We recently welcomed Fairway Global Investment as one of kompany’s newest investors this past summer. An independent Swiss Asset Manager and Multi Family Office based in Zurich, Switzerland, Fairway Global Investment is a stand-out in its field, as the organisation is renowned for its long-term approach to investing.
I sat down with CIO and Partner at Fairway Global Investment, John Vorrias, to learn a little more about what the world of investing as they see it, predictions for the future of regtech and how blockchain will change the way we all do business.
Can we start with you explaining a bit about your organisation?
So, Fairway started in 1987, with our founding partner Erwin Haas who is actually still on the board to this day. There’s of course been changes over the years to become what Fairway Global Investment is today, which is effectively a multi-family office that has an in-house asset management business responsible for managing around 3 billion dollars in assets.
If you look at our pedigree, we’ve built it upon technology and healthcare. We basically wanted to have a focus on things that we feel will develop over the next 20 to 30 years. We took a very long-term approach when we built our strategy and these two sectors in particular will be trending upwards for years to come. This approach also demonstrates that we’re long-term investors, we’re prepared to sit on assets for a long, long time so we want to be operating in industries that have a tailwind for a long time as well.
And, for the uninitiated, can you explain what a multi-family office is?
The modern version of the concept started about a hundred years ago when complexity started to increase for industrial families. These families became heavyweights in terms of their footprint across different industries which meant they essentially had very complex wealth to manage. So, the family would appoint a single office to serve their wealth management needs but of course, distributing these costs across several families proved to be most efficient.
Rather than trust the financial advisor at say, a bank, to manage their finances, as they may be working with their own organisation’s priorities in mind as well, you would opt to join a multi-family office where the targets are designed to optimise the financial wealth of that family.
Eventually a single-family office would evolve to include more families, probably because there are synergies between families. For us, it started predominantly with a single family who grew more complex over the years and who also had other ultra high net worth individuals that grew together with them and so we grew together, transforming it into a multi-family office.
It works well for us because these families tend to have a generational approach to investment as that’s where they came from.
So how did you come to join Fairway?
I’m a mathematician by trade. I landed in finance because I did my master’s in financial engineering back in 2007 which was kind of a whole quantitative investment product that was being built at the time. It was also just before the financial crisis. It was a fascinating product to work on because I was implementing theoretical mathematical concepts and if you’re a pure mathematician you’re thinking ok this is beautiful but what’s the actual use for it? When I figured out that there is a possibility to do that and get paid for it that was great.
Eventually I got into the investment banking side where I worked for UBS and later JP Morgan. Generally, I was managing directional capital which means that I was always managing strategic investments on behalf of the bank. I never actually had an understanding of where the capital was coming from, I just had the mandate to generate the profit.
Now it’s very different. Now, in my work with Fairway I can educate our investors and be in direct contact with them in order to understand their risk profile and return targets, at different points in time. I can develop that long-term relationship that I think makes a huge difference as opposed to being more of an “isolated” profit unit within the context of the bank.
It sounds like the relationship management keeps you satisfied but would you say keeps you motivated?
I think I’m in it more for the intellectual challenge of it because I can combine some of my more mathematical and technical background for real world implementations.
A theoretical mathematician's dream!
And how would you describe your investment philosophy. Has it evolved over the years?
I would say there hasn't been a massive evolution of the investment approach purely because I feel like that repeatability and long term standing of the philosophy itself is really important to be able to really assess it in the first place. You must have generational data to be able to say if an investment approach really works or not.
The very essence of the approach we take is to effectively do a lot of the work before we buy into an asset. Meaning we do profound analysis of financials and trends and then essentially “sit” on the asset for as long as possible. That means that we should be able to understand the fundamentals and the general complexities of this asset intimately. Because we’re very simplistic and we want simple revenue streams, if we don’t understand an asset we won't invest in it.
So, transparency and clarity are of the utmost important?
Simplicity of business concept and clarity of revenue line are very important for us, yes. We opt out of the things that are generally complex which allows us to stay invested for a very long time.
Has the recent pandemic influenced or shifted your investment perspective in a notable way?
Covid-19 has challenged a lot of the traditional financial theory again. We’ve seen unprecedented moves in the equity market one of them being that volatility has hit its highest ever observation. That’s inclusive of 2008 as well. But at the same time, you’re seeing the quickest recovery we’ve ever seen.
Nobody knew which assets would be able to perform or make money given the situation of Covid-19. Whereas the interesting thing about an investment policy like ours is that even during times like this, we require very simple investment decisions, meaning it doesn’t take as long to determine which assets will be surviving the crisis. That isn't’ true for investment firms with investments in complex strategies, which is often why you see so many asset companies go under in such times. The investors are basically throwing the towel in, “Look, this is way too complex for us so we’re selling out of this market.”
In the end this ended up being good for us because it generated interesting opportunities. Part of which was, again that in the middle of this crazy scenario with Covid-19, we were able to underwrite this deal with kompany.
What potential do you see for the future of regulatory technology?
So, we’re first of all we’re very bullish on the regtech sector to start with. One of the reasons behind investing in kompany was to gain exposure to the sector and also for the opportunity to invest in such a quality organisation.
There’s no doubt regtech will be one of the most interesting sectors in the future. In fact, we feel regtech is about to become equally as important as, if not more important than fintech. There are industry tailwinds and such an enormous spend from banks to basically respond to upcoming regulatory changes that the generation of serious revenue for regetchs is nearly a guarantee.
And speaking just on Fairway’s plans for the future, we will be expanding our footprint in the sector in the coming years. Personally, I feel the sector has the potential to emerge in equivalent size to fintech but despite this, I think it’s generally still undercover by investors who more often than not are looking past its high-tech capabilities. Generally, people are afraid of regulation or it sounds unpleasant for other industry participants but that’s their ball to drop.
And once your firm decided they were keen to move into the regtech space, what stood out about kompany to you?
We’ve been looking at the sector for about 5 years to be able to identify someone who would be interesting for our portfolio. I think what impressed me about kompany, the key differentiating factor, although there were two, was basically Russell himself. He’s put together a team which is exceptional, and he has the mindset of a Silicon Valley CEO. And if you look at Johanna and Peter you can really see this team has everything going in respect to potential success in the future. That’s something that we take really seriously at Fairway.
The team behind the concept, you mean?
Precisely. There’s no doubt that there are competitors to kompany but this management team is probably the best one out there. After all, you can have the simplest of models but if you have a team dynamic that doesn’t help, then you’re never going to be successful. Management needs to be aligned with the company at all times while remaining agile.
The other point that initially made kompany a stand-out to us was their initiative to really become bigger and bigger in blockchain. I think that’s the real key differentiating factor and where the uniqueness of kompany as a regtech stood out to me most. There’s a clear mandate and pathway to really try to push KYC onchain and utilize blockchain technologies for KYC and KYB.
And finally, if you look at the tech team that Peter has put together this is basically like a Silicon Valley level tech team that has built a Software-as-a-Service in the context of a regtech. That’s again, super unique. The API that kompany has built is really state of the art.
How would you describe your relationship with your portfolio companies?
We’re very hands on when it comes to finding synergy between our companies. Because really, at the end of the day, if we have five or six investments in the technology sector and kompany can benefit from them, why not create an environment of collaboration as opposed to competition?
Would you say then that an element of your investment strategy would be to understand if the company you’re considering signing would benefit from who is currently in your portfolio?
Well we definitely do not want our investments operating in silos. An environment of collaboration is our main target because we feel that this can give an extra boost to our own investment returns purely because it increases the probability of success. We provide the network and actively seek to incubate new ideas through a multitude of investments and throughout the investment life cycle so to answer your question, yes if we can bring on companies who can give and take something from our current portfolio it’s a perfect scenario.
For example, we have nChain, practically the largest patent holder in the world when it comes to blockchain, in discussion to start working together with kompany to develop their KYC onchain module on Bitcoin SV. The amount of revenue streams that can be generated throughout blockchain usage as part of KYC and KYB are incredible for both of these businesses. And we already see the potential of this and we’re really excited about it.
And since you mentioned it, what’s exciting about blockchain to those who haven't managed to keep up?
There are things that you see and things that you don’t see. Let’s take kompany’s services as an example. Effectively every time somebody uses KYC or KYB services from kompany there can be an incremental dollar generated for this job. And how can you do that by utilising the blockchain? To be able to do that at scale you need a blockchain that can do that at an incremental cost. Bitcoin SV is optimal for that because you have the capability to do such an enormous volume of transactions at a very small cost. So that’s one part.
Another part is of course the immutability of records which is the very essence of the creation of blockchain. It's something you cannot change so every time you create a record this is something that cannot be altered in any way, and at the same time is verified by multiple sources around the world. It's something you cannot really do with the current technology via any other method. That’s why what blockchain can offer to a product like the one kompany is offering is so unprecedented.
Also, if you look at it from an environmental impact standpoint there is a lot to be gained, or rather saved by embracing blockchain. Individual entities could all be working with the same shared digital ledger, or blockchain, which means they’d be sharing the computing power across the world as opposed to potentially thousands of firms attempting to power their own blockchains with massive amounts of computing power at an individual level – so much electricity would be wasted without just cause.
And while lot of people are still way behind on this technology, we feel that kompany is way ahead in terms of adoption.
As I understand it, one of the key benefits of blockchain is, as you just mentioned, its decentralised format. How do you see decentralisation leading to a more secure future?
You have this verification, whether it's a KYB request, a financial transaction or what have you, happening across multiple computers across the world, not just one from a source that is vulnerable to security breaches. And in order to be able to do that it would require enormous computing power to have this decentralised verification. That's the beauty of decentralisation through the blockchain, you can do that by latching onto someone else's network.
What shortcomings are there in the blockchain space? How can we overcome them?
There are multiple shortcomings and we are very early in the development of the ecosystem of blockchain despite it having been around since the early 2010s. So, we still have a long way to go. There has been a huge confusion because of the emergence of so many cryptocurrencies and the ICOs, the birth of them and the death of them, has cast a shadow on the usability of blockchain for real business purposes.
But I do think we are getting to the point where people understand that investing in blockchain means investing in a background process as opposed to investing in cryptocurrency alone. That process in our view should be seamless and irrelevant to the end consumer.
For example, say you’re going to your POS terminal, you’re typing in your PIN and you’re accepting a charge. It doesn't really matter what the terminal is doing in the background to basically generate this payment and do this KYC between consumer and consumer, between businesses and business or whatever relation you want to put in there, it just has to be seamless. The consumer shouldn’t worry about the mechanics of the background as opposed to just getting the transaction done. That's how we see blockchain evolving in the future: fully embraced as the plumbing hardware it is.
And in your opinion, how do you view the regulatory and adoption status of blockchain in Europe?
We’re still in the infancy stage when it comes to regulating blockchain. However, some regulators are ahead of the curve more than others. With FINMA, our regulator here in Switzerland, they seem very keen on understanding and trying to regulate the space, working together with investors that have been early in the sector.
We’re very open in helping the regulator to regulate this segment because I think it will not only grow the reputation of the sector but also more institutional investment which is only good for us.
Which sectors or industries have the most to gain from adopting blockchain technology like kompany’s KYC onchain?
We clearly think banking and general financial technology will be the number one sector to benefit from blockchain. It will have an impact across the entire ecosystem, be it from product to cost. Even traditional clearing and settlement will be challenged in my view through the emergence of blockchain. I think we’ve been looking at concepts of ETF providers managing inflows or outflows through the usage of blockchain, also private equity groups creating secondary markets through the tokenisation platforms. This is true even for real estate investment.
The reach of blockchain within the wider financial ecosystem will be enormous.
It all sounds a bit overwhelming to be honest! How do you stay on top of what’s happening in the world around us, and how do you incorporate this knowledge into your relationship with your portfolio companies?
Well in short, we don’t really. [Laughs] We think that the daily news cycle is relatively unimportant for us from an investment standpoint. We typically learn about future trends from our investments themselves. We learn from our talented CEOs and we pass that knowledge to other talented CEOs. We invest in companies that do generate revenue in the traditional sense, through skill but not luck and that are looking for the right investor to partner with.
In a world “filled” with tons of investment capital, investee companies are auditing their investor as much as their investors audit them!
I’d also like to mention that I think it’s a common fallacy for investment managers to try to predict the business trends with high accuracy and shift the portfolios in response to that. It often doesn’t work and timing something too early could entail significant business risk. We have a pedigree of preservation of capital and that’s where our success has been traditionally. We are here to have a simplified process and invest in other entrepreneurs on behalf of existing entrepreneurs and that’s a very important distinction in our investment philosophy.
And before wrapping up what do you feel will be the biggest challenge for regtech in 2021?
Regtech needs to be able to adapt within the quickly changing regulatory landscape. We can use it as an opportunity as opposed to a challenge. For instance, if you look at the impact of coronavirus, digital regtechs like kompany that are focused on APIs and leveraging blockchain will be the winners. They were ahead of the curve in that respect. Adaptable regtech providers like kompany will thrive.
The reality is that more than ever, bank managers, for example, are realising that they have to be able to do KYC even if they are not in the office. How are you going to do that - at scale - if you don’t have an API system in place? One you can trust with complete accuracy even if you aren’t physically present in an office. All of these things are playing out to the benefit of kompany, in my view.
And one final thing I want to say is that kompany is rather unique in its sector whereby they provide documents directly from their primary source. This is something compliance departments are heavily appreciating during Covid-19. It’s not enough to access just notarised documents, instead they need the original documents from the registries themselves. This is something others are not able to provide at the moment and something that really positions kompany as a stand-out in its space.
About Fairway Global Investment
Fairway Global Investment is an independent Swiss Asset Manager and Multi Family Office based in Zurich. It offers an innovative Spectrum of Services for discerning Private Clients, Entrepreneurs and Families with complex Assets and Holdings, whilst fully understanding its clients’ needs, expectations and jointly elaborating long-term solutions. Find out more at fwgi.ch.