Robo-Adviser Scalable Hits $1.2 Billion by Joining With Banks

(Bloomberg) -- When a quartet of German and British finance professionals started their computer-driven asset management offering 28 months ago, they were joining a crowded field. So-called robo-advisers had been plying investors with digital ways to manage their money for several years.

Now their startup, Scalable Capital, has amassed 1 billion euros ($1.2 billion) in assets under management, the company said Tuesday, joining the ranks of the largest independent firms. One reason why: Scalable Capital wasn’t shy about joining forces with the investment giants robo-advisers are supposed to be disrupting.

The firm in September announced a partnership with ING-DiBa, the German digital lender owned by Amsterdam-based ING Groep NV, offering Scalable Capital’s investment services to its 8 million customers. As a result, more than 500 million euros flowed into the young company’s algo-managed portfolios, said Ella Rabener, a co-founder and the company’s chief marketing officer.

“European investors are becoming more nervous about retirement and preserving their standard of living,” said Rabener, a former associate principal at McKinsey & Co. who formed Scalable Capital with veterans from Goldman Sachs Group Inc. and Barclays Plc. “They’re looking for an easier way to invest.”

Like most robo-advisers, Scalable Capital uses exchange-traded funds to make bets for investors. The company, which counts ETF giant BlackRock Inc. among its investors, uses an approach in which investors select how much downside risk they are willing to accept and algorithms then put together portfolios to make sure that level is met at all times. If an unforeseen event occurs, like an unexpected increase in interest rates, the algorithms will assess for a couple of days whether this will have a sustained impact on the risk of the investment, and adjust the portfolio accordingly.

Noting that even private banks use ETFs these days, Rabener says it is possible that someday robo-advisers may go after more high-net-worth clients by adding services such as current accounts and advice on managing complicated tax and financial issues. Yet with Europeans sitting on trillions of euros in savings accounts, she said the firm is content to push for more deals like the one with ING-DiBa.

“The opportunity to shift some of those savings accounts into capital market products is enormous,” Rabener said.

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