Irish U2 musician and philanthropist Bono, is the cofounder of the Rise Fund, a venture capital firm. Jacques Demarthon / AFP
Irish U2 musician and philanthropist Bono, is the cofounder of the Rise Fund, a venture capital firm. Jacques Demarthon / AFP

Money

Bono’s VC firm to make first fintech investment

U2 singer's Rise Fund is to invest in Acorns Grow, which offers digital wealth management services

Bloomberg

January 12, 2018

Financial technology startups are grabbing a greater share of capital from investors. Now Bono is getting in on the action.

The Rise Fund, a venture capital firm cofounded by the U2 lead singer, is making its first known bet on a fintech business by backing Acorns Grow, said people familiar with the matter, who asked not to be identified. Acorns offers a stock-investing app tailored to people with small amounts of disposable income.

A spokeswoman for Acorns declined to comment, and the Rise Fund didn’t immediately respond to a request for comment.

Bono helped start the Rise Fund last year with private equity firm TPG, raising $2 billion to focus on commercial projects capable of having a social or environmental impact. Bono isn’t the first celebrity to make a bet on Acorns. Ashton Kutcher’s Sound Ventures and basketball star Kevin Durant are also backers.

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Acorns is part of a growing list of startups offering digital wealth management services. Some 2.7 million people use the app to put spare cash into exchange-traded funds managed by Vanguard Group, BlackRock and others.

The Irvine, California-based startup has more than $500 million in assets under management, according to a filing with the US Securities and Exchange Commission. The average account balance for each client is much lower than other digital wealth startups by design. Acorns clients have less than $500 on average compared with about $43,000 for Betterment.

Analysts have expressed scepticism about whether Acorns can ever become profitable managing such small amounts per customer. Venture capital backers have said Acorns could someday market higher-margin products to a large customer base. The startup has begun taking steps to do that. Late last year, it acquired Portland-based Vault, which lets customers automatically invest part of their paycheck into a retirement fund. Acorns has said it plans to use the technology to offer an individual retirement account.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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