Windham Labs screenshot

Windham has a risk-budgeting tool that allows advisors to see which asset classes are contributing the most risk to a portfolio. Jon explained that this information is often used to evaluate how an advisor can make the most significant change in the portfolio’s risk while making the most modest change in its allocation to minimize transaction costs and taxes.

“For example, if I gave a 1% increase to large-cap stocks, we increase the total portfolio value of risk to above $12,000 where if I give that same increase to US bonds, it would decrease it to $15,000.”—Jon

Jon highlighted the factor analysis capability included in the platform, with 16 factors that come preloaded with the software. He said that clients can also incorporate their own factors.

“A nice addition we’ve added to traditional factor analysis is the ability to decompose the risk of the portfolio through the lens of factors. We can also apply this frame work to return attribution. Given that we know how risky a particular factor is, and we know what our loading is to that factor, we can see how much of the portfolio’s risk can be explained by that factor. We can then see if that risky bet paid off and what factors were associated with the portfolios returns.”—Jon

The reports also include cash-flow planning, with the capacity to model even the most complex institutional spending policy but also the ease of modeling out retail retirement plans In addition, the PDF reports show probability of loss (with turbulent time periods), wealth distribution, and wealth analysis.

Windham Labs screenshot

Company structure, product development, & management

Windham has a back office, trading operation, portfolio-management operation, compliance team, and software development team. The team of software engineers works both on Windham Labs and on internal processes required by the company. The company also has a business-development unit, which includes salespeople, as well as marketing and public relations staff.

Mark travels around the world speaking with representatives from large and small financial institutions on various topics, gathering information about challenges they are facing, and ascertaining how to solve these problems.

“We have our existing clients, and we’re continually getting feedback from them on features that we offer, the user friendliness of the product, etc. We take all of that information and try to come up with a research and development agenda that will continually enhance the product.”—Mark

Tech stack
The underlying algorithms powering the application were built in

MATLAB

, while the front-end of the WPA was written in

C#

. The platform also has various plugins for charting and other tools. The web-based platform was written in

Python

and uses the

Django

framework. Databases are

PostgreSQL

and run on

Amazon Web Services

. Most back-end calculations are also run on MATLAB, like the desktop app, and Jon mentioned that though they have explored the possibility of replacing MATLAB with Python, this wouldn’t make sense time- or cost-wise.
Windham’s future and challenges
Mark said that in terms of development, they are well on their path to making all of their features web-based. As they research new ideas and introduce new features, these will be rolled out for the web-based platform. Apart from the number of things they are exploring, Mark mentioned one innovation they have come up with—being able to take a portfolio with asset classes and decomposing it into factor exposures. Mark recently published an article in

The Journal of Portfolio Management

on an integrated approach to asset allocation and factor investing.

The biggest challenge for Windham is distribution. Although it’s a small company of 20 people, Windham has done well in building a client base; however it lacks the distribution channels that large institutions have. One way Mark feels they can solve this is by working out a collaboration with a large institution, where Windham provides an API, or a version of their white-labeled software, to get more distribution.

WealthTech Club takeaways

Powered by some of the best minds in investment theory, Windham Labs has developed a suite of innovative investment tools that differentiates itself from the rest of the fintech industry. Mark and his team have innovated and, based on what I learned, are continuing to innovate in a mission to offer their clients even more value through new web-based solutions. Windham’s advanced analytical features and enormous set of tools will be a smart addition to an advisor’s arsenal.