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Swiss fintech Nectar is working with artificial intelligence solutions to become a direct supplier to wealth managers, finews.com has learned. The first product is ready to go. 

The obligatory fintech treats – gummy bears, popcorn – are laid out at Nectar's offices in a rural outpost of tax-friendly canton Schwyz. The start-up allures are misplaced: Nectar is eight years old, employs 60 people, and has built up a clientele of wealth managers as well as attracted Julius Baer as an investor.

If co-founder and chief executive Michael Appenzeller is to be believed, that is just the beginning. On Monday, he told investors of the fintech's plans for its next chapter: «You can and should expect much more from us,» Appenzeller said.

Julius Baer Move

The first step? Nectar wants to issue a certificate together with Julius Baer –«Nectar Smart Alternatives»  – to invest in 15 to 20 hedge funds. The move isn't hugely remarkable, but Nectar wants to use machines to select up to 80 percent of the portfolio, and aims for an annual return of 8 percent.

How does Nectar want to do this, when Barclays' fund of funds index has returned just 0.8 percent annually since 2009? Pooling all the data it has accumulated behind the scenes in the first eight years of its existence.

Machine-Powered Filter

The linchpin is Fundbase, a sister firm which is controlled by Appenzeller and Pius Stucki, his co-founder. The database collates hedge fund data for third parties – a particularly valuable trove for Nectar's next step. Last summer, the fintech hired several specialists in artificial intelligence to take a closer look at the data.

The initial results? The experts compiled a «cluster» of desirable characteristics from the more than 15,000 hedge funds that Fundbase tracks. Using artificial intelligence, the experts also filtered and analyzed outliers. Just 50 hedge fund managers withstood the rigors.

Gut Feeling

The fintech then subjected the hedge funds remaining to a portfolio improvement algorithm which it already uses for its wealth management clients. This includes suggestions to improve risk-reward, but also regulatory requirements and suitability of the potential investor. This further reduces the hedge fund group to just 25.