British vertical fintech uses AI to create a low-cost investable product

Dubai: Stalwart Holdings, a vertical fintech company based in the United Kingdom focused on the development of niche solutions for the alternative investment market, has announced that it will open to external investors the ability to participate in the Performance Linked Bonds (PLBs) issued in August 2020 as part of a private placement deal.

According to the media release, these bonds have no fixed maturity date but can be redeemed daily via the automated functionality developed by Stalwart Holdings to provide liquidity to investors. The outstanding principal is indexed by the performance of the investment strategies Stalwart Holdings has been running since the second half of 2020 when the company opened a subsidiary—Stalwart Holdings UK LLP—that became a regulated investment management business. Since its inception, the portfolio of the LLP subsidiary has demonstrated consistent performance above that of its peers, the release added.

PLBs, known in continental Europe as Actively Managed Certificates (AMCs), are a hybrid between hedge funds and debt securities.

According to the company, the investment strategies driving the indexation of the PLBs issued by Stalwart Holdings are systematic, based on quantitative and Artificial Intelligence models developed by Fabio Dias, the lead lecturer of financial modelling at the University of Surrey, one of the top 10 in the UK.

Investors in the PLBs also gain access to Stalwart Holdings’ investor portal, the company says. The investors can see the composition of the underlying portfolio daily and compare their investment returns against the returns of selected investable benchmarks of similar risk and strategy. Redemption requests can also be made through the portal.

The company aims to enable sophisticated investors to participate in hedge fund strategies with reduced costs and no performance fees. Stalwart Holdings achieves this by fully automating most processes, including portfolio management, risk management, and middle office functions.

A substantial part of the technologies used by Stalwart Holdings was developed internally by a diverse team of five creative individuals hoping to change the field of alternative investment management, according to the media release.

“By creating a low-cost bond-like product, we are making it more accessible to a wider range of investors who may not have been interested in investing in traditional hedge funds. The other big aspect of this AI-driven model, I guess, is the ability to perform superior financial risk management,” says Luiz Felipe Loyola, a non-executive director at Stalwart Holdings and the team’s legal and compliance specialist.

The company's active risk management approach utilizes futures and options in the S&P 500 Index, the Volatility Index (VIX), and the US Dollar, with hedging decisions made entirely by the AI trader.

The UK hedge fund industry experienced significant growth recently, with total assets under management reaching £500 billion, a 10% increase from the previous year. Quantitative strategies, like those employed by Stalwart Holdings, now account for 30% of all hedge fund assets in the UK.

The company's innovative approach has garnered attention from industry leaders, with Gustavo Loyola, a former president of the Brazilian Central Bank, joining Stalwart Holdings' advisory board.