November 11, 2021
Why QED invested in Atomic
By Camila Saruhashi and Amias Gerety
Every student of finance and economics learns about the efficient market hypothesis and the natural implication that, for most people, the best investment advice is simply to invest in a diversified basket for the lowest possible fees and let the power of compounding do the work.
But academic finance has long known that the efficient frontier of investing requires additional tools. These tools take advantage of naturally occurring volatility to “harvest losses” in order to offset capital gains. They naturally rebalance over time (selling some of the winners and buying more of the laggards) so that the diversification and balance continues to do its work. Moreover, we know that investing for our futures should also be tailored to our financial lives and tailored to our values.
Despite generational innovations from the mutual fund to passive indexing to the rise of ETFs, the best tools for wealth building simply weren’t available to the retail investors who needed access the most. This generation’s asset management challenge is access and personalization. Combining the best tools of academic finance with open access and true customization.
Robo-advisors were among the first companies to take up this challenge through tech in 2008. Their investing algorithm replaced the high cost of financial advisors and allowed them to lower the minimums and asset management fees, making services more accessible. The second wave came in 2013 when trading apps removed barriers to trading by making investing commission-free and mobile-first and allowed users to engage in direct retail investing.
These waves generated great companies, but robo-advisers have not risen to meet the challenge of personalization and the low-fee trading apps haven’t met the challenge of guiding their customers to the best long-term investment outcomes.
The third wave of disruption is coming now with embedded wealth management that lowers the cost of acquisition and scale distribution of wealth services to users across the globe.
The wealth management industry is a massive growing market worth $100 trillion globally and $48 trillion in North America. It is a market that is quickly shifting dynamics in terms of geography, demographics and channel.
- Geo shift: by 2025, AUM will reach US$145 trillion in 2025, with the fastest growth coming from the developing markets of Latin America and Asia Pacific.
- Demographic shift: by 2030, millennials will hold five times as much wealth as they do today, and more than half of them are prepared to move to wealth management firms with an enhanced digital platform.
- Channel shift: the share of global customers using fintech platforms for wealth management is expected to grow while the share using commercial or retail banks is expected to drop in the coming years.
Atomic was built to enable companies to get to market faster and compete in this fast-changing environment. Having seen all offerings in the market, we were most impressed by Atomic’s team and product.
The founding team is strong and obsessed with making investing accessible, engaging and responsible globally. David, born in Kenya, and Marco, the child of immigrants from Ecuador, met while pursuing their engineering degrees at Stanford University. David worked in quantitative analysis at a global investment management firm and Marco worked in productionizing machine learning models into API at large software companies. Having accessed opportunities in the U.S. that none of the peers in their original countries would have had, they decided it was time to start Atomic to bring a world class technology that enables social mobility and ends intergenerational poverty at scale globally.
Through their platform, any company in the world can offer digital wealth management products that are competitive to the latest in the market. Companies now can offer investments in direct indexes that can be customized based on users’ risk profile, investing principles (i.e “combat climate change” or “end poverty and hunger”) and direct stock picking preferences. There is no investment minimum required and lot level tax loss harvesting is automated. In addition to the tech infra, Atomic abstracts all the regulatory and operational complexity by acting as the registered investment adviser, and bundling together the back office of brokerage, custody and clearing.
While most players are focused on increasing trading activity, Atomic is focused on helping users build wealth and accumulate assets. Atomic is the only player in the market to offer guided custom indexing with no minimum (not just ETFs, but indexing based on direct stock ownership), lot level tax loss harvesting, and global securities access.
The team’s passion for a world where people can access and experience the power of compounding has resonated with an impressive number of customers who want to use their platform for a multitude of use cases, from non-banks that want to evolve their savings account into a high yield investing product to startups in emerging markets that want to offer U.S. wealth products to their user base. And that is just the start.
At QED Investors, we couldn’t be more excited to announce our Series A investment in Atomic and join their vision of enabling any company in the world to offer access to security ownership and the power of compounding.