Digital tokens are an edgy subject for both investors and regulators alike but what about when the underlying asset is a regulated and established quant hedge fund. Does that change their assessment?
Singapore-based financial technology firm Xen is confident it will and is building out a blockchain based business the founders hope will break the mould and lead to a transformation of the industry.
Katrina Cokeng and Manish Sansi formulated their alternative investment wealth management platform in the Lion City, now recognized as Asia's financial technology hub.
Among the strongest pull factors in selecting Singapore were access to talent, a robust financial technology infrastructure, a forward-thinking regulator and a strong pool of fintech oriented investment capital.
New hires are being added to the business as it ramps up. Cokeng says two new hires had recently joined, enlarging the Singapore team to ten strong. "We are hiring really quickly," she adds.
Cokeng and Sansi claim Xen is the first-of-its-kind wealth management platform that will give mass affluent investors the opportunity to access alternative investments to achieve active returns.
The pair have ambitious plans to innovate and democratize an industry which up until now has been dominated by and designed for ultra-high net worth and institutional investors.
What is going to differentiate Xen's digital token is that it will be controlled under a given jurisdiction's regulatory laws, initially in this case by the Financial Services Commission in Mauritius.
The fintech's beta product meanwhile was launched last week. Xen will work closely with an unnamed but 'friendly' quant hedge fund allowing for testing and calibrating of the blockchain based robo-advisory technology.
A small number of selected clients will use the Xen digital tokens in the trial that Cokeng and Sansi see as bringing them a little closer towards their vision of an industry shake-up.
At the same time the Xen team is preparing for its entry into a regulatory sandbox controlled by the financial regulator in Mauritius, scheduled to start in February 2019.
"We're really looking to build the next generation wealth management platform," says Sansi. "It is a big thing to say, but essentially, if you were to create a Fidelity or a Vanguard today, you would do it with the latest technologies. So for us that would be leveraging the best of blockchain," he adds.
By using the Mauritius sandbox Xen hopes to approach other regulators, most likely in Asia, with a tried, tested and licensed product.
"I think that's why it's important to have this regulatory sandbox license in Mauritius. That would actually make us the first licensed security token for any sort of alternative investment," Cokeng says.
The firm's ultimate target market is likely to focus on millennials and xennials, who are just coming of age in terms of their wealth, whether it's inherited or made from employment income.
Xen's own research points to millennials and xennials as looking for transparency and control, elements that the blockchain platform will provide.
The founders have not started actively fundraising preferring instead to focus on getting the licensing in place, stressing that the fintech is not something they would really want to scale without the correct regulatory approval. "What we are looking to essentially build is like the Netflix for the wealth management space. Where ultimately our customers would be attracted to our platform, not because they want security tokens per se, but because of the exposure to the best underlying assets," according to Cokeng. "It will be our job to identify those assets and bring them on board," adds Sansi.
He also says that is why the space Xen is in, in terms of security tokens, is something that regulators can get comfortable with because the underlying assets are assets that they know. These are funds and securities that are already licensed from a traditional standpoint.
Under a scenario where many established wealth managers have the clients but not the cutting-edge investment technology, Cokeng did not rule out that somewhere down the line the fintech could partner with a traditional bank or financial services firm.
"Yes, I think later down the line we're certainly very open to partnering with banks in terms of offering our technology platform. And of course, we would love to be licensed ultimately in Singapore as well," she adds.
