The word ‘finance’ conjures up myriad different images and associations - for the average person, many of these are negative: secretive bankers making shadowy decisions in dimly lit back rooms; impenetrable jargon; and contracts with obscure T&Cs, designed to trip up the average punter. In being shrouded in complexity and mystique, many financial products remain inaccessible to individual investors.
Recently, we’ve seen a wave of innovations which have democratised investing. Robinhood has provided access to leveraged equities and options; Coinbase has provided access to cryptocurrencies and other crypto assets; and Spaceship, Stake, and Sharesies have provided a low-fee option for Australian and New Zealand investors to gain access to international stocks. These options have allowed retail investors to invest in these financial products without paying exorbitant fees to brokers or banks.
However, most non-institutional investors still don’t have access to structured products - tailored packages of assets and options that give investors exposure to a range of asset classes and investment objectives.
This is why we were excited when the opportunity to back Stropro came across our desks!
What is Stropro?
First - what are structured products?
Structured products are customisable investment solutions that accommodate a range of investor preferences and target objectives. A structured product is assembled by an Issuer (usually an investment bank) and provides exposure to a set of underlying assets.
They enable an investor to:
- Access to a broad range of asset classes (e.g. equities, fixed income, ETFs, currencies)
- Target specific investment objectives (e.g. income, growth, capital preservation)
- Manage a range of risk profiles (e.g. low risk, balanced, aggressive)
- Invest in an emerging thematic or trend (e.g. electric vehicles, green infrastructure)
Structured products are able to cater for a range of investment objectives, including generating income in a low yield environment, managing volatility in an uncertain economic environment, preserving capital as you accumulate wealth, or capitalising on a specific market or thematic view.
For example, Stropro’s first structured product was one issued by Société Générale. The product offered a fixed coupon paying 7.5% per annum. The product tracked four of the largest technology companies in the world: Microsoft, Facebook, Apple and Google. Investors enjoyed the fixed quarterly coupon, and their capital is only at risk if one of the stocks breaches a barrier at maturity. The barrier, set at 35% below the initial share prices, was able to withstand the volatility during the COVID-19 crisis.
In addition to these risk-efficient income strategies, Stropro has products which offer exposure to economies such as Europe, China, and America, and in particular to the sectors which stand to benefit from these economies’ transition to a greener economy.
What does Stropro do?
Stropro is a platform that provides sophisticated investors access to products issued by global investment banks; products which have been restricted to private banks and institutions.
Historically, these structured products have also been shrouded in mystique - holders of these products had no option but to call bankers for updates on the performance and valuation of the products they hold. Stropro offers investors a much greater degree of visibility into the products they hold, through transparent reporting and risk management tools. Moreover, Stropro offers investors access to a much broader range of products than they could typically access through a banker.
What we loved
We invested in Stropro at their latest round in February 2020. There were several things about the opportunity we loved, and we also believe that now is the right time for Stropro’s disruptive product.
Piece by piece, banks are becoming unbundled
As technology continues to develop and nimble upstarts continue to innovate, we believe that large conglomerates (e.g. banks) are rapidly losing their monopoly on the provision of financial services. Tech-enabled, savvy competitors are chipping away at services that were previously exclusively provided by banks (e.g. mortgage lending, offshore payments, everyday banking, merchant services). What’s more, where some FinTechs started out as monoline disruptors (i.e. they did one thing really well), the most evolved FinTechs are building out an entire ecosystem of financial services for their customers (e.g. Stripe and Square).
However, there has yet to be a player that has meaningfully disrupted the structured products market. That’s why we’re excited to back Stropro, who is democratising access to the $7 trillion dollar structured products market.
Democratising access creates incentives for investment banks to compete on price and product innovation - a great outcome for customers!
The last decade has seen a trend towards the democratisation of access to certain investment products, such as exposure to hedge funds, overseas indices, derivatives, and algorithmic trading schemes. As platforms made it easier for non-institutional investors to access a range of products, and compare the fees charged on exposure to similar underlying assets, the makers of these products have been forced to compete on price and product innovation. We believe Stropro is able to do the same for structured products - forcing investment banks to create differentiated products that represent great value for the customer.
In a similar vein, because private banks have had exclusive access to structured products, they’ve been unmotivated to improve the experience of users who hold these products. Stropro is changing this - they have designed a seamless digital platform which allows customers to check the valuation and performance of their holdings on a daily basis. This also gives Stropro valuable information about the customers’ investment needs, and paves the path for Stropro to become a one-stop shop for sophisticated investors.
Stropro is filling a gap in Australia, and its platform is poised to scale regionally
Stropro has achieved meaningful traction in Australia. Stropro now has 19 investment products on its platform, many of which are a first to the Australian market. With minimal marketing spend, Stropro has 500 wholesale clients on its platform. Given the scalability of the platform across national borders, Stropro is planning an expansion into the rest of the Asia Pacific in the next 12 months. The total addressable market in Asia is massive, and the region has experienced a huge surge in wealth in the last decade.
In our due diligence process, we interviewed the sales teams of structured products at several Asian investment banks. We witnessed an overwhelming amount of interest in the model, and a willingness to embrace Stropro’s superior tech-enabled platform. The value proposition for these investment banks is clear: Stropro replaces the ‘intermediary’ between investment banks and the end-customer, allowing issuers to reach a larger number of end customers. Although this is just one part of the puzzle, our findings here made us optimistic about Stropro’s ability to win business in Asia.
The challenges we saw
Can Stropro convince customers to trust an unfamiliar platform and invest in an unfamiliar and abstruse product?
Stropro understands that educating investors about structured products is key to their success, and are investing heavily in curating content to educate investors. The Stropro knowledge hub is frequently updated with informative content about how structured products can facilitate exposure to everything from Joe Biden’s $2.25 billion Greener America Ahead plan to market volatility itself. Stropro’s Investor Evenings for new clients have also been a hit, generating an ROI of over 100%!
Importantly, Stropro is not the issuer of investment products, but rather the platform through which clients can access them. Stropro’s relationships with global names such as Citi, Credit Suisse, and Société Générale have allowed Stropro to bring products issued by these trusted investment banks to market in Australia.
How we got conviction
In the end, we were impressed by the scale of Stropro’s ambition: to democratise access to this well-utilised but poorly understood financial product, and in doing so, earn the right to become the investment platform of choice for intelligent sophisticated investors in the Asia Pacific.
The Stropro team, led by Anto Joseph, have an intimate understanding of the investments and private wealth landscape, and we were moved by their mission to bring disruption to this space. Stropro’s digitised and transparent investor experience is a breath of fresh air in a landscape where high-friction user experiences is still an accepted norm.
The willingness of investment banks to work with Stropro to offer their products to a broader range of customers convinced us that one way or another, change is coming to the dimly lit corridors of private wealth. We believe Stropro is well positioned to be an important player, leading the charge!