Optimal Asset Management: Making Institutional-grade investment solutions accessible

CIO VendorVijay Vaidyanathan, Founder & CEO
As direct indexing and factor investing have gained traction, numerous institutional-grade investment tools and strategies have become available to a wide range of investors, enabling them to invest like large institutions. Advances in broker-dealer technology enables even relatively small investors to expand their investment arsenal beyond traditional “pooled investment” structures such as ETFs or Mutual Funds. Instead of ownership through a pooled intermediary, an investor with as little as $100,000 can now directly hold the underlying securities that make up an index, such as S&P Dow Jones’ S&P500®, S&P Midcap400® and S&P SmallCap600®, and/or their related factor indices. This approach is known as direct indexing, a simple, transparent, and cost-efficient way for investors to hold underlying stocks directly in a separately managed account (SMA). In an SMA, investors can customize portfolios to apply user-defined screens. For example, an endowment might exclude companies suffering from low scores on labor practices, or apply faith-based filters. Holding individual stocks also allows investors to manage tax within the portfolio efficiently, combine indices, or implement custom objectives (e.g. “S&P500®ex-low vol stocks”).

Vijay Vaidyanathan, a Silicon Valley based serial entrepreneur, established Optimal Asset Management in 2013 with the aim to solve practical implementation puzzles and democratize investing solutions. Regarding the wealth management space, Vaidyanathan says, “Although big players are able to reap the benefits of institutional investing solutions, tools and pricing, many advisors and individual investors are still struggling to translate these into practice in their portfolios.” According to Vaidyanathan, most investors today: 1) lack the ability to hold scientifically diversified portfolios, 2) pay high transaction fees, and 3) due to lack of technology, use ad-hoc methods to build/maintain portfolios that may end up eroding return. To overcome these challenges, Optimal can build customizable, systematic portfolios at relatively small account sizes.
As a company with a strong intrinsic drive to integrate new, innovative technologies, Optimal offers the path-breaking Factor Allocator™, a web-based tool that helps investors and advisors identify, visualize, and implement investment factors that seek to maximize portfolio returns. “Our ultimate aim is more than just having folks play around with the product—it is to enhance the state-of-the-art of investment, and help advisors and investors build better portfolios,” Vaidyanathan states.

Whether a direct-investing or individualized liability-driven investing strategy, we offer institutional-style investment management at institutional-type fees to almost any investor

Thanks to Optimal’s partnership with S&P Dow Jones Indices, users can use either S&P Dow Jones’ indices or Optimal’s in-house developed and maintained factor portfolios to build strategies.

Optimal manages several factor portfolios for its institutional clients. “An example of one is Dynamic Alpha, a sophisticated strategy that adapts to the volatility of the market,” says Vaidyanathan: “When the market is very volatile, it switches to the most stable, low-volatile factors. Subsequently, when the market is stable, it toggles to the factors that do well in stable markets. Clients are always getting exposure to factor premia that drive returns, but in a way that is sensitive to the market’s volatility regime.”

Optimal also supports a methodology derived from liability-driven investing (LDI) that allows each investor to set a floor and upside target. With this approach, investors can smartly allocate assets to achieve specific investment goals that dynamically adjust over time. “Whether a direct-investing or individualized liability-driven investing strategy, we offer institutional-style investment management at institutional-type fees to almost any investor,” affirms Vaidyanathan.

Well along on its innovation push, Optimal Asset Management is set to revolutionize the wealth management industry by offering institutional-grade investment solutions to all investors. Vaidyanathan believes this ultimate “leveling of the investment playing field” is only a matter of time.