Halo Investing uses tech to take on the biggest investing market you've probably never heard of

Andreas Rekdal
by Andreas Rekdal
May 23, 2017

The highest-ranked newcomer in a recent Deloitte report on global fintech hubs, Chicago counts the strength of its financial sector among its biggest advantages.

For Halo Investing co-founder Jason Barsema, whose startup seeks to make more complex financial products available to everyday investors, the ecosystem’s blend of financial and technological expertise made it a no-brainer as a home for his fledgling fintech company.

“Most of our employees are developers, but they also need to have derivative experience,” said Barsema. “Chicago is the world’s capital of derivatives, and you won’t find that combination of development and derivatives experience anywhere else.”

A former private banker for Credit Suisse, Barsema used to manage investment portfolios for  institutions and high net worth individuals. A sizable portion of the portfolios he managed consisted of structured notes, which are a form of investment designed to serve as a middle ground between stocks and bonds.

Typically issued by major financial institutions, structured notes are debt obligations linked to the performance of an underlying asset — often a stock index or an exchange-traded fund — but that have a buffer against market fluctuations on the downside.

Barsema said these notes create a way for investors to protect themselves against moderate market swings without having to forgo the upside — though if the underlying asset falls below the buffer, the investor often participates fully in the downside.

The labor-intensive manual process of creating and selling structured notes has traditionally required large deal sizes, putting them out of reach for ordinary investors, Barsema said. By introducing technology to the mix, Halo Investing wants to streamline those processes and make that inaccessibility a thing of the past.

“We can do millions of transactions for very small amounts and still be profitable, competitive and efficient,” said co-founder Biju Kulakhatal.

The company also wants to provide a more liquid secondary market for such notes.

Compared to other asset classes, investors in structured notes have also traditionally had a hard time finding ways to independently value their positions. Halo is building advanced analytics into its marketplace so investors can get a sense of the product’s fair value and see how it is currently performing, as well as how it would have performed during tumultuous periods like “Brexit” or the financial crisis of 2007 to 2008.

Those analytics require tremendous computing power, said Kulakhatal.

“By the middle of next year, we will be the largest structured note platform in the world, in terms of number of end users reached. Creating that sort of scalability is not easy,” he said. “We produce dynamic prices for these, and those computations we do are equivalent to what weather forecasters and nuclear bomb simulators do.”

Halo currently sells its technology to professional wealth managers, who use it to buy notes for their customers. Barsema said the company plans to start selling directly to consumers within the next 12 months. Halo currently has 15 employees, but the founders expect that number to double by the beginning of next year.

 

Images via Shutterstock.

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