A New “Titan” in the Investing World
Titan is rewriting the asset management playbook, and we’re here to tell you all about it.
Happy Sunday everybody.
After a month straight of incredible playoff football, it feels wrong that there aren’t any NFL playoff games today. Fortunately, we have some new content to fill that void for you. Exec Sum is back with another Sunday deep dive 😤 🤿
You may recall our pieces about BlockFi and beehiiv, where we broke down their business models, market dynamics, and opportunities. As we’ve said before, think of this like an investment memo but made public. Some may be sponsored and others might be me staffing Karl over the weekend because he’s got some spare time on his hands.
This one IS sponsored, but it’s for a pretty cool company. Plus, it gave me the chance to publish both my investment thesis on B2C fintech startups and my thoughts on broader trends around retail trading.
Today’s piece is for a company called Titan, a retail investment management platform aimed at the “everyday investor” (it’s basically a hedge fund in a fintech app).
We’re going to be publishing deep dives on interesting companies such as Titan more regularly going forward, so keep your eyes peeled for those Sunday emails. And if you’d like us to cover some exciting, game-changing companies and/or interesting industry trends, hit us up.
As we’ve mentioned before, nothing written here is investment advice. We’re here to talk about the retail investing zeitgeist, the rise of fintech platforms like Titan, and Titan’s business model. Do your own research.
Let’s dive in.
The Roaring 20s of Financial Markets
Covid market crash.
And a million other “once-in-a-generation” events and developments that all occurred over the last two years. The result? Investing is no longer a spectator sport; everyone wants to be an active participant.
Covid-19 was a boon for retail traders. Work-from-home mandates, zero-commission trading, an influx of stimulus cash, and volatile markets led to a new wave of investors entering the stock market. Retail investors now account for more than 25% of options trading activity and ~20% of US order flow as of June 2020 (compared to 10% in 2010 and 15% in 2019).
As Mercedes Bent of Lightspeed Venture Partners wrote last year, “retail investing is hitting its zeitgeist moment and interest continues to soar”. Just look at the Google Trends for the term “investing” globally:
In October 2020, Packy McCormick wrote a great piece about software revolutionizing financial markets. His thesis has played out with uncanny accuracy over the last year and a half:
“Software is eating the markets. Flush with cash and empowered by new tech platforms that blur the lines between investment, experience, entertainment, and digital assets, a segment of consumer investors are shifting money from consumption to investment. Consumer investors expect different things from their investments than professionals do and value assets differently as a result. New technologies, regulations, social trends, and asset classes mean that this shift is here to stay, and could continue to gain momentum after COVID is gone. This time, maybe it really is different.”
Robinhood was the catalyst for a massive shift: zero-commission trading. Suddenly, anyone could trade stocks and options whenever they wanted, without having to pay a fee every trade. Its popularity exploded during pandemic lockdowns, with the platform gaining millions of users.
Then came crypto exchanges like Coinbase, Gemini, Binance, and FTX, who benefited from the crypto zeitgeist of this generation.
Alternative investments such as fine art and private equity were made available to retail investors through platforms like Masterworks, EquityZen, AngelList, YieldStreet, etc.
Pension funds, “set and forget” 401(k)s, and Vanguard accounts that dominated the portfolios of generations past are quickly losing market share to this new class of investment platforms. Millennials and Gen Z want modern investment products. Mobile-first, flexibility, and transparency.
Twitter, Discord, and Reddit have turned investing from a pure financial game to a social one as well. A once taboo topic, personal finances and investments are now a mainstay in casual conversation. A slew of fintech platforms like Public, StockTwits, Iris, and Commonstock have tried to capture this “social finance" dynamic.
Public Comps put together a market map showing what this industry looks like now. (I’ve asked Karl to flesh out a more robust, better-formatted market map but this will do for now):
Everyone wants a piece of the growing retail market.
Ironically, with all of these radical changes to financial markets, one niche got left in the dust: professional asset management.
The Retail Investor’s Dilemma
High net worth individuals have access to a wide array of wealth management resources, from exclusive bank trading desks to top-tier hedge funds / private equity funds / venture capital funds. High net worth individuals and institutions continue to plow capital into alternative asset classes. Just look at the growth in AUM for hedge funds over the past decade:
Now, let’s flip over to retail investors. They now make up a huge part of the market, and they also have a million different ways to invest, thanks to the rise of fintech apps looking to democratize investing and promote wealth building.
However, in the stock market, they still only have two choices:
1) Passively invest in mutual funds and ETFs
2) Actively manage their own portfolios
Passive investing is fine because stocks tend to go up and to the right over time. However, passive investing, by definition, won’t outperform the market. It also leaves you susceptible to market-wide pullbacks, and you won’t learn anything in the process.
Meanwhile, self-managed active investing comes with its own problems, and this quote from Jack Raines’ piece about market volatility sums it up nicely:
1% of people are getting hysterically rich and 99% of people want to be the 1%. Social media has empowered people to share whatever they want whenever they want...
And they're sharing wins. The biggest wins get the biggest stages. Front page Reddit posts from the guy who made $30M on GameStop. CNBC stories about the Tesla investors who retired at 35. We all know a 25-year-old crypto millionaire these days. And everyone wants to be the next overnight success.
The problem is we are terrible at estimating the odds of success.
Everyone handling their own money thinks they can be the next overnight success.
The Dunning-Kruger Effect tells us that we are notorious for overestimating our own knowledge and skills. Social media amplifies this by highlighting everyone’s wins and hiding the losses.
However, performance data doesn’t lie. 66% of day traders quit within a year, and only 15% are left after three years. On average, active traders underperform by 6.5% annually. Investing is harder than it looks.
Retail investors have hundreds of platforms to choose from. Yet when it comes to investing in the stock market, there’s little middle ground between “do nothing” and “do it all on your own”. These services were only available to high-net-worth individuals.
Titan takes the professional services provided by hedge funds and offers them to anyone. They are filling the gap for retail traders that want an actively managed portfolio, but don’t have time to research and track their investments themselves.
Let's get into Titan.
Titan’s Founding Story
The institutional world tells the average retail investor: “run along boys and girls, go put your money into an ETF or something lol”. But for the ultra-wealthy, the equation completely flips: “Welcome to first class. Which hedge fund would you like? Rest assured, your money is going to be managed by world class money managers with the most pedigreed investment teams out there”.
Joe Percoco (co-founder & co-CEO of Titan) realized: “It’s like going into a restaurant where the rich are given another menu. They get to order something different from the rest of us.”
This didn’t sit right with Titan’s founders, so they set out to level the playing field.
Backgrounds of the founders:
- Co-founder and Co-CEO Clay Gardner spent most of his career as an investor at multi-billion dollar hedge funds such as Cerberus Capital Management and Farallon Capital Management
- Co-founder and Co-CEO Joe Percoco was previously an investment banker at Goldman Sachs, a management consultant at McKinsey in their technology practice, and an investors at a long/short equity hedge fund
- Co-founder and CTO Max Bernardy was a senior engineer and early employee at a hedge fund and several early-stage technology companies
All three co-founders saw the advantages offered to clients at the highest level of finance and realized there was a massive opportunity to provide these services to the rest of the investing world.
Why did they want to build Titan? Because the problems facing retail investors were too important not to solve.
Joe said it best: “Building in the consumer fintech space is almost like building a company with a weight-vest on - extra obstacles to go through, extra speed bumps, and more. However, the biggest problems are worth running through walls for. Leaving our generation to the whims of the wild west of mobile investing apps simply is not an option. There’s too much at stake.”
So what exactly does Titan do?
In short, Titan is a retail investment management platform targeting the new generation of “everyday investors”.
Titan invests your capital across four different portfolios actively managed by a team of research analysts based on your portfolio size, risk tolerance, and time horizon. Through their mobile app, they provide market research, Q&A sessions, access to their IR team, and portfolio tracking for all clients as well.
You can check out their platform here.
How is this different from other Robo-Advisors?
Great question. Robo-advisors like Betterment and Wealthfront have become massive players in the asset management space, with the latter recently being acquired by UBS for $1.4 billion. Robo-advisors play an important role in the asset management industry today. However, Titan is different from other robo-advisors like Wealthfront and Betterment in that the former actively manages your money. The latter two only use passive strategies.
Other robo-advisors offer investors diverse portfolios of ETFs. They provide a passive investing option for clients who want market exposure but aren’t looking for actively managed positions.
Titan aims to generate alpha through its actively managed portfolios.
The company uses its own research and market analysis to make investment decisions for its portfolios. Rather than using a static set of ETFs to achieve conservative diversification, Titan takes an active approach to buying, selling, and hedging different positions.
You can see how Titan’s portfolios have fared vs. robo-advisors and their benchmarks within the Titan app:
Titan offers four different portfolios for its clients: Flagship, Opportunities, Offshore, and Crypto.
- Flagship: Titan’s U.S. large cap growth strategy
- It seeks to invest in equities of market-leading U.S.-based companies with over $10B market caps
- Opportunities: Titan’s U.S. small/mid cap growth strategy
- It seeks to invest in equities of market-leading U.S.-based companies under $10B market caps
- Offshore: Titan’s international growth strategy
- Aimed at identifying the world’s best businesses in emerging and developed markets from China to Latin America and beyond
- Crypto: Titan’s crypto strategy
- An actively managed portfolio of crypto assets that they believe are positioned for outstanding long-term returns
Titan is the first asset manager to offer an actively managed crypto portfolio to clients, and its returns have been quite attractive so far. So let’s spend a little time on this.
Crypto is a noisy market where it can be hard to separate value from grift (just spend some time on social media and you’ll know what we’re talking about). Every crypto project’s road map shows that it will be the future of finance, but most will be heading to zero over time. Titan cuts through the noise and invests in the assets that have the highest likelihoods of strong future returns.
The Titan team says they also use this portfolio as an equities hedge by looking for investments that provide low correlation to the stock market.
Titan invests in both blue chips like Bitcoin, Ethereum, and Cardano and alternative blockchains and protocols such as Chainlink and Uniswap. The team allocates capital across 5 to 10 cryptocurrencies, and they make monthly adjustments based on performance.
Crypto is a new asset class, and traditional asset managers are largely underweight in this sector. Meanwhile, retail investors are largely overweight all things crypto. Titan’s progressive move to incorporate crypto better aligns its product offering with the interests of newer investors.
I’ve been familiar with Titan for a while now, but I had not personally used the platform much (mainly because of boomer compliance laws at my old firm).
When we started talking to the Titan team about this deep dive, I figured that I should familiarize myself with the platform to make sure that 1) I knew what I was talking about and 2) I could decide for myself if they were legit.
Titan exceeded expectations.
The mobile app has a great UX, and I was able to create an account in under five minutes. This was a welcome change compared to the lengthy process on typical brokerage apps.
I was then asked a series of questions about my income, net worth, risk tolerance, thoughts on crypto, and investing goals. This data was used to create a recommended portfolio. My “model” portfolio was overweight Flagship with minimal hedging, for example. While you are free to change your allocation after going through this exercise, it helps investors figure out where to start.
Within five minutes, I was able to link my bank account and start investing.
*I do want to note that investors with <$10,000 in their portfolios can only invest in Flagship and Crypto. Once their accounts cross the $10,000 point, they can allocate capital in Opportunities and Offshore. Also, Crypto is not yet available to investors in New York state (blame the man). However, the Titan team (and the entire crypto industry) is working on it lol.
Research & Commentary
Like I mentioned earlier, Titan offers four different portfolios for its clients. Investors click on each portfolio to see its current holdings and performance over various time frames. However, the coolest features were Titan’s research and commentary.
Titan’s most client-friendly characteristic is their transparency. They provide real time Q&A and research commentary about positions and investment decisions in each of their portfolios.
Investors submit questions to the team’s analysts, and the Q&A is publicly distributed. Some of the questions that I saw were:
- “What does Titan think about Cloudflare right now?”
- “When will excess cash be deployed in the Crypto Portfolio?”
- “Any thoughts on Google after its most recent earnings?”
I scrolled through dozens of questions and answers from the last month across all four Portfolios. Pretty awesome feature.
Not everyday you can reach out to investment analysts and get their thoughts on specific stocks. Normally you’re stuck with an opaque investment process and a holier-than-thou PM.
Titan also regularly publishes its research. Thoughts on everything from semiconductor supply chain disruptions to crypto volatility, growth stock valuations, and big tech earnings are sent to investors via email and published on Titan’s platform.
Why is Titan so open with their views and research? Because transparency is the key to trust. Transparency also leads to education. Titan wants to generate outsized returns on both your capital and your knowledge. If you are entrusting someone with your money, you want to know why they are making the decisions they make. You want to have your questions and concerns answered as market conditions shift.
By establishing open lines of communication and publishing their research every week, Titan has been able to build a level of trust that is rare in the asset management field.
Fees and Lockups
The standard 2 & 20 hedge fund fee structure is quickly becoming outdated. The structure allows money managers to make absolute bank - even if they underperform the market over the long run. In 2020 alone, the 25 highest-paid hedge fund managers made a record $32 BILLION.
Compare that to Titan, which charges a flat 1% annual advisory fee (or $5 a month if you have less than $10,000 invested), with no performance bonus, for all clients. No side letters, no favorites, no fugazi.
A 1% annual fee for:
- Access to 4 actively managed portfolios
- Regularly published research and Q&A submissions
- Access to the investor relations team
- A sleek mobile app / website to manage your investments
Remind me again why you would pay 2&20 to underperform the S&P for a decade?
*Incoming hedge fund bros who will say they actually don’t benchmark to the S&P because they run a market-neutral strategy that is uncorrelated to the market to justify their PMs making billions from fees*
Hedge funds are also infamous for their lock-up periods. Lock-up periods are windows of time when investors cannot redeem or sell shares of certain investments. The purpose of these lock-ups, which are typically for 30-90 days, is to give hedge fund managers time and flexibility to offload positions without tanking the prices of their portfolio holdings.
90-day lock-ups might help hedge funds manage liquidity, but they hinder you from withdrawing your money when you want to withdraw it.
Titan has no lock-ups. In 2 to 4 days, you can withdraw as much cash as you want, whenever you want.
You know that scratch-off lottery ticket that Robinhood gives you for referring friends to the platform? Refer 10 friends, get 10 free shares! It's a good way for Robinhood to reduce their customer acquisition costs ("CAC") but you don't really know if you're getting a share of Tesla or some boomer stock trading at $5 / share.
Titan does the same thing, except you don’t receive a lottery ticket. You receive additional capital for your portfolio.
For every referral that you complete, you are rewarded between $25 and $10,000 in capital to your Titan investment balance. Your new capital will be automatically deposited to match your current allocation. Your referred party will receive a 100-day free trial for Titan. A win-win-win for all parties involved.
Speaking of referrals, if you plan on signing up to Titan, y’all better use this link 🤝
What if you're in your 20s, have a 40-year time horizon, and want a more aggressive option than Vanguard bond funds for your retirement account? Titan has you covered.
Titan offers Traditional and Roth IRAs, as well as 401k rollovers, for all their portfolios except crypto (sadly, regulation can’t keep up with innovation these days).
Outperformance in your early years yields outsized returns down the road as your portfolio compounds, and Titan’s retirement accounts offer a vehicle for achieving that sweet, sweet tax-free alpha.
At the broadest level, Titan is competing for a share of retail investors’ wallets. With the rise of the retail investor, the consumerization of private markets, and the coming of age for millennials and Gen Z, people have a ton of options.
This new class of market participants can now invest in options, crypto, fine art, wine, bonds, and even venture capital (soon, through a LitCap portfolio company 👀). This optionality can be overwhelming for those with little-to-no experience.
That being said, Titan has found a robust niche at the intersection of hedge funds, ETFs, and self-managed portfolios. The growing base of retail traders is a powerful tailwind here, and Titan isn’t the only player to notice.
Adam Dell, brother of computer tycoon Michael Dell, recently launched his own investing app, Domain Money, to capture some of this demand as well. Dell sees the same opportunity as the Titan team: a huge market with unmet demand for more equity and crypto investment opportunities.
As this space heats up, more competitors will likely emerge to take a share of the pie. That being said, this is a really big pie, and it won’t be a winner-take-all market.
So who is going to win out in the long-run? The firms that provide the best services, and more importantly, generate the strongest returns.
Performance (net of fees)
Okay, okay, we get it. Titan offers a compelling product to a previously under-served client base at a low cost. That’s awesome. But what matters most at the end of the day is: PERFORMANCE.
So how have Titan’s portfolios performed? Better than most.
Bloomberg released a list of some prominent hedge fund performances from 2021:
The S&P returned 29% in 2021, and only three of the funds on this Bloomberg list matched that performance. R.I.P. Melvin Capital 💀
However, three out of four of Titan’s portfolios have outperformed their benchmarks since inception.
Since February 2018, Titan’s Flagship Portfolio has generated 18.8% annual returns (net of fees) vs the S&P’s ~17.8% CAGR.
Since inception in August 2020, Titan’s Opportunities Portfolio has generated 40.6% annual returns (net of fees) vs. the Russell 2000’s 30.2% CAGR.
And since August 2021, Titan’s Crypto Portfolio has generated 36.4% cumulative returns (net of fees) vs. Bitwise 10 Large Cap Crypto Index’s 6.5% returns. Yes, this is too short of a time frame to draw definite conclusions, especially in the volatile crypto market. However, the results look promising so far.
Not too shabby.
The only laggard has been Titan's Offshore Portfolio, generating -22.6% annualized returns (net of fees) since April 2021. This is, of course, not great.
Does Titan want its international investments to underperform? Of course not. And this has been an area of focus for the team going into 2022. However, volatility in the Asia and Latin America markets, especially with Chinese ADRs, has put a lot of pressure on international equities.
Many overseas markets are earlier in their “S-Curves” than the U.S. on key secular growth trends such as gaming, e-commerce, and digital payments. Additionally, the Offshore strategy is designed to be used as a small allocation to hedge concentration risk in U.S. equities.
Titan expects these investments to lower overall portfolio volatility over time.
Titan’s two largest portfolios, plus the first actively managed crypto portfolio, have all outperformed their benchmarks. Meanwhile, their only sub-par performance has come from its international strategy.
Titan’s Funding & Growth
Since Litquidity is now the world’s first meme page turned VC, we take an interest in who is investing where.
Titan has raised $75 million to date and most recently raised a $58 million Series B at a $450 million valuation led by a16z. Their cap table is stacked with prominent funds and celebrity investors. See below:
Not saying this means there is no risk (obviously there is), but this roster of investors shows that there really is something here and that there is real fire power to help ensure Titan becomes the go-to investment platform for the “everyday investor”. The only missing logo on there is Litquidity Ventures (*ahem* what’s good Titan?*)
12 months ago, Titan had less than 10 employees. After raising its Series A and B over the last year, Titan now employs almost 70 people. That is ridiculous growth in a short amount of time.
In under four years, Titan has grown to over $750M AUM and 50,000+ clients.
With a TAM in the trillions and an underpenetrated market, the company has a massive runway for growth.
Besides bringing on more investors, where does Titan go from here?
The team says they’ll continue to add new investment options with time, but that’s not the most exciting development. Titan is aggressively building out its media base in the coming quarters.
This isn’t going to be Jim Cramer’s Investing Club, where JC shills his favorite stock picks on his subscribers. (Though inversing Cramer’s picks has been profitable lately. Yo Titan team, what does compliance think about an inverse Cramer portfolio?)
No, Titan wants to revolutionize investor education. (And so do we, tbh)
Titan’s analysts already interact with clients through Q&As, and they publish new research every week. The team now wants to expand its media reach through podcasts, Instagram, Twitter, and all other platforms to better educate investors.
Millions of new investors entered the market last year, and many got suckered into pump & dumps, meme stock hype, and disastrous trading euphoria. These investors need proper education, and Titan wants to provide that quality content. You shouldn’t blindly trust someone to manage your money. You should understand what is going on with your investments.
Titan and Litquidity see eye-to-eye on this.
Alright, now it’s time to put on our pessimistic investment committee member hat for a bit.
What are the main risks?
Well, there is a big one for investors who’d want to park some capital on Titan’s platform: Titan could underperform their benchmarks over a longer timeframe. So far, they’ve outperformed benchmarks with three of its four portfolios, but as y’all know, past performance is by no means an indicator of future returns.
But this is also the risk involved with investing your money through any asset manager. Or investing on your own.
However, the risk with Titan is lower than most.
First, there are no lockups. Remember that scene from the Big Short where Michael Burry’s clients wanted to withdraw their capital, and he locked them out? You don’t have to worry about that here (though it did work out well for Burry’s investors!)
You can withdraw your capital from Titan in 2 to 4 days, no questions asked.
Titan also regularly sends its investment insights to its clients. Why did they sell Redfin? Why did they buy more Ethereum? By having access to real-time research, investors won’t be blindsided by sudden shifts in strategy.
Risk can never be eliminated, but it can be reduced and managed. When you know you can withdraw your capital, and you are aware of why your asset manager is making the decisions that it makes, it is much easier to sleep at night during periods of high volatility.
From a VC investment perspective, another risk is heightened competition. The fintech landscape is crowded, and alternative investment managers, robo-advisors, and stock brokerages are all competing for investor dollars. Retail investors don't have incredibly deep pockets like high net worth individuals so they aren't able to diversify across as many platforms / investment strategies. This is where effective marketing and a strong product helps a company rise to the top.
In the long-run, if Titan manages the first risk, the second will take care of itself. Ultimately, the platforms that create the most value (in this case, produce the strongest returns net of fees) will win out.
The demographics of market participants have been changing quickly, but the product offerings from incumbents have been slow to react.
Titan has capitalized on this shift by providing services and investment options that align with the goals and interests of the new generation of investors. Everyone should have the option to actively invest through professionally managed portfolios, and Titan made this a reality. Tbh, if I had gotten the look to invest in their Series A or B, you bet I would’ve! If anyone on the Titan team is seeing this, let’s get LitCap in on the Series B extension asap lmao.
If you found this article interesting and want to check out Titan for yourself, you can do so by clicking this button:
Happy Sunday - Lit
Refer to Titan's Program Brochure for more information. Certain investments are not suitable for all investors. Before investing, consider your investment objectives and Titan’s fees. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested. Brokerage services are provided to Titan Clients by Apex Clearing, an SEC registered broker-dealer and member FINRA/SIPC. For more information, see our disclosures. At this time, New York state residents cannot yet invest in Titan Crypto. Pending regulatory approval, we’ll notify users once New York state is approved to invest in Titan Crypto. The image is for illustrative purposes only and does not represent actual performance of any strategy. Past performance is no guarantee of future results. Investing includes the risk of loss. Cryptocurrency advisory services are provided by Titan Global Capital Management USA LLC. Cryptocurrency execution and custody services are provided by Apex Crypto LLC (NMLS ID 1828849).
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