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| DarcMatter Founder and CEO Lee Sang-hwa speaks during an interview with The Korea Times at the Conrad Hotel in Yeouido, Seoul, on Sept. 21. / Courtesy of DarcMatter |
DarcMatter CEO strives to put alternative investments online
By Nam Hyun-woo
Observers ask big questions about private funds in which billions of dollars are traded daily between institutional investors without public notice. Even some wealthy individual investors looking for a place to put their money cannot get a share of the pie.
DarcMatter founder and CEO Lee Sang-hwa, who built a successful career as a BNP Paribas investment banker, dubs such a situation as "secret things happening in a league of their own." He said that infusing more transparency into alternative investments will help all businesses prosper.
"Historically, private funds were very difficult to access, very clandestine and all things were done offline, available to only a few institutional investors," Lee said in a recent interview with The Korea Times. "But now, everybody is seeking alternative investment opportunities and wants to access private funds."
DarcMatter is an online platform that allows investors -- whether institutional or individual -- to directly invest in private funds, such as hedge funds, private equity and venture capital. Through the platform, they can access various private funds' strategy, performance and information, and invest online.
Founded in 2014 in New York, the fintech firm soon grabbed attention from global financial giants with its platform simplifying its fundraising process.
Now, more than $5 billion in assets are managed through the DarcMatter platform and more than 800 companies and investors are registered on it. Lee expects that not only his company but also the alternative investment industry will grow amid an increasing need for more diversified portfolios.
Lee described the process of the DarcMatter platform as "adding a lot of transparency in a very non-transparent field."
He meant that regulatory restrictions and complicated processes of investing kept a vast majority of investors from alternative investments through private funds.
"Let's say you want to invest in a hedge fund based in New York but how can you find one? You can't search for them online because they don't advertise through websites. Somebody from Korea has to fly to New York and meet them in person," Lee said.
"About 20 years ago, people didn't do alternative investments. But now, it is becoming very important for many especially after the 2008 global financial crisis awakened people to say you need real estate, venture and other things that aren't connected to the market," he added. "The need always goes from big institutions down to smaller investors. So it's like ‘if that guy is doing it, I have to do it.'"
The global financial crisis has brought many notable changes to financial services and one of them is, according to Lee, a new paradigm in the theory of portfolio diversification.
Demise of conventional theory
For nearly 70 years, investments were largely made in stocks and bonds. The classic 60/40 theory led many people to believe filling 60 percent of their portfolio with shares and the rest with bonds is regarded a well diversified investment strategy. The theory still works, but after the crisis, voices have been growing that the 60/40 portfolio is dead and there should be ways to hedge risks coming from the market.
"So after everything went to zero -- except for Manhattan real estate -- people questioned themselves why this happened, only to find that it's because so many things were tied in ways that we could not recognize. And that's when a lot of discussions started over the necessity to add something else to the portfolio."
In 2005, alternative investment assets under management were $3.2 trillion globally, but this grew rapidly to $7.2 trillion in 2013 and about $9 trillion currently. Lee expects the volume will be $15 trillion by 2020 on a regular trajectory, but if platforms like his grow, the entire industry could do so even faster.
Along with the company's growth, it has won much recognition globally as a budding fintech leader. This year, DarcMatter was declared the Best Growth Stage Fintech Company by Next Money, a global network of fintech innovators. It was also chosen as Best Fintech Solution for Hedge Funds at the HFM Technology Awards.
Last month, the company held the DarcMatter Alternatives Conference 2017 at the Conrad Hotel and had more than 200 investors and fund managers attended. They included representatives from Morgan Creek Capital Management, Mexico Ventures, Concise Capital, Korea Investment Corp., the National Pension Service, Samsung Life Insurance and Mirae Asset Global Investments among others.
"Korea has become a market sought out by many global asset management companies and investors as one of the top-tier markets," he said.
Lee, 31, was born in Korea and moved to the U.S. at the age of four. After building his career at BNP Paribas, he turned into an entrepreneur and established an online investment platform, Return on Charge, in 2013. His entrepreneurship was also recognized -- he was named the "Under 30 CEO Entrepreneur to Watch in New York City." He was also featured in Forbes, Bloomberg Radio, CNBC and in a series of financial conferences.
Lee said setting up a good company is not about predicting the future; rather, it is about seeing the future that you wish for and to drive the future in a certain direction.
"For me, financial services have so many problems. I was an investment banker and found the whole industry was messed up," he said. "We picked alternative investment because it was the worst. If our technology works for something this poor, it will work across the whole industry and replace the traditional investment banking structure."
The company is named after "dark matter," which accounts for more than a quarter of the total of mass/energy. But it is not observable.
"The reason why we named the company DarcMatter is dark matter demonstrates how I view finance. It's scary, dark and nobody really understands but it's the most important thing. So you need to understand it and you need to be provided with better transparency," Lee said.
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