This content is from: Wealth Management

Owl Capital Leads $100 Million Funding Round for Structured Note ‘Assembly Line’ Halo Investing

“I'm not here to make annuities better or structured notes more accessible. I’m here to solve the savings crisis and that's it,” Halo Investing co-founder Jason Barsema told RIA Intel.

Halo Investing, a “protective investments” platform used by 6,500 RIAs looking for structured notes, annuities, and buffered ETFs, has raised $100 million in a Series C round of funding.  

Owl Capital, a $400 million fintech venture capital firm that previously invested in Coinbase, Chime and others, led the latest round for Halo. Other participants included Abu Dhabi Catalyst Partners, a joint venture between the Mubadala Investment Company and Falcon Edge Capital, that invests in businesses that would benefit from establishing a presence at Abu Dhabi Global Market, or ADGM, the international financial center.

Allianz Life Ventures, a venture capital group within the German financial services company’s North America unit, and investment bank and wealth management firm William Blair, were previous investors in Halo that also participated in the Series C round.

Employees still own the majority of Halo, Jason Barsema, the company's co-founder and president, told RIA Intel. He declined to share how much money each investor in the round contributed. One person from Owl Capital will join Halo’s investing board, Barsema said.

Halo’s latest round was significantly larger than previous ones. The Chicago-based company founded in 2015 raised a $6 million Series A round of funding in 2017, and a $12 million Series B round in 2019. It has raised a total of $120 million in funding.

Barsema declined to share what Halo was valued at after the Series C raise but said there was a significant step up in value. PitchBook, a data company focused on venture capital, listed the company’s valuation at $535 million prior to the latest capital raise.

RIAs use Halo to invest in structured notes, annuities, and buffered ETFs (added this year), all products that Barsema calls “protective investments” that cushion investor portfolios against market declines. Halo also has tools to help financial advisors learn about, analyze, customize, buy, and manage the most suitable products for client portfolios.

A structured note is a debt security with a specific maturity date. Like bonds, they make regular coupon payments and pay back the principal, but the coupon payments are usually tied to some underlying asset, like a stock or index fund. Structured notes are typically issued by big banks and there can be hundreds of variations, making them complex and challenging for a layman investor to analyze. They make up 90 percent of all transactions on Halo’s platform. 

Historically, only ultra-wealthy investors have bought structured notes due to their high fees and high minimum investment of $1 million.

Halo, Barsema says, is bringing transparency to structured notes, can reduce fees by as much as 70 percent, and lowering minimum investments to as little as $1,000 for investors.

“My technology automates the manufacturing process, significantly reduces the manufacturing costs, just as Henry Ford's assembly line did, and with that cost reduction, banks can afford to print and issue these products and sell these products at much lower investment sizes,” Barsema said.

The platform is free to use for RIAs, and across the three offered asset classes the fees per transaction average out to 20 basis points, or 0.20 percent, Barsema said.

Globally, structured notes are at least an estimated $2 trillion market. But adoption in the U.S. is far behind other parts of the world, making up only 6 percent of the total global transactions each year, according to Barsema.

“As an asset class, structured notes are actually growing 40 to 50 percent year-over-year [in the U.S.],” Barsema said.

Better technology and interest in investments that hedge market volatility are behind that growth, according to Barsema.

He said he ultimately founded the company to help solve the savings crisis.

“If you only have access to stocks and bonds, you're not going to be able to sufficiently save for retirement and that's what structured notes do, it is a perfect bridge to that risk gap of stocks and bonds,” Barsema said.

The company grew 550 percent in 2020 according to the press release. Barsema defined this growth as the aggregate average between transaction volume that is traded on the platform, Halo’s revenue, and their client base, which is private banks, broker-dealers, and RIAs. RIAs in the U.S. make up 65 percent of Halo’s business, according to Barsema.

Barsema said the company has three goals for the money raised in this latest round of funding. Halo expects to continue its international expansion (the company, which is based in Chicago, is opening an office in Abu Dhabi and already has offices in Zurich, Dubai, and Singapore). Currently, 40 percent of Halo’s business is international. The company also plans to keep investing in its technology, offer additional product types (it added buffered ETFs and annuities this year), and expand its distribution channels. The company declined to say what other products it plans to add to its platform.

“I want to level the playing field for every investor and every asset class. I do not believe in a world of the privileged few should have access to investments that the rest of us don't,” Barsema said.

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