideration for choosing investment management firms is their ability to beat common benchmarks such as the S&P 500, Russell 1000, etc. but current investment processes are based on human bias. • Competing on costs, there was a significant pressure for investment management firms to cut operational costs and provide the same degree of professional service to their clientele and technology was a common strategy in meeting that goal.
6. A SNAPSHOT OF INVESTOR HOUSEHOLDS IN AMERICA FROM FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA) INVESTOR EDUCATOR FOUNDATION
7. MCKINSEY GLOBAL INSTITUTE STUDY “ARTIFICIAL INTELLIGENCE: THE NEXT DIGITAL FRONTIER”
8. TARGET MARKET (in USD millions) Total Addressable Market $ 940,000 Serviceable Addressable Market $ 438,000 Potential Share of Market $ 10,000
9. PRODUCT AND FIRM DIFFERENTIATION • With the millennials increasing in size and participates in the investing economy, the growth of differentiation from investment firms considering the digital service needs of multi- generation also outgrew the traditional modes of investing and tracking portfolio. • Sensitivities on the industry type of the portfolio stocks also played a new role in the selection of asset classes as awareness on ecofriendly and socially responsible companies grew significantly. • With the long-short equity strategy, not only US domestic stocks are considered in the new venture investment management firm utilizing a hybrid of augmented intelligence platform and skilled investment professionals, but also foreign emerging markets so as to provide significant diversification benefits.
10. STRATEGY AND MARKETING PLAN • iReturns IQ LLC is an AI-boosted investment management firm focused on multi-strategy hedge funds investing integrating both long/short equity and emerging markets strategies in order to provide great diversification benefits and providing better investment returns based on tolerable portfolio risk. • The firm will manage investment portfolio of accredited institutional and high net-worth individuals and will provide investment advisory services. • Considering the everchanging investment landscape, the firm will start out as an investment firm in San Francisco, California and focused on the US domestic market with selected emerging markets and will eventually offer license arrangements for its augmented intelligence investment platform.
11. PRICING STRATEGY • The typical hedge fund AUM fee is 2% and based on iResults IQ LLC’s tiered asset management fee, it will provide an incentive plan for accredited investors to benefit from a progressive lower fee based on the size of the assets under management. As a hedge fund investment firm, aside from an AUM fee, it will also charge the typical performance-based fee of 20% as its share on the capital appreciation.
12. ADVERTISING AND DISTRIBUTION STRATEGY • The marketing and advertising for hedge funds have dramatically changed over the years. In the past, the regulations regarding advertising of investment advisory services were very restrictive and during the dawn of the JOBS Act in the United States, the ban on general solicitation has been lifted. • iResults IQ LLC will organize investment conferences and have speaking engagements in order to evangelize on the AI platform. Aside from the seminars and conferences, the general partner will also utilize public relations through features in magazines and article writing in major investment journals. • Social media will likewise be utilized through Facebook, Twitter and Instagram in order to raise awareness about verified investment facts and articles.
13. MANAGEMENT PLAN – BUSINESS STRUCTURE • The diagram below provides a visual aid in depicting the business structure of the investment management firm focused on hedge funds. The general partner is the limited liability company that will manage the investment fund/vehicle. The hedge fund/vehicle will contain the pooled investments of the limited partners (accredited investors).
14. MANAGEMENT TEAM STRUCTURE • The organization will be a lean organization and will grow as the volume of transactions and assets under management grows and based on the needs of the business. Regulatory aspect of the business is a crucial part and thus external resources such as auditors, tax advisors, brokers and securities lawyers will be retained and will advise the Chief Investment Officer on various matters affecting the investment firm. • The initial management team (within first two years of operations) will comprise the following: Chief Investm ent O fficer Chief AI and M achine Learning Strategist VP Com pliance and Legal Portfolio M anager – Long/Short Equity Senior Softw are Engineer VP Finance and Adm in Portfolio M anager – Em erging M arkets Softw are Engineer VP M arketing and Com m unications Investm ent Analyst O ffice M anager Research Analyst
15. INVESTMENT SERVICE AND QUALITY WORKFLOW • iReturns IQ, LLC will pride itself with high-quality product offerings with its augmented intelligence-enhanced investment process and procedures. Quality control will also foster an environment in which both customers and employees are empowered to make sound decisions and supported by sufficient and appropriate data.
16. OPERATIONS AND DEVELOPMENT TIMELINE • The investment firm will start focusing its establishment and growth in the San Francisco Bay Area due to the availability of talent and diverse target customers from institutional investors to high-net-worth individuals. The first six months will also concentrate on developing the AI prototype for investment management. • Coding and developing the algorithms will be the priority and study cases will be developed alongside the development of the AI prototype. After development of the AI prototype, the investment firm will transition to the AI beta platform and will conduct additional quality control testing and user interfaces.
17. FINANCIAL AND FUNDING PLAN • The first two years of operations will be resulting to net losses of approximately ~$1.3M and ~$1.6M and will slowly turn to net income in the third year of approximately ~$170K and then building on the momentum of growing the assets under management through customer acquisition and growing the appreciation of the investment portfolio, the fourth year and fifth year are projected to recoup the prior year losses and result to net income of approximately ~$3.2M and $8.8M, respectively December 31, 2018 2019 2020 2021 2022 Net Revenues Total revenues $ 274,032.63 $ 1,428,439.28 $ 3,987,773.08 $ 9,762,116.50 $ 19,397,161.20 Cost and expenses Investment operations 924,928.00 1,777,180.00 1,892,538.00 2,522,037.90 2,769,299.30 Sales and marketing 216,428.40 587,979.00 990,936.40 1,336,417.62 1,847,140.10 Research and development 402,499.60 655,701.00 842,601.60 978,995.28 1,208,715.44 Total costs and expenses 1,543,856.00 3,020,860.00 3,726,076.00 4,837,450.80 5,825,154.84 Operating income (loss) $ (1,269,823.37) $ (1,592,420.72) $ 261,697.08 $ 4,924,665.70 $ 13,572,006.36 Other income (expense) Interest expense, net - - - - - Other income - - - - - Total other income (expense) - - - - - Income tax provision (benefit) $ - $ - $ 91,593.98 $ 1,723,632.99 $ 4,750,202.23 Net income (loss) $ (1,269,823.37) $ (1,592,420.72) $ 170,103.10 $ 3,201,032.70 $ 8,821,804.13
18. REVENUE FORECASTS • The founders will use their network to tap into family, friends and the Cornell community to target the first investors who will increase the assets under management of the investment firm to its initial target level. The initial funding was calculated taking into account the total costs and expenses and the capital expenditures in the first year and funding 175% of it in order to cover for the AI development and hiring plans, while concurrently increasing its customer base to allow it to cover its runway for growth. December 31, 2018 2019 2020 2021 2022 Assets under management (estimated) $ 5,000,000 30,000,000 105,000,000 315,000,000 393,750,000 Multiply by: 1.50% (Average in tiered pricing) 1.50% 1.50% 1.50% 1.50% 1.50% Performance-based fee of 20% based on capital appreciation 199,033 978,439 2,412,773 5,037,116 13,490,911 Estimated Revenues $ 274,033 $ 1,428,439 $ 3,987,773 $ 9,762,116 $ 19,397,161 AI Platform SaaS Revenues $ 1,200,000 Total Revenues $ 274,033 $ 1,428,439 $ 3,987,773 $ 9,762,116 $ 20,597,161
19. VALUATION AFTER 5 YEARS • iReturns IQ LLC also performed its valuation for the first five years and if it reaches all its targeted levels of assets under management and expected capital appreciation from its AI investment platform, the initial funding from its family, friends and Cornell community will likely result to superior return of investment (ROI). • Growing the assets under management will be the key focus and then shift the AI platform as separate revenue generation. This in turn will significantly grow the valuation of the firm to 14.5X of the initial investment. The initial funding will initially be used for the hiring plans and development of the investment firm and the AI platform and thus will result to net loss and the firm will gradually take in revenues that will slowly and surely take the firm in a competitive position while leveraging on its AI-strength and well diversified asset portfolio.
20. REFERENCES • Augmenting Human Intelligence. MIT Technology Review Insights. Date Published June 13, 2016. Date Accessed March 31, 2018. • McKinsey Global Institute. Artificial Intelligence: The Next Digital Frontier? Date Published June 2017. Date Accessed January 5, 2018. • Wigglesworth, Robin. Quant hedge funds set to surpass $1tn management mark. Financial Times. Date Published January 8, 2018. Date Accessed February 1, 2018. • Investment Company Fact Book: A Review of Trends and Activities in the Investment Company Industry 57th Edition. Investment Company Institute. Date Accessed March 31, 2018. • Augmented Intelligence: A Catalyst For AI In The Enterprise. Forbes. Date Accessed March 31, 2018.