WO2016083872A1 - Virtual funds - Google Patents

Virtual funds Download PDF

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Publication number
WO2016083872A1
WO2016083872A1 PCT/IB2014/066429 IB2014066429W WO2016083872A1 WO 2016083872 A1 WO2016083872 A1 WO 2016083872A1 IB 2014066429 W IB2014066429 W IB 2014066429W WO 2016083872 A1 WO2016083872 A1 WO 2016083872A1
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WO
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Patent type
Prior art keywords
discount
investors
holdings
funds
brokerages
Prior art date
Application number
PCT/IB2014/066429
Other languages
French (fr)
Inventor
Michael TOFILIS
Original Assignee
Tofilis Michael
Priority date (The priority date is an assumption and is not a legal conclusion. Google has not performed a legal analysis and makes no representation as to the accuracy of the date listed.)
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Publication date

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    • GPHYSICS
    • G06COMPUTING; CALCULATING; COUNTING
    • G06QDATA PROCESSING SYSTEMS OR METHODS, SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL, SUPERVISORY OR FORECASTING PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL, SUPERVISORY OR FORECASTING PURPOSES, NOT OTHERWISE PROVIDED FOR
    • G06Q40/00Finance; Insurance; Tax strategies; Processing of corporate or income taxes
    • G06Q40/06Investment, e.g. financial instruments, portfolio management or fund management

Abstract

Asset management companies connect directly to participating discount brokerages using an Enterprise Service Bus and online terminals. The Enterprise Service Bus distributes trade orders placed by portfolio managers to respective discretionary client accounts at any discount broker. Each asset management company, via a phantom database, virtually groups and manipulates client holdings, without changing ownership. Holdings are analysed collectively as one or several funds, and separately (as needed), based on varying investor goals and constraints. Investors continue maintaining direct ownership of holdings, and managers directly invest client holdings by theoretically rather than physically, grouping monies into funds. This method design also increases management flexibility and prevents the disproportionate sharing of transaction costs usually borne by investors joining a fund at different times.

Description

Description:

Financial markets evolved to produce simplified portfolio management products and tools, such as Exchange Traded Funds (ETFs), and discount brokerages. However, average investors rarely receive proper guidance on how to use such products. Instead, they are encouraged by discount brokers to take short-term positions, or otherwise invest their monies in mutual funds through sales representatives, usually labelled as Financial Advisors. Mutual fund structures were products of environments not yet exposed to advanced communications' technologies; and have grown to centralize, and restrict gains shared amongst non-institutional investors and their respective portfolio managers.

When setting up a mutual fund, the manager (usually a General Partner) outsources legal and administrative services, through third party administrators (or ones, bought out by the asset management companies themselves). Lawyers set up a fund partnership, where limited partners (investors) can own, and redeem shares. Fund accountants are constantly calculating the net asset value (NAV) per share, and forwarding relevant information to investors through fund administrators.

Administering investor contribution and redemption requests is quite costly and time consuming. These operational processes are financed by investor savings, and are very expensive and inefficient, considering available technologies.

Using the new systems method, discount brokerages can efficiently channel professional discretionary portfolio management services to large numbers of investors. The idea is to include online discount brokers, in the asset management process to provide 'virtual funds' as an alternative to mutual funds. The system design minimizes management fees, and simplifies legal and operational procedures. The direct accessibility and decentralization of management services via discount brokerages, allows for centralizing and limiting sales and administration costs.

By advertising participating discount brokerages, affiliated asset management firms will collaterally gain market exposure. Essentially, marketing two complementary services by only advertising one. Investors, active portfolio managers, ETF providers (passive asset managers), and brokers, will share higher gains while reducing monitoring costs. This reverses the current process, which works towards guaranteeing minimum sales and operations (and regulation) fees to the respective service providers, while limiting net portfolio gains passed onto investors.

Today, investors can conveniently open several, online investment accounts of any type (e.g. individual, joint, trust, partnership). The interview and selection process with prospective clients who want to invest their savings with a portfolio manager will be liaised through discount brokers. This replaces sales and marketing operations performed by mutual fund wholesalers and financial advisors. Asset management companies selected by investors will be able to access and control discretionary accounts via the system described.

Asset management companies will use a phantom database to visually group their clients' holdings in the form of funds, without physically grouping investor holdings into funds. This is a key point of the method. Virtually grouping investor holdings, rather than physically, provides the advantages of physically grouping investor holdings, without the extra costs incurred. This has vast implications in regards to simplifying operations, increasing transparency, aligning interests and minimizing administration fees. Asset managers can view investor holdings, in different forms using the Phantom database. The system can analyze them as one fund, a group of funds, or in their original form as separate investor holdings with different (or common) risk appetites and goals. Clients will use the existing discount brokerage interface to obtain relevant portfolio information, and place redemption, and contribution requests.

On the other hand, advertising ETFs, discount brokerages and asset management services, as complimentary products, allows these parties to align their interests together, and directly benefit investors. The new design repositions discount brokerages and ETFs and properly defines their roles in a way that will help eliminate creative marketing methods encouraging short term trading, where the investor usually comes in second place.

ETFs are simplified tools used for facilitating complex trades and mimicking index performance. They are traded as simply as public companies' shares. Built in fees range from 0.1% to 1% depending on the complexity of the ETF. Retail discount brokerages, provide easy access to ETFs, stocks, and options. In essence, offering investors a similar variety of market exposure, available to sophisticated fund managers. Its users and providers when offered without independent guidance, more easily abuse such accessibility. Today, discount brokerages continue survival by offering short-term trading schemes to increase trading frequency and revenues.

Ethical dilemmas are reduced when addressing situations affecting "priority of transactions", and "integrity of capital markets". For example, in cases where management decides to sell all shares of stock A, for all their clients. The manager would enter one sell order through his/her terminal. The Enterprise Service Bus distributes corresponding suborders to associated broker terminals. Alternatively, if certain clients are better suited to hold stock A, and buy puts instead, the manager is able to enter both trades simultaneously as follows: Sell all shares of A except for clients 1 and 2, hold shares A and buy Puts AAA. One asset management company can manage accounts held in different online brokerages.

Portfolio managers will provide services that are more rewarding when not restricted to one broker, approach, or investor type. Managers face less market manipulation issues, when executing smaller block trades where 'smart money' is not as easy to follow. They will deal with less transparency issues surrounding NAV manipulation and disproportionate transaction costs borne by investors entering and exiting the fund at different times. "What dawned on me is obviously as money comes in it incurs transaction costs, and the earlier investors bear a disproportionate share of that money coming in1". Using the proposed method, speed and cost of execution are solely dependent on investors' choice of discount broker.

The new method will directly include ETFs in investor portfolios, to increase management flexibility and reduce management fees. However, if ETFs are included in mutual funds as they are today, they become ambiguous financial products further increasing management fees, and reducing transparency. "As Bohm emphasizes, "Unless we understand the subtleties of wholeness, we will not only divide what can't be divided, we'll try to unite what can't be united. Real differences and similarities will become hopelessly mixed up2." The average investor still relies on mutual funds, and discount brokerages are investigated for promoting 'unwarranted' short term trading schemes. The new systems method will introduce a new concept called 'virtual funds' as an alternative to mutual funds, and utilize discount brokerages and ETFs in directly benefiting investors.

Leeend

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Claims

Claims
1- Using the new systems method, discount brokerages can efficiently channel professional discretionary portfolio management services to large numbers of investors. The idea is to include online discount brokers, in the asset management process to provide 'virtual funds' as an alternative to mutual funds. The system design minimizes management fees, and simplifies legal and operational procedures. The direct accessibility and decentralization of management services via discount brokerages, al lows for centralizing and limiting sales and administration costs.
2- By advertising participating discount brokerages, affiliated asset management firms will collaterally gain market exposure. Asset management companies will be affiliated and accessed through all member discount brokerages. Essentially, marketing two complementary services by only advertising one. Investors, active portfolio managers, Exchange Traded Fund providers (passive asset managers), and brokers, will share higher gains while reducing monitoring costs. This reverses the current process, which works towards guaranteeing minimum sales and operations fees to the respective service providers, while limiting net portfolio gains passed onto investors.
3- Advertising ETFs, discount brokerages and asset management services, as complimentary products, allows these parties to align their interests together, and directly benefit investors. The new design repositions discount brokerages and ETFs and properly defines their roles in a way that will help eliminate creative marketing methods encouraging short term trading, where the investor usually comes in second place.
4- Asset management companies will use a phantom database to visually group their clients' holdings in the form of funds, without physically grouping investor holdings into funds. Investors will be accessible through all discount brokerage. Virtually grouping investor holdings, rather than physically, provides the advantages of physically grouping investor holdings, without the extra costs incurred. This has vast implications in regards to simplifying operations, increasing transparency, aligning interests and minimizing administration fees.
5- Asset managers can view investor holdings, in different forms using the Phantom database. The system can analyze them as one fund, a group of funds, or in their original form as separate investor holdings with different (or common) risk appetites and goals. Clients will use the existing discount brokerage interface to obtain relevant portfolio information, and place redemption, and contribution requests.
6- Portfolio managers will provide services that are more rewarding when not restricted to one broker, approach, or investor type. Managers face less market manipulation issues, when executing smaller block trades where 'smart money' is not as easy to follow. They will deal with less transparency issues surrounding NAV manipulation and disproportionate transaction costs borne by investors entering and exiting the fund at different times. Using the proposed method, speed and cost of execution are solely dependent on investors' choice of discount broker.
7- Ethical dilemmas are reduced when addressing situations affecting "priority of transactions", and "integrity of capital markets". For example, in cases where management decides to sell all shares of stock A, for all their clients. The manager would enter one sell order through his/her terminal. The Enterprise Service Bus distributes corresponding suborders to associated broker terminals. Alternatively, if certain clients are better suited to hold stock A, and buy puts instead, the manager is able to enter both trades simultaneously as follows: Sell all shares of A except for clients 1 and 2, hold shares A and buy Puts AAA. One asset management company can manage accounts held in different online brokerages.
8- The new systems method will introduce a new concept called 'virtual funds' as an alternative to mutual funds, while utilizing discount brokerages and ETFs.
PCT/IB2014/066429 2014-11-28 2014-11-28 Virtual funds WO2016083872A1 (en)

Priority Applications (1)

Application Number Priority Date Filing Date Title
PCT/IB2014/066429 WO2016083872A1 (en) 2014-11-28 2014-11-28 Virtual funds

Applications Claiming Priority (1)

Application Number Priority Date Filing Date Title
PCT/IB2014/066429 WO2016083872A1 (en) 2014-11-28 2014-11-28 Virtual funds

Publications (1)

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WO2016083872A1 true true WO2016083872A1 (en) 2016-06-02

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PCT/IB2014/066429 WO2016083872A1 (en) 2014-11-28 2014-11-28 Virtual funds

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Citations (4)

* Cited by examiner, † Cited by third party
Publication number Priority date Publication date Assignee Title
CA2293090A1 (en) * 1999-12-23 2001-06-23 Bill Snow Investment method and system
US20030208432A1 (en) * 1998-03-11 2003-11-06 Wallman Steven M.H. Method and apparatus for enabling individual or smaller investors or others to create and manage a portfolio of securities or other assets or liabilities on a cost effective basis
US20040002910A1 (en) * 2002-07-01 2004-01-01 Shinichi Mizukami Financial asset management system
US7752107B1 (en) * 2007-02-28 2010-07-06 Island Intellectual Property Llc System and method for managing aggregated accounts

Patent Citations (4)

* Cited by examiner, † Cited by third party
Publication number Priority date Publication date Assignee Title
US20030208432A1 (en) * 1998-03-11 2003-11-06 Wallman Steven M.H. Method and apparatus for enabling individual or smaller investors or others to create and manage a portfolio of securities or other assets or liabilities on a cost effective basis
CA2293090A1 (en) * 1999-12-23 2001-06-23 Bill Snow Investment method and system
US20040002910A1 (en) * 2002-07-01 2004-01-01 Shinichi Mizukami Financial asset management system
US7752107B1 (en) * 2007-02-28 2010-07-06 Island Intellectual Property Llc System and method for managing aggregated accounts

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