By Vasyl Solushchuk/INSART
| Site: | www.windhamlabs.com |
| Founded: | 1988 |
| Clients: | Financial advisors, family offices, banks, institutions, and endowments |
| Value proposition: | Investment analytics, portfolio construction, wealth management |
| The executive team: | Mark Kritzman, Chief Executive Officer Jonathan Kazarian, Director Of Sales and Business Development |
Windham Capital
is the parent company, the home office, that launched its own tech company,Windham Labs
. Windham Labs has released well-known software products that were initially developed for internal use, but later became available to their clients, financial advisors, family offices, banks, institutions, and endowments. The solutions that Windham has created are included in their flagship product, theWindham Portfolio Advisor
(WPA), which is a complete portfolio-optimization and risk-management platform. Windham is one of the most popular solutions on the market.Mark Kritzman
, CEO, andJonathan Kazarian
, Director of Sales and Business Development, showed me the ins and outs of Windham, and how they have managed to stay ahead of the game both business- and tech-wise.Mark has been in the finance business for a long time. He previously worked for Bankers Trust and AT&T, eventually going off on his own to found Windham Capital Management and Windham Labs. For 16 years he has had a dual career in academia, as a senior lecturer at MIT. He has conducted extensive research and has published many articles in academic and practitioner journals, and is the author of seven books.
Jonathan studied economics and finance at Bentley University. After graduating, he worked for several big-name financial firms, such as Ameritrade, before coming to Windham in 2012. He started as Senior Associate, and eventually became Director of Sales and Business Development in December 2018.
Windham Labs in a nutshell
WPA is the flagship, desktop-based solution that allows advisors to do a deep dive into portfolios. As Jon explained, the desktop app is used by Chief Investment Officers or investment committees, who then pass the data about capital market forecasting and risk and return estimates to the online, client-facing platform built for the individual client— financial advisors.
Currently, Windham is working on a web-based digital wealth-management platform. What’s important to note is that the new financial advisor portal is not a holdings-based tool, but rather returns-based. Jon said that they use data to model out portfolios and perform comparison analysis.
“The online application has additional functionality. It has a bunch of different risk measures as well. It also has the ability, if permissioned, for the advisor to go in and make adjustments to an allocation. So maybe they want to start with a moderate portfolio, but they want to add a legacy position because the client worked at GE for 30 years. It could do something like that.”—Jon
Windham offers sophisticated analytics, not robo-advice
Windham Labs was initially developed, along with a multitude of features, to help better manage Windham Capital’s portfolios. To expand and improve the capabilities of digital wealth-management software and asset management, Mark and his colleagues came up with four main innovations.
Innovation #1:
One of Mark’s colleagues discovered that you can augment the mean-variance projected function to include relative risk along with absolute risk. Instead of an efficient frontier, you get an efficient surface and three dimensions— expected returns, standard deviation, and tracking error.“Traditional mean-variance optimization constrains use constraints such as no more than 10% emerging markets, and no less than 40% domestic. It’s much better to just do mean variance tracking optimization, to get a better answer, and I mean an objectively better answer.”—Mark
Innovation #2:
Assessing a portfolio’s exposure to loss within an investment horizon rather than just at the end of the investment horizon offers some powerful advantages. Through research and analytics, Mark concluded what one would expect: there is a greater exposure to loss within the horizon than at the end of the horizon. Windham covers both statistics and Mark said that this is critical to managing wealth and setting expectations with clients.Innovation #3:
Partitioning historical returns into the quiet periods versus turbulent periods, and using turbulent periods to get a more realistic assessment of exposure to loss, or to construct portfolios that are more resilient to turbulent periods.Innovation #4:
Full-scale optimization that takes into account all of the data, alongside more realistic descriptions of investor preferences to develop the optimal portfolio, in addition to the mean-variance solution.“The advantage of this is that it can help you model out a nonnormal utility curve. For example, you may have a client whose risk aversion changes at a particular threshold. It might also be the case that you have a portfolio of a large number of alternative assets in it that tend be nonnormally distributed. By using that empirical data instead of assuming log-normality we’re able to keep those distributions intact while modeling portfolios.”—Jon
Client reporting and suite of available tools
Windham’s software generates comprehensive reports for advisors. Jon showed me an example of such a report. In the evaluation section, a client can customize the summary and metrics included in the report. Essentially, Windham allows advisors and asset managers to look at a clients’ ability to meet their financial goals by comparing portfolios side by side while evaluating allocations and different attributes such as distributions, asset classes, risk evaluation, and probability of loss.