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Darwinex Pivot : A Better DARWIN for more investor profits and provider revenues

Hi everyone -
We’ve improved the DARWIN!

The new DARWIN goes live 1 June 2020.

On a like for like basis, new DARWINs pay providers more revenues by producing more uncorrelated investor profits with lower target risk. New DARWINs are the first step in a pivot designed to gradually engage professional managers and investors… stay tuned.

Meanwhile, here’s the summary of what new DARWIN entails for:

  • Investors:
    • Lower Risk - falling from a single equity to an Equity Index - 35% less risk, to overcome investor overcome aversion,
    • 60% lower (wholesale) commissions, to grow investor profit, trust and ultimately, AuM,
    • Fees: new DARWINs carry a 20% success fee, and also a 1.2% management p.a. to align Darwinex with investor success,
  • Providers:
    • AuM growth, as explained above,
    • More revenue for every unit of AuM and % performance (60% less Brokerage cost),
    • A new success fee split: investors pay 20%, Darwinex keeps 5% and pays providers 15%

We’ve prepared a website that lays out the Old to New Transition including:

  • Timeline: covering what changes, when,
  • Aggregate impact: comparing old vs new DARWINs (hint, NEW is vastly better),
  • Calculators and Charts for the impact on individual DARWINs,
  • Q&A to clarify any outstanding questions,

Play around at https://coda.io/@darwinex/pivot.

Or watch the recording of the Q&A webinar related to the pivot.


Javi and Juan
Co-founders

15 Likes

very cool! keep on…
OldSchool

So Commissions are lower, but Performance fee is now 15% instead of 20% for a Provider?

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@Sterso7 a direct comparison is unfortunately not possible as stated because:

  • Old success fee share = 20% of OLD investor profits
  • New success fee share = 15% of NEW investor profits

OLD profits <> NEW profits because OLD commissions 150% higher than NEW commissions.

In practice, for the bulk of managers NEW investor profits >> OLD investor profits. So much so, in fact, that for the bulk of providers 15% of NEW profits >> 20% of OLD profits on existing AuM.

Having said that, we didn’t pivot to “keep existing AuM” and compare shares of a given pie - which is 0 sum - but to grow the investor AuM pie by:

  • Not charging investors with our broker any more than a wholesale broker, which greatly increases investor profitability and hopefully retention,
  • Aligning Darwinex for investor success -> by it i) charging wholesale brokerage and sharing in investor success ii) directly via a success fee, and iii) indirectly via the management fee.

We sincerely hope the pivot results in vastly more investable provider revenues, and look forward to more questions!

2 Likes

Thanks @juancolonbo the 1.20% Management fee is for Darwinex only? Or do providers get some of that?

Its a good move to reduce Commissions, but I‘m still having difficulty seeing how us traders are better of. I guess it remains to be seen how AUM grows…

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Is there a visible effect on divergence?

As an investor will I pay more or less?

I see that I will pay now 20% fee (as before) but also 1.2% p.a which is regardless of results. So a darwin that - lets say - gives 0% in a year will cost me 1.2%. Is that correct?

If darwin providers profit more, investorts also profit more, then who pays?

I will play with the pivot website in order to understand it - I am sure I am missing something

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In case anyone doesn’t know… (I didn’t know)

The symbol <> means “not equal to”. :wink:

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My guess due to the reduction in comissions it probably wont make a difference paying 1,20%. The way I Unterstand Investors are better of with the new Model but traders have to hope for AUM growth.

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The approach is good, just a bit difficult to understand without an example

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I begin to get it now - the big difference is because of the lower brokerage commisions. Most investors should benefit from this from the few results I run.

I have a question. The new darwins will have 6.5% VAR so how (as an investor) will I be able to get 10% VAR if I already use x2 leverage?

To offset the effect of lowering the VaR and continue to offer the maximum level of risk that we’ve offered so far, we’ll increase the maximum leverage of DARWIN portfolios to 3, instead of 2, which is what we offer at present.

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It is still very unclear how 1.2% fee is split between manager and Darwinex. Does manager gets something from that?

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Will be there changes in Darwinia with the reducing of darwin’s var? in terms of AUM, or providers’ fees? Will be also 15%?

Particularly I think that this change it’s good in general terms:

  1. Good for Darwinex —> Good for everyone in this community

  2. Good for inverstors —> It is shared the study where the results of investors Will be better with this new squeme, because the savings in commisions Will compensate the 1,2% of fee

  3. Good for all type of providers --> the reduction of var Will attract bigger investors.

  4. Good for short term traders (more rotation), because their darwins Will perform better, and Will be more invested, compensating the loss of 5% of fee, but limited with their own capacity of the darwin in terms of divergence.

  5. Long term traders will need “big thinking”, because they will not feel improvements in performance (the weight of the costs is lower in commisions, but higher in swaps), but they will always hold the capacity of their trading, where at the end, in an scenario of growth of AUM, will be awarded.

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Thank you - that was what I suspected but I have not seen it mentioned yet. I might have missed it as I am mainly playing with darwins.So far it looks positive for investors in general. I hope the darwin providers are happy too.

edit: I suggest adding “var 6.5 with management fees” as well on the graphs

2 Likes

@Sterso7 thanks for engaging on this. To put things into context:

  • The cost any FCA regulated manager will charge a manager for regulatory cover to legally distribute a strategy is GBP several thousand / month, per manager / strategy.
  • The up-front cost to set-up a regulated asset manager is i) GBP hundreds of thousands up-front and ii) thousands more / per month

To be sure: I’m not quoting these to rub them in, but because the overall regulatory bill for Darwinex to carry the regulatory umbrella we extend all our clients runs into the hundreds of thousands of EUR / year if one accounts for FCA duties, compliance officers, AML/KYC regulations, EmiR/MiFIR regulations, audits, etc etc… It is there, and someone has to pay for it if we’re to run this legally. I believe we all agree it’s best that Darwinex centralise the bill and spread it out to as many managers as possible - but the reason we’re pivoting is that paying that bill out of investor brokerage fees amounted to “selling the car to buy fuel” - meaning if we put the bill into the investor brokerage we killed the performance, which defeats your “the traders” and “our” purpose.

A couple of notes here:

  • Darwinex is by traders / for traders. About 50% of the non-programming staff is made up of traders like you, starting with my brother and co-founder @javicolonbo, going on to @integracore2 and a whole host of other guys up to a total count of more than 10. We’re all in this together, and we’re doing what we think is best for “you” traders - because there’s no Darwinex without traders.
  • To come back to your specific point - I’m not sure I made myself clear: the one party that’s waiving revenue here is Darwinex, not the traders. You can read the aggregate impact studies to see i) the overall impact and ii) the impact on your specific DARWIN. I can summarise: the higher rotation a trading strategy carries, the better off as a result of the change, and that’s on constant AuM.

I repeat: the large majority of traders are BETTER OFF with 15% of new investor profits vs. 20% of OLD investor profits. And that’s before we factor in AuM growth, which we hope everyone agree is more likely if investors perform better.

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@MartynasT not in principle, managers don’t share in the management fee, because neither do they carry the infrastructure risk. Darwinex keeps the management fee to cover the regulatory infrastructure required for traders to legally tap investor assets.

A better way to frame the question is: ¿How much Darwinex charge traders to legally reward their Intellectual Property as a function of their investor success?"

With the answer being “It’s free”.

Beyond that, we’re working for a new product called private Label where traders will be in a position to legally market to their own investors, set their own prices, and keep a portion of the asset management fees.

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I can not agree to worsen the trader conditions unilaterally (is Darwinex entitled to do that?). The only way that this could be acceptable is guaranteeing the old fees in case the new ones are worse that the old ones (for all current darwins).

I don’t like the 6.5% VAR either. Less commissions and less profit opportunity too (I know, less risk for investors, but what about the trader?).

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@Forexintradiadarwin Again.

We have unilaterally IMPROVED trader revenues for the large majority of DARWIN providers.

I encourage you to visit the detailed disclosure provided before you jump to inaccurate conclusions.

Again, if you read the materials you’ll notice that existing investors can continue to invest in OLD Darwins, and that people can lever up old DARWINs by 1.5x or 3x as before, so again “less commissions and less opportunity” is not accurate.

Further, you’ll note from the analysis Darwinex is the biggest loser - and we’re happy because we think it’s a great step forward. If you let me know which DARWIN you want us to discuss, we can run a thought example here for everyone’s benefit.

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@juancolonbo
When VaR was reduced from 20% to 10% (2017) the Darwinia allocations were doubled.
Can we expect a +35% ?

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