Fabric: Frequently Asked Questions

Why did we start Fabric?

Fabric's story begins with the 2008 crisis. Rick Bookstaber was asked to work in the U.S. Treasury and saw the focus was on banks while the pain was being felt by individuals. Rick committed himself to deal with this gap by addressing the needs of the underserved wealth management community, and recruited two colleagues, Govinda Quish and Jeff Roush to join in the task.

The first step was learning from financial advisors. It was quickly apparent that the methods used by institutions don't work for individuals; the goals and the time frame for individuals are not those of banks and hedge funds. So rather than airlifting the existing methods into the wealth management space, we took a fresh approach to risk assessment and portfolio design. And to usability. Horsepower under the hood and an intuitive front end for advisors to use and present to their clients. 

So this gets us to what Fabric does for the financial advisor: Fabric is a platform for risk aware portfolio design that you can customize to each client's unique financial objectives. It is built so you can access portfolio and risk technology that has only been available to institutional investors, rebuilt to meet your client’s needs.

Why does the current approach to risk miss the mark for individuals?

Your clients have a lifetime with many goals. Yet the risk products out there today are meant for the short term of banks and hedge funds that are focused only on returns. 

Your clients are looking out years. The banks and hedge funds are looking out months. They measure risk today based on what risk was like over the past couple of years. That doesn’t work. We all know the mantra about investment returns, “Past performance may not be indicative of future results”. The same is true about investment risk. 

To formulate an approach to risk and portfolio design, you want to add the current market environment in assessing risk looking forward. And part of doing this is to reach through the assets to look at the essential factors that drive their risk and return.

How are factors a key to risk and portfolio design?

Risk factors are the key to building a powerful yet intuitive platform. This is how things are done in major institutions, and we make it available for you and your clients. 

Why use factors? 

Because you can get a more accurate and in depth read on your client’s portfolio. Because by boiling the portfolio down from maybe hundreds of assets into five or ten factors, you can do it more quickly and in a way that will be clear and intuitive for your client. And as a result, you also can construct a custom portfolio to better meet your client’s objectives. 

The reason you can do all these things is that factors are the essential elements of risk. They illuminate the influences between assets. For risk, there are factors related to industries and sectors, like technology and consumer staples. There are factors for countries and regions, like China or emerging markets. And there are factors for market characteristics and investment styles, like momentum, and large versus small stocks. 

We have a unique partnership with MSCI, the top company for factor models, to provide their factor view within our platform. With MSCI, we go beyond the public markets to cover the private equities, hedge funds, and real estate your clients hold. 

How does Fabric help you build better portfolios?

Go to a housing development. Choose a model home. Square footage; ranch or colonial. The salesman’s question is, “Which of these do you like best?”

The alternative if you have the resources: Find land you like, hire an architect to design the house literally from the ground up. The architect’s question is, “How do you live?”

This is the difference between picking from pre-fab model portfolios and a customized portfolio design. TAMPs, for example, construct model portfolios for you to choose from. “Here they are, which one do you like best.”

Fabric allows you to move from pre-fab to customized, taking the values, life choices, and preferences of the client into account, building the portfolio from the ground up with the right set of assets. Fabric makes this possible through advances in portfolio design and rebalancing coupled with MSCI factors, integrated using the same development stack of top technology firms.