Michael Kitces #FinTech

Covestor receives new injection of funding, adds staff, improves features

The online investing and information sharing site has also improved its account opening process and made it simpler for asset managers to sync shared portfolios

Jun 20, 2013 @ 1:49 pm

By Davis Janowski

On my to-do list this past week has been to post some news on Covestor, the fairly well known “online marketplace for investing” as they refer to themselves.

The firm announced on June 13 that it had raised $12.75 million in a Series B round of financing; among the investors were Union Square Ventures, Spark Capital, Amadeus Capital Partners, and Bay Partners.

And as they mentioned in their prepared statement, this brought the firm's total raised to $28 million.

The injection and some recent hires and additions to its board should position the firm for added stability and better flexibility for launching some new tools.

While it was founded way back in 2006 (old or mature by Internet standards though not quite ancient), the Covestor platform introduced multi-managed portfolios in July 2009.

Those of you with long Internet-memory may recall that the site and service was originally introduced as an alternative to the traditional separately managed account model that requires the investor to work with a broker or adviser intermediary.

Currently, advisers probably recognize it more as a place where they can easily share model portfolios and get compensated for them or find models of others to follow.

Busy time

A lot has been going on at Covestor of late.

The firm relocated to Boston from New York last year and hired Sanjoy Ghosh as chief investment officer last month (he came over from PanAgora Asset Management, where he was director of investments).

It also beefed up its board by appointing a couple of new independent members (including Jamie Cornell, currently managing director of Bollard Group, a multi-family office; and John Sinclair, managing director at Infusion Global Partners, an alternative asset management firm).

In May, Covestor also hired a new business manager, compliance analyst, controller and developer.

I checked out Covestor's latest filing, since it is a registered investment advisory with the Securities and Exchange Commission.

A quick scan of its latest form ADV indicates that Covestor has $11 million in assets under management and makes its revenue based on a mix of a percentage of assets under management, performance-based fees and subscriptions.

That falls far short of the full story, though, since it now has 89 portfolio managers on its platform and more than 100 portfolios available on covestor.com.

Those assets are not actually on Covestor's platform for the most part, just a listing of what's in them and data on the holdings.

Touted in last week's prepared statement was that “the 10 most popular managers with the most client assets invested in their Covestor portfolios had beaten the S&P 500 index by 28.5%, gross of fees, over the last year (as of June 10).”

Part of the firm's last injection of investor capital went toward the construction and roll out of Portfolio Sync, the firm's proprietary trading capability that allows subscribers to replicate — mirror if you will — the trades of those managers they are following on the site.

Those folks include active portfolio managers, hedge fund managers and individual investors.

In total, the Portfolio Sync software has now replicated over 500,000 trades.

Improvements

Covestor.com launched a new home page in the first week of June that includes a section specifically for people interested in becoming portfolio managers on the Covestor platform.

There is also a new, simplified, streamlined sign-up process that can be done within 10 minutes according to the firm, when done through their site (Covestor works with Interactive Brokers as its back office for opening brokerage accounts and previously, new clients had to sign up through IB for a new account).

There are lots of other improvements too, including addition of guided search to make it easier for people to search for investment products online, there is an improved portfolio categories page as well.

Related stories:

Five more money managers sign on for Covestor platform

Anyone for a cafeteria-style SMA?

Covestor launches retail multimanaged accounts

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